Acknowledgments

I take this opportunity to express my thanks to many people who have, in various ways, helped me attain my goal of preparing a book that I wish I could have purchased years ago.

Of course, my thanks to all the authors for their contributed chapters. Also, thanks to the innumerable contributors to Internet user-group forums. Their collective interaction produces a wisdom greater than its parts. Special acknowledgment goes to Bob Brickey, Larry Erhart, Gerrit Jacobson, Dick Crotinger, and Robert Pisani for taking the time to contribute either material or comments to my chapter on datafeeds.

I also want to express gratitude to Bob Klein, who initially offered me this role as editor, and who took care of all "behind the scenes" activities, including finding the right publisher. Finally, I am grateful to my wife, who patiently let her "space cadet" take this adventure, and to Ellen Schneid Coleman, the executive editor at Prentice Hall. I cannot count how many times she agreed to wait "just a few more weeks" for the manuscript.

Part I

Basic Trading Skills and Methods

Part I discusses the basic trading skills you will need to begin designing and testing your own trading strategies. Chapter 1 offers a comparison of trading styles to prepare you for the psychological pressures that accompany different trading methods. Chapters 2, 3, and 4 provide several viewpoints that together paint a broad picture of technical indicators and their applications. Chapter 5 and 6 show ways to enter and exit a trade and Chapter 7 covers basic money management techniques, an essential part of any trading strategy.

After you have read Part I, I recommend that you acquire low-cost trading simulation software to design and test basic trading strategies on historical data. Low-cost software products to consider include Omega Research SuperCharts (www.omegaresearch.com), Equis MetaStock (www.equis.com), Nirvana Systems OmniTrader (www.nirv.com), Titan Trading Analytics PowerPlay (www.titantrading.com), Trendsetter Software Professional Analyst (www.trendsoft.com), Flexsoft Technical Analysis Scanner (www.flexsoft.com), Street Logic Software Wall Street Quest (www .pacific-coast.com/StreetLogic), and Windows on Wall Street "WOW."

Chapter 1

Trading Methods

Joe DiNapoli

This chapter discusses judgmental versus nonjudgmental trading systems and position trading versus intraday trading. Judgmental approaches call on the trader to make decisions within a given criterion or context, whereas nonjudgmental systems are strictly mechanical.

The trading methodology I use involves judgment. It is the way I like to trade. Judgmental techniques have inherent advantages over nonjudgmental techniques. Flexibility, as inspired by the human mind, and the speed with which the trader can make necessary adjustments in response to changing market conditions are two of the strongest reasons to trade using judgment. From teaching, however, I know that many of you may have preconceived notions about approaches to trading that are inconsistent with reality. Since achievement in any field begins with fundamental understanding, I am going to explain basic realities of trading approaches. First we will go through a reality check, then some history, so you can see why and how I have reached certain conclusions. We will consider judgmental versus nonjudgmental trading methods; then position versus intraday trading approaches.

Reality Check

The Beach Boys had a memorable song that began, "Wouldnt it be nice ..."

In actuality, there is usually a difference between expectation and reality. With enough effort, we can strike a balance between them. Likewise, such is the promise of both judgmental methods and nonjudgmental trading systems. We will examine non-judgmental trading systems first.

This chapter has been excerpted and substantially edited from the book Trading with DiNapoli Levels: The Practical Application of Fibonacci Analysis to Investment Markets, by Joe DiNapoli, Coast Investment Software, 1998. Used by permission of the author.