Praise for Trading from Your Gut

part-time while supporting themselves with another job until they
have honed their trading skills and built their trading account to the
level required to earn a living from trading itself.
Day trading also requires quick judgment and decision-making
skills. Many traders don’t possess these skills. Active traders have a
hard time reacting quickly enough to make money while competing
against professional day traders that have generally been trading
24/7 for years, if not decades. Some people like the speed of day
trading. I don’t. From my personal perspective, it requires too much
attention during the day and doesn’t leave me much time for other
interests.
For these reasons, swing trading is the most viable option for
most traders. You can trade with a smaller account, it won’t consume
all your time, and it doesn’t require lightning-quick reaction. Swing
trading also fits my personal lifestyle better. You can pick up trading
for a while and then stop while you are doing something else.
Because the trades normally last only a few days, you can start and
stop more easily. During the day, you usually just need to wait for
market alerts to fire, so you can be doing something else. I have
many other interests, so this style suits me well. 
Swing trading is also a type of trading that benefits from a
whole-brain trading style. If you use your intuition, you will be able
to find many more opportunities than you would if you use only one
part of your mind. Swing trading benefits from both intellect and
intuition.
100
T
RADING FROM
Y
OUR
G
UT
From the Library of Daniel Johnson

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ptg
The Source of Opportunity
If you want to be one of the few who reliably and consistently
make money from the market, you need to find a strategy that gives
you an advantage, an edge. To build such a strategy, you combine
the building-block basics we learned in Chapter 4, “The Structure of
the Markets,” in particular ways to extract profits.In this chapter, I
put those building blocks together in a strategy that enables the left
brain and right brain to do what they do best.
My rationale for this trading approach draws from the basics.
First, recall that human psychology is the foundation upon which all
successful trading is built. Markets are made up of large numbers of
interacting Homo sapiens, each with their own individual agenda.
Even when they use computer networks and programs to execute
their trades, somewhere behind the scenes for every trade is an indi-
vidual trader who directed the computer to execute that trade using
a specific set of algorithms. To beat the markets, you first need to
understand these traders’ motivations, the impetus behind the
direction and timing of the trades. Then you need to find times
when the markets participants in aggregate have mispriced the
market—when the market does not reflect the “right” price.
Many people, especially economists, are fond of saying that
markets always reflect the “correct” price. This is one of the conclu-
sions of the efficient-market hypothesis: Markets already reflect all
known information, so they quickly respond to new information.
Therefore, these economists believe that it is impossible to consis-
tently win money by trading the market because the market already
reflects all known information. They attribute any success by traders
to mere random chance—the lucky monkey theorem.
C
HAPTER
6 • T
RADING
S
MARTS
101
From the Library of Daniel Johnson

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ptg
Master traders know that Homo sapiens are not completely
rational. We have emotions, are sometimes afraid, are sometimes
overconfident, and display cognitive biases. For these reasons, we
sometimes overreact or underreact. Therefore, the price is not
always “right.”
The way to reliably make money from the markets is to identify
repeatable psychological market phenomena in which market prices
appear to already reflect an overreaction or underreaction on the