Index. Chaikin Money Flow (CMF), 59 chartists, 32 33, 44 confirmation, 31, contrarian trading, 4, 29

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1 Notes Introduction 1. High-Frequency Trading, New York Times, October 10, Securities and Exchange Commission (SEC) at pumpdump.htm. 1 Options: Trading Basics 1. In future references to underlying stock, the term underlying will be used by itself as a noun, conforming to the industry usage (or jargon). When the term refers to price, that will be specified. 2 Swing Trading: The Basics 1. Josef Lakonishok, Andrei Shleifer, and Robert W. Vishny, The impact of institutional trading on stock prices, Journal of Financial Economics 31(1992), Thomas Bulkowski, Encyclopedia of Candlestick Charts (Hoboken, NJ: Wiley, 2008). This book is the result of the author s study of thousands of candlestick trades, and Bulkowski concludes that the engulfing pattern is highly reliable. The bear engulfing pattern leads to reversal 79% of the time, and the bull engulfing pattern leads to reversal 63% of the time. Two additional signals of exceptional reliability are the bullish three white soldiers (82%) and the bearish three black crows (78%). Less reliable signals approximating fifty-fifty reliability include the bull and bear harami (both leading to reversal only 53% of the time) and the gravestone, dragonfly, and long-legged doji (51% average). Source: thepatternsite.com. 7 Powerful Timing Tools: Expanding Swing Signals with Candlestick Reversals 1. Je f f A u g e n, Trading Options at Expiration: Strategies and Models for Winning the Endgame (Upper Saddle River, NJ: FT Press, 2009), 4.

2 348 Notes 10 Strategy # 1: Long-Option Approach, a Basic Solution 1. Chicago Board Options Exchange (CBOE), link to Advisors and then to Advisor Knowledge Center, myth1.aspx.

3 Bibliography A n s b a c he r, M a x. The New Options Market. 4th ed. Hoboken, NJ: Wiley, A u g e n, Je f f. Day Trading Options. Upper Saddle River NJ: FT Press, Trading Options at Expiration: Strategies and Models for Winning the Endgame. Upper Saddle River, NJ, FT Press, Bittman, James B. Options for the Stock Investor. New York: McGraw-Hill, Bulkowski, Thomas J., Encyclopedia of Candlestick Charts. Hoboken, NJ: Wiley, 2008 Crane, John. Advanced Swing Trading. Hoboken, NJ: Wiley, 2003 Fa r le y, A l a n S. The Master Swing Trader. New York: McGraw-Hill, K a e pp e l, Ja y. The Option Trader s Guide to Probability, Volatility, and Timing. Hoboken, NJ: Wiley, Ky le, S c ot t G. The Power Curve. New York: Nautilus Press, Mc M i l l a n, L a w r e nc e G. Options as a Strategic Investment. 4th ed. New York: New York Institute of Finance, Profit with Options. Hoboken, NJ: Wiley, Natenberg, Sheldon. Option Volatility & Pricing. New York: McGraw-Hill, Pring, Martin. Technician s Guide to Day and Swing Trading. New York: McGraw-Hill, 2003 S c h a e f f e r, B e r n ie. The Option Advisor. Hoboken, NJ: Wiley, 1997.

4 Index Accumulation Distribution (A/D), 59 automatic exercise, 11 Bollinger Bands, 59 breakeven return, candlestick: abandoned baby, basics, black crows, 31, 32, 54 charting, confirmation, 59 continuation, 133, doji, 31, 126, 130, doji star, engulfing, 31, 32, 53, 100, 138 evening star, 150 gap filled, 161, 163 hammer, 127, hanging man, 127, harami, 31, 142, 143 harami cross, in neck, inside patterns, inverted hammer, long-legged doji, 130, morning star, 150 on neck, outside patterns, reversals, 12, 133, separating lines, 154, 156 side-by-side lines, spinning top, , 130, 142 squeeze alert, 150, 151 tasuki gap, thrusting lines, , 155 white soldiers, 31, 32, Chaikin Money Flow (CMF), 59 chartists, 32 33, 44 confirmation, 31, contrarian trading, 4, 29 diversification, 8, double top and bottom, 12, 32, 45, 54, 59, 100 Dow Theory, 33 Eastern technical analysis, 138 ex-dividend date, , , extrinsic value, 15 falling range, 37 Federal Reserve, 78 Fibonacci Sequence, Financial Industry Regulatory Authority (FINRA), 96 head and shoulders, 44 45, 54, 100 herding, 27 high-frequency trading (HFT), 1 2 horizontal range, 35 implied volatility, 15, 91 94, Internet, 32 intrinsic, value, leverage, 8, margin: advantage, calls, CBOE Margin Manual, 64, 84 collateral, , 309

5 352 Index margin Continued Federal Reserve, 78 interest, maintenance, 77 78, 87 management, 82 84, 91 Regulation T, 78 risks, trading (options), trading (stock), momentum oscillators, 12, 50, 59, 127 Moving Average Convergence/Divergence (MACD), 59 New York Stock Exchange (NYSE), 97 On Balance Volume (OBV), 59 option: iron butterfly, iron butterfly, percent rule, , at the money (ATM), 17 basics, 8 11, box spread, 86 butterfly spread, 86 closing, 20 collateral, covered call, 13, 20, , delta, 44, 134 dividend effect, exercise conversion, exercise, 19 20, , , expiration, 11, 20, , , , 257 flexibility, 8 gamma, 44, 134 Greeks, 44, 134 hedge matrix, in the money (ITM), 17 iron butterfly, leverage, 24 25, 88 94, long and short, 11 14, margin collateral, 64, 90, 91 moneyness, , , 318 out of the money (OTM), 74 proximity and time, , put, covered and uncovered, 13 14, qualified covered calls, ratio calendar spreads, 23, , ratio put spreads, ratio writes, 23, , , , reconstructed hedge matrix, risks, 8, rolling techniques, spreads, 23 straddles, strike, 9 10, synthetic, 23 theta, 134 types, 9 uncovered call, 13 value, variable ratio write, 188, vega, 134 OTC Bulletin Board Securities, 78 pattern day trading, price gaps, 12, 32, 35, 45, 54, 59, 100 pump and dump, 3 Regulation T, 78, 97 Relative Strength Index (RSI), 59, 103, 127 rising range, 37 risk: awareness, 8 diversification, 30 31, 68, expiration, goal-setting, increments, information, 62 knowledge, 62, leverage, 67 68, long option, lost opportunity, margin, 64, market, 12 multiple option, option, pattern day trading, reduction, 8 rules, 341 self-discipline, short call , short put, , stock shorting, 68 69

6 Index 353 swing trading, synthetics, , tax, time decay, tolerance, 8 weighting swings, worst-case analysis, 340 Securities and Exchange Commission (SEC), 97 shorting stock, 12, 13 Stochastic Oscillator, 59 StockCharts.com, support and resistance, 12, 34 43, 137 swing trading: basics, 27 30, channel analysis, coiled markets, cup and handle, 123, 124 defensive strategies, diversification, ex-dividend date planning, exercise likelihood, expanded iron butterfly, 327 Fibonacci Sequence, flexibility, leverage, long or short, long put offset to short risk, long-option strategy, 193 long/short call strategy (covered short), long/short-call strategy (ratio write on short), 245 long/short-option strategy (uncovered short), long/short-put strategy, multiple contracts and weighting, narrow-range day (NRD), 43, 98, 99 predictability, price spike reversal, 124, profit limitations, puts in place of calls, ratio calendar spreads, ratio put spreads, retracement and pullback, , reversal day, 43 44, 98, , risks, 69 72, short stock risk, short-option strategy, short-term price cycles, stock and option combinations, strategy tests, 7, strike peg, synthetic stock positions, time and cost problems, timing, 30 32, volume spike, 44, 98, 100, 120 weighting methods, technical analysis basics, time value, 15 trading range flip, 43 triangles, 12, 32, 37, 50, 59, 111 underlying security, 9, 18 volatility, volume, 12, 59 wedge reversal, 37 wedges, 32, 59, 111 Western technical analysis, 32, 54, 59, 123, 138

Introduction...1 Part I: Getting Familiar with Candlestick Charting and Technical Analysis...7. Part V: The Part of Tens...315

Contents at a Glance Introduction...1 Part I: Getting Familiar with Candlestick Charting and Technical Analysis...7 Chapter 1: Understanding Charting and Where Candlesticks Fit In...9 Chapter 2: Getting