Wednesday, February 6, 2013

Bulkowski,Swing and Day Trading

Swing and Day Trading is the final volume of Thomas N. Bulkowski’s trilogy, Evolution of a Trader (Wiley, 2013). In it he relies heavily on his chart pattern research to describe potentially profitable trades. He also offers the beginning day trader tips on such diverse topics as building a home office, managing expectations, and constructing a pre-market checklist.

As usual, Bulkowski writes vivid prose. For instance, he found that the high and tight flag (HTF) was the best performing upward breakout pattern over a period of one, two, three, and six months. He writes: “Identifying an HTF is as easy as picking out a zebra from a herd of elephants.” And yet, “if identification is easy, swing trading the HTF is not. First, you have to find the courage to buy a stock after price has doubled. It reminds me of standing on the edge of a cliff. There is a little voice inside that says, ‘Jump!’ Buying a stock showing an HTF is like listening to that voice and jumping,” (p. 34) presumably with much happier results.

He provides swing traders not only with promising entries but with the eight best exit signs and his ten favorite sell signals. For those who like trading events, he introduces the reader to his all-time favorite pattern, the inverted dead-cat bounce. “The dead-cat bounce is to a nuclear meltdown as the inverted variety is to a winning lottery ticket.” (p. 106)

Day traders are treated to his opening gap setup, which rates a full chapter, and thus cannot be summarized briefly. They are also cautioned repeatedly. “Imagine,” he writes, “that you have a job that pays you $50,000 annually. A survey of 1,000 traders’ tax returns says that just 4 percent of them made more than that.” (p. 175) If the trader remains convinced that he belongs to that top 4 percent, Bulkowski delivers another blow, concluding the book with “ten horror stories.”

Pattern traders, and those who aspire to be pattern traders, would do well to add this book to their library. It’s well researched, written with humor, and devoid of empty hype.

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