THE DAY TRADERS COURSE

Low-Risk, High Profit Strategies for Trading Stocks and Futures

Lewis Borsellinowith

Patricia Crisafulli

JOHN WILEY & SONS, INC.New York Chichester Weinheim Brisbane Singapore Toronto

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THE DAY TRADERS COURSE

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WILEY TRADING ADVANTAGE

Beyond Candlesticks / Steve Nison

Beyond Technical Analysis, Second Edition / Tushar Chande

Contrary Opinion / R. Earl Hadady

Cybernetic Trading Strategies / Murray A. Ruggiero Jr.

Day Traders Manual / William F. Eng

Dynamic Option Selection System / Howard L. Simons

Encyclopedia of Chart Patterns / Thomas Bulkowski

Exchange Traded Funds and E-mini Stock Index Futures / David Lerman

Expert Trading Systems / John R. Wolberg

Fibonacci Applications / Robert Fischer

Four Steps to Trading Success / John F. Clayburg

Fundamental Analysis / Jack Schwager

Genetic Algorithms and Investment Strategies / Richard J. Bauer Jr.

Hedge Fund Edge / Mark Boucher

Intermarket Technical Analysis / John J. Murphy

Intuitive Trader / Robert Koppel

Investors Quotient / Jake Bernstein

Long-Term Secrets to Short-Term Trading / Larry Williams

Managed Trading / Jack Schwager

Mathematics of Money Management / Ralph Vince

McMillan on Options / Lawrence G. McMillan

Neural Network Time Series Forecasting of Financial Markets / E. Michael Azoff

New Market Timing Techniques / Thomas R. DeMark

New Market Wizards / Jack Schwager

New Money Management / Ralph Vince

New Options Market, Fourth Edition / Max Ansbacher

New Science of Technical Analysis / Thomas R. DeMark

New Technical Trader / Tushar Chande and Stanley S. Kroll

New Trading Dimensions / Bill Williams

Nonlinear Pricing / Christopher T. May

Option Advisor / Bernie G. Schaeffer

Option Market Making / Alan J. Baird

Option Strategies, Second Edition / Courtney Smith

Options Course / George A. Fontanills

Options Course Workbook / George A. Fontanills

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Outperform the Dow / Gunter Meissner and Randall Folsom

Pattern, Price & Time / James A. Hyerczyk

Point and Figure Charting, Second Edition / Thomas J. Dorsey

Schwager on Futures / Jack Schwager

Seasonality / Jake Bernstein

Stock Index Futures & Options / Susan Abbott Gidel

Stock Market Course / George A. Fontanills and Tom Gentile

Stock Market Course Workbook / George A. Fontanills and Tom Gentile

Study Guide for Trading for a Living / Dr. Alexander Elder

Study Guide to Accompany Fundamental Analysis / Jack Schwager

Study Guide to Accompany Technical Analysis / Jack Schwager

Technical Analysis / Jack Schwager

Technical Analysis of the Options Markets / Richard Hexton

Technical Market Indicators / Richard J. Bauer Jr. and Julie R. Dahlquist

Trader Vic II / Victor Sperandeo

Traders Tax Solution / Ted Tesser

Trading Applications of Japanese Candlesticks Charting / Gary Wagner and Brad Matheny

Trading Chaos / Bill Williams

Trading for a Living / Dr. Alexander Elder

Trading Game / Ryan Jones

Trading in the Zone / Ari Kiev, M.D.

Trading Systems & Methods, Third Edition / Perry Kaufman

Trading the Plan / Robert Deel

Trading to Win / Ari Kiev, M.D.

Trading with Crowd Psychology / Carl Gyllenram

Trading with Oscillators / Mark Etzkorn

Trading without Fear / Richard W. Arms, Jr.

Ultimate Trading Guide / John Hill, George Pruitt, and Lundy Hill

Value Investing in Commodity Futures / Hal Masover

Visual Investor / John J. Murphy

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THE DAY TRADERS COURSE

Low-Risk, High Profit Strategies for Trading Stocks and Futures

Lewis Borsellinowith

Patricia Crisafulli

JOHN WILEY & SONS, INC.New York Chichester Weinheim Brisbane Singapore Toronto

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Copyright 2001 by Lewis Borsellino and Patricia Crisafulli. All rights reserved.

Published by John Wiley & Sons, Inc.Published simultaneously in Canada.

No part of this publication may be reproduced, stored in a retrieval system, or transmittedin any form or by any means, electronic, mechanical, photocopying, recording, scanning,or otherwise, except as permitted under Sections 107 or 108 of the 1976 United StatesCopyright Act, without either the prior written permission of the Publisher, or authoriza-tion through payment of the appropriate per-copy fee to the Copyright Clearance Center,222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 750-4744. Re-quests to the Publisher for permission should be addressed to the Permissions Depart-ment, John Wiley & Sons, Inc., 605 Third Avenue, New York, NY 10158-0012, (212)850-6011, fax (212) 850-6008, E-Mail: PERMREQ@WILEY.COM.

This publication is designed to provide accurate and authoritative information in regard tothe subject matter covered. It is sold with the understanding that the publisher is not en-gaged in rendering professional services. If professional advice or other expert assistanceis required, the services of a competent professional person should be sought.

Designations used by companies to distinguish their products are often claimed by trade-marks. In all instances where the author or publisher is aware of a claim, the productnames appear in Initial Capital letters. Readers, however, should contact the appropriatecompanies for more complete information regarding trademarks and registration.

Library of Congress Cataloging in Publication Data:

Borsellino, Lewis J., 1957The day traders course / Lewis Borsellino with Patricia Crisafulli.

p. cm.(Wiley trading)Includes index.ISBN 0-471-06515-31. Day trading (Securities) 2. Electronic trading of securities. I. Crisafulli,

Patricia. II. Title. III. Series.HG4515.95 .B673 2001332.64'2'0285dc21 2001045304

Printed in the United States of America

10 9 8 7 6 5 4 3 2 1

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For my wife, Julie, and my children:Joey, Briana, Anthony, Lewis, Nick, Jamie, and Nicole

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Acknowledgments

Trading is a solitary endeavor. Whether you trade at home, in a tradingroom, or on the floor of an exchange, its you versus the market.

But as a profession, trading is really a community. In this book, Iwish to salute all the traders, brokers, and clerks who ever put on ajacket at the Chicago Merc and at our sister exchanges across thecountry. I welcome into our profession the new breed of screentraders, who will help to revolutionize this business.

I also want to thank the entire team at TeachTrade.com, specifi-cally: my partner, Brad Sullivan; our technician, Jim Sebanc; VinceAllegra; Pat Tabet; and my cousin and friend, Bob Borsellino, as wellas Brenda Hilfiker of DTN and our graphic artist Mark Smith.

And finally, I acknowledge my coauthor and TeachTrade.com siteeditor, Tricia Crisafulli. Without her talent, experience, and dedica-tion, this book could not have been written.

L.B.

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Preface

Trading is a profession unlike any other. It requires a unique set ofskills and requires discipline all its own. No matter what your back-ground, personal or professional, when you begin trading you muststart at step one.

My goal in writing this book is to give you an introduction into thediscipline and techniques of trading. The lessons include the topics Ifeel are the most important for any trader, in any market: mentalpreparation, technical analysis, devising a trading plan, trade execu-tion, and, above all, discipline.

When I started trading some 20 years ago, I learned by workingwith and watching some of the best traders in the business. It was adifferent world then at the Chicago Mercantile Exchange, a place Improud to have called my professional home for two decades. Tradingwas done in the pit exclusively. The term electronic trading was notpart of our vocabulary.

Today, the computer screen has brought the market to traders likeyou, wherever you are. This has made for profound changes in howfutures and stocks trade, and will trade in the future. But there aretimeless lessons that are as valid today as they were 20 years ago andundoubtedly will be 20 years hence.

This book contains those lessons, especially of the psychologicaland emotional variety, as well as the techniques we use to trade insome of the most active and volatile markets in the worldnamelythe Standard & Poors (S&P) 500 and Nasdaq futures.

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Trading is best learned by doing, especially with a mentor or guideto help you. While I cant sit at your side (obviously) as you trade, Iwanted to replicate the kind of teaching and coaching that we give thetraders we bring on board at our company, TeachTrade.com. Seeingwhat we see in a chart, understanding our interpretation of the market,and dissecting our trade executions, I believe, will give you the bestinsight into what trading is all about.

As you trade, you will also learn