Pragmatic Trading

Table of Contents

Page
Introduction 3
The Trading Plan 6
Trading Plan Equity Allocation 6
Watch-List Creation and Management 7
Market State Controls 8
Setups 8
Trade Trigger and Entry 8
Trade Sizing 8
Trade management – Position exit 9
Trade Management – Position Addition 9
Account Management 9
Cost management 9
System Performance – Targets 9
Theory and General Principles 9
Gambling Versus Investing and Trading 9
Expectation 10
Variance 12
Proving Positive Expectation – Paper Trading 13
Compounding and Compounding Rate 14
Market Analysis Technologies 14
Price Charts – Bars and Candlesticks 15
Price Charts – Time Frames 16
Price Swings, Trends, and Ranges 17
Price Charts – Polarity 18
Trend Lines 20
Support and Resistance Levels 23
Price Reversal (Top and Bottom) Patterns 25
Fibonacci Price Levels 32
Quantitative Trend: MVTI 38
Candlestick Structure and Patterns 41
Range – Consolidation and Expansion 43
Volatility Tools 43
Volatility Constriction – The Squeeze 47
Symmetry 48
Pivot Confirmation Through Breaking of Symmetry 49
Price Lifecycle Model 50
Fibonacci Fitting 51
Elliot Wave Market Structure 55
Elliott Wave Impulses and Corrections 56
Elliott Wave Fractal Structure 57
Elliott Wave Analysis Example – SPX Daily 59
Elliott Wave Example – Expanding Flat Correction 60
Elliott Wave Example – Triangle in RUT 62
Elliott Wave Combinations 63
Elliott Wave Leading and Ending Diagonals 64
Key Elliott Wave Guidelines 64
Market Top Anatomy 65
Cross Market Analysis 67
Putting Analysis To Work 67
RUT Analysis 68
AMGN Analysis 72
Mechanics of Trading 73
Preferred Trading Instruments 73
Preferred Trend State 74
Watch-list Creation and Management 74
Setups and Triggers 79
Bottom Structure Turn 80
Fibonacci Retrace Turn 83
Elliot Wave Setups 87
Elliot Wave Setups 87
Nested Three Wave Setup 89
Wave 2 & 4 Setups 90
Triangle and Combination Considerations 99
Other Elliott Wave Setups 99
Market State Modeling for Trading Plan Control 99
Exit Management 103
Stops for Loss Exits 103
Structural Stops 103
Retrace Turn Percentages 108
Volatility Stops 108
Stop Adjustment to Break-Even and MarketState 112
Stop Levels and Bid/Ask Spreads 115
Profit Exits 115
Trading Mechanic Architecture 121
The Psychology of Trading 122
Cost Management 124
Total Market Exposure and Reinvestment 125
Trade Sizing Mechanics 126
Example Trading Plans 126
Baseline Plan 126
Trading Plan Rifle Shot 127
Trading Plan Synergy 133
Account Value Variance 140
Pragmatic Gambler’s Ruin 141
Related Reading 142
Acknowledgements 143