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"The Little Black Book of Stock Market Secrets" By Matthew R. Kratter - Book Review

If you want to read something simple and quick on the stock markets, this book is all you need to learn the secrets.


It provides some decent tips and helps you probably improve your knowledge of the stock markets. If you are ready to unveil trading secrets, the book provides, then go for it.


The Little Black Book of Stock Market Secrets  By Matthew R. Kratter  Book Review


Who Can Learn to Trade and What to Expect?


This book is a beginner-friendly book and a good resource for beginners. Reading various books gives you an overview of the markets, and this book does not let you down on that front.


There are some good pieces on psychology in trading. You will come across several tips; never place a trade based on what's been told in Barron’s Forbes or the Wall Street Journal. If you don’t wish to be the person who says the stock market is rigged, then it’s not a bad idea to learn from someone else’s mistakes.




Types of Markets and How to Trade Them


The author chose to classify markets into two types, trending markets and sideways markets. The difference in being successful lies in being able to identify the market type to trade them. Let’s look at both these types and how to trade them.


Trending markets are those that keep moving in the same direction for an extended period. A trending market can be either on the uptrend or in a downtrend. Even though these are classified under trending markets, they need to be traded differently.


These markets are traded differently because the behavior of market participants displayed in each of them is different. For beginners, the below characteristics can be seen in both up-trending and down-trending markets.


Strong uptrends often start with a burst of momentum, usually on higher than average volume. Trends sometimes start with a gap-up in prices, not allowing the shorter to exit. This triggers more shorts being covered which may build up impulsive buying that may follow.


The author shares some valuable tips on how to trade uptrends.

  1. In an uptrend, always try to buy high and sell higher.

  2. Never short the market or stock when indicators like RSI & Stochastics remain overbought in strong uptrends.

  3. Be wary of shorting a stock if it continues to hit new 52-week highs in strong up-trending markets.

  4. Use the daily average volume for reference, and don’t be afraid to buy higher if the daily volume is greater than the average volume.

  5. Always trade in the direction of the trend.

  6. 20-50-200 day moving averages are some important guides to gauge the strength and direction of a stock.


Similar to uptrends, strong downtrends often start with a burst of downward momentum, like a rocket crashing into the earth. The initial momentum could be created by a gap or a bearish candlestick pattern.


These are some simple yet effective ways to trade strong down trending markets.

  1. Try to sell low and buy back lower in strong down trending markets. You can go short below the lower Bollinger band (Period – 80)

  2. Avoid buying stocks when they gap down on bad earnings and if it continues to hit 52-week lows.

  3. Always trade in the direction of the trend. In a strong daily downtrend, short rallies on a 30-minute chart or sell strong breakdowns in the direction of the trend.

  4. A stock will trade below its 50-day moving average in a strong downtrend. The 50-day moving average will trade below the 200-day moving average.

  5. The first sign of a stock bottoming occurs when the stock starts trading above its 50-day moving average.


I’m sure you must have heard; the market remains sideways 70% of the time. Well, sideways markets are considered to be the most difficult markets for buyers who trade intraday.


These phases in the market are also known as “Range bound markets”. In sideways markets, it becomes important to identify market range and trade.


Trading sideways markets are usually done by selling at the resistances and buying at the support. The author refers to the use of Bollinger Bands to sell high and buy low using the 80 periods in settings. You tend to do multiple trades when you are in a sideways market to scalp points on either side of the range.


Insider secrets – Everybody wants to Know What They Are


The author stresses the point that reaction to the news is always more important than the news itself. Many novice traders get it wrong here and probably give news rather than how the news is accepted or interpreted. You cannot agree to the fact that stocks are bought on rumors and sold when the news is out.


The author shares some insider tips that can be a great learning experience for the trader who is starting his trading journey.

  1. If a stock falls on good earnings declared, then it could be a sign that there may be a pause in the uptrend, or maybe it’s over.

  2. Markets tend to over-discount identified risks and under-discount unidentified risks.

  3. Risks that you hear about openly and probably the ones that are already priced in.

  4. Risks that you don’t hear or are absurdly unlikely are the more dangerous ones.

  5. Don’t ignore macros. Macros cannot be ignored for long in the market. When they are finally priced in they get nasty.

  6. Stocks trend or otherwise on various time horizons and are driven by various factors like momentum, earnings & growth, and future growth potential.

  7. Footprints of big hands are left behind by higher than the average volume traded with corresponding price action.

  8. Always use the monthly time-frame chart of a stock or index to get the big picture.

  9. To increase your potential returns, try purchasing at-the-money (ATM) call options or put options when the market is in a smooth uptrend or downtrend.

  10. A much more conservative options strategy is selling a covered call on a stock.


Conclusion


When you are trading alone as an individual, you are trading against computer algorithms, Math Ph.D., and multi-billion-dollar hedge funds.


A little peek into insider secrets always helps when you trade all alone. This book aims to bring you those secrets.


If you would like to read more such secrets and on a trader's mindset, get your copy now.


(Amazon paid link)


Guest Post - Written by Mr. Lal Bajaj, Bangalore



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