Long Term Secrets To Short-Term Trading

Table 8.1 Daily Action of the S&P 500 

---

128 
Figure 8.4 Greatest swing value buying on Mondays following a down close. 
patiently wait for trades, then the gumption to put them on (see Figure 8.4). 
Similar trading strategies can be developed for all markets using the GSV concept; just make certain 
you first define valid setups for the buys and sells. My favorite setups are days of the week, highly correlated 
data2 streams, seasonals, market patterns, and overbought/sold conditions. 
Some Pointers 
Over the years, I have tried various time periods to see whether there is any ideal number of days to use 
in the calculation. My original thought was that one would want to use a 10-day period to arrive at the best 
average; after all, the more observations of swing value variance the more stable the answer should be, or so 
I thought. I was wrong on that. In almost all cases, the previous 1 to 4 days produce the best value in trading 
or developing systems. 
The basics here involve volatility breakouts above or below the opening. The amount of breakout we 
are looking for is the amount that contained moves up to this point. Thus a critical element is to only take 
buy signals after down days, sells after up days. 
Finally, keep in mind this is a "dumb" technique, it knows not when a big trade will come or even 
when a winning trade will be delivered on a silver platter. That is why you cannot pick and choose these 
trades, you must simply take them, one at a time, as they come out of the hopper. If you pick and choose, 
you will invariably pick the losers and walk away from the winners. It is nothing personal, we all do, and the 
way to beat this devil is to take 'em all. 

---

129 
To my way of thinking, the GSV concept is the most solid and logical approach to volatility 
breakouts. This failed swing measure has such great merit that I hope someone else, maybe you, will take 
it past the point I have reached. Perhaps the better answer lies in the standard deviation approach 
mentioned earlier, perhaps in using the GSV in relationship to the previous day's range. I am really not 
certain. What I am certain of is that this is one of the most powerful techniques in my bag of tricks and 
perhaps the most durable. It has served me well since I had the insight into the idea in 1977. Fancy math 
may improve the results, but it is not necessary to make this work. 

---

Chapter 9 
Short-Term Trading from a Quote Screen 
The markets can be understood looking backward but must be traded looking forward 
What I have shared with you so far is the general way- I trade. I use daily- bar charts to set up patterns 
and relationships that usually spur short-term moves of 2 to 4 days. This is my style it may not be yours. 
People like the idea of (day- trading as there Is no risk of anything “hapening overnight." Their 
fear is a large adverse move may take place from today's close to tomorrow's opening. Their fear is news. 
change. and uncontrollable price action. They like the idea that at the end of the day it is all over, win, 
lose, or draw. There are no anguishing losses to take home and interrupt your sleep. Make no mistake 
about it, all this is true. but for every-thing you get in life you give up something in life. What you give 
up when day trading is any opportunity at all to catch a large and sustained move as mentioned earlier. 
To most people, the term “short-term trading" means being glued to a quote screen throughout the 
market trading day. They envision images of high-pressure guy or girl with a phone in each car, screaming 
something, like "Buy Chicago, sell New York.". 
131 

---

132 
Certainly, this type of trading is hectic, and if you are going to trade this way, you had better make 
certain you have the temperament required for the job. I will tell you what I think that temperament is, then 
tell you what my quest for this Holy Grail of commodity trading has revealed. 
Quote screen traders need three qualities; intensity, the ability to make intelligent choices, and the 
capacity to react without any more thinking to the conditions at hand. 
If you are the type who needs time to make a decision, or freezes, refusing to take action once a 
decision has been made, this is not your game. Winning at this game requires making instant decisions and 
immediately reacting; there is no time for pontificating or reconsidering. If you cannot make decisions this 
way, you will be slaughtered in a matter of months. It is a game of the quick and the dead. If you are not 
quick, you will be dead. It is as simple as that. Shortterm trading of this nature requires the physical ability 
to instantly pounce on a market and just as instantly reverse the decision you made just a few seconds ago, if 
that is what conditions dictate. It is a good thing the meek inherit the earth because they will never get rich 
as day traders. 
Following the interday ebb and flow of prices on a screen, day after day after day, requires the ability to 
be focused and intense every hour of each trading session. This is not an occupation for daydreamers. If you 
cannot maintain concentration, you will get hurt; it is forgetting to do what you should do, not being there 
(physically or mentally) at that one critical minute, 60 seconds, that spells the difference between life and 
death in your trading. It is not easy work to stay this focused and intense, particularly when your spouse calls 
to ask you some mundane question about the garden or plumbing at home, or a close friend calls to chat. Do 
you have the guts to tell them you can't talk now, to hang up on a close friend, to refuse to take calls from 
your wife or husband, If so you are qualified for the job, if not, better rethink day trading. 
I assure you the instant you get distracted by that phone call is the instant the market will have a major 
move, catching you off guard. Well, don't say I didn't warn you. Now let's look at the object of this game. 
You must also be able to change your view of the future in an instant. This is not a career for hardheaded 
people. 
How a Quote-Screen Trader Makes Money 
A short-term trader has one objective: to catch the current trend of the market. That is it. That is all you 
should try to do. 
It sounds easy, but trust me-it is far from simple, and for two reasons. The first is that trend 
identification is an art and science unto itself, and more abstract art at that. 

---

133 
It is a blend of Picasso and Cezanne with a splash of Chagall tossed in for fun. Second, even if you 
correctly spot the trend change, your reactive mind may screw things up and blow it for you. This is 
especially true if you are long with a loss or nominal profit and suddenly get a sell signal. 
Do not confuse day trading with your long-term outlook; that is about something happening in the 
future. Day traders don't-can't-care about the future. Your only concern is being in phase with the current 
short-term trend. Your mission, should you accept this assignment, is to mimic what the market is doing. If 
it is up, you should be long, if down, short. Trying to forecast short-term tops and bottoms is a surefire way 
to rapidly deplete your bankroll. You want to be with the trend; it is your only friend. 
Since greed is a stronger emotion than fear, your response will most often be to "hold and hope" 
which means you bypass the current new trend, holding on to the long position hoping the sell will be 
wrong when you should have spun on a dime. Dopes hope, winners are spinners. 
My point is we are trying to do two very difficult things, beat the identification of trend changes and 
beat our "brains" by outsmarting ourselves. That is the challenge. My first technique for identifying trend 
changes comes from the short-term "ringed" high and low concept we went over in Chapter 1. This 
concept allows us to identify short-term swing points. A trend change from up to down occurs when a 
short-term high is exceeded on the upside, a short-term trend change from down to up is identified by price 
going below the most recent short-term low. Figure 9.1 depicts such trend changes in a classic manner, 
study it well because reality comes next.