Praise for Trading from Your Gut

behavior, and the composite school of fish is a classic example of an
emergent system.
The repeatable nature of the emergent behavior in
markets is the very source of the potential for profit.
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From the Library of Daniel Johnson

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ptg
The emergent behavior associated with markets develops in
much the same way. When considered in isolation, each individual
trader and investor exhibits relatively simple and easy-to-understand
behavior, but the market seems to behave as if it were a separate
entity. The repeatable nature of the emergent behavior in markets is
the very source of the potential for profit. For this reason, learning to
trade the markets effectively requires understanding emergent
behavior and the forces that drive such behavior. 
Chapter 4 covered the most important emergent behavior:
cycles, market inertia and momentum, and euphoria and despair.
You can make money using just knowledge of these basics. 
One strategy that uses these components to illustrate the proper
way to utilize left-brain smarts and right-brain intuition is the
rebound swing method. But before we get into the specifics of
that method, I want to describe the important components to any
swing-trading strategy.
Swing-Trading Setups
The key to swing trading is identifying changes in the daily
price-chart cycles—the transitions between periods when buyer
anxiety dominates and periods when seller anxiety dominates. The
changes in cycle by themselves are not enough to make a great trade
because not every cycle presents a good trade opportunity.
One of the most common mistakes I have seen
among traders is the tendency to want
to take every trade possible.
104
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From the Library of Daniel Johnson

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ptg
One of the most common mistakes I have seen among traders is
the tendency to want to take every trade possible. Some traders
think that if they make a lot of trades, they will make a lot of money.
They believe that more trades equals more money. 
The problem with this approach is that all trades are not created
equal. Not all market environments are suitable for every trading
style. You need to have patience and recognize when the market is
right for your trading abilities. The period just after a huge market
crash might not be a good time to trade. Sometimes sitting on the
sidelines and waiting for the volatility to subside a little is better.
Sometimes you need to wait for the volatility to return.
Good swing trading is similar to surfing at the beach. Surfers let
most of the waves pass them by. They wait for the big waves that are
set up correctly. Then they time the drop-in just right so they catch
the wave as it is forming. If they go too early, the wave will crash
over the top of them. If they go too late, the wave will pass them by
without carrying them forward. In the same way, not every potential
market cycle should be traded, just as not every wave should be
attacked. When I build a swing-trading method, I am looking for a
way of identifying the best market waves and of timing the drop-in.
There’s no sure thing, but when the overall market is right, the
odds for certain trades will tip in your favor. This is the time to take
trades. Master traders learn to develop criteria to determine exactly
when the odds tip in the trader’s favor, including these:
• Market environment—Does the stock market need to be
trending up, sideways, or down? Should it be volatile or
quiet?
C
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6 • T
RADING
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MARTS