Wall Street's Little Black Book of Trading Strategies

Introduction

• Author: Tom Busby
• Background: Over 40 years of experience in trading, former Merrill Lynch broker, and CEO of Diversified Trading Institute (DTI).
• Key Achievements: Navigated significant market events, authored trading books, and teaches proprietary trading techniques.
• Aim: The book provides access to top trading secrets developed over Busby’s career.

Chapter 1: The Crucible - Black Monday

• Event: October 19, 1987, Dow Jones dropped over 500 points, a 22% value loss.
• Global Impact: Markets worldwide, including Canada, UK, and Asia, experienced historical losses.
• Cause: Speculated factors include program trading, federal debt, and high bond yields.
• Personal Journey: Loss of wealth and self-confidence; stresses on family and need for resilience.
• Trading Beginnings: Started with trading pork bellies, faced initial losses with stocks like Pan Am.
• Rise: Transitioned to trading options and futures, faced the challenges of the 1987 crash.

Chapter 2: Time is Central

• Trading and Patience: Importance of timing and patience in trading, similar to fishing.
• Key Lesson: Enter the market only when the odds are favorable.
• Market Movements: Correlated with times of day, such as morning activity and post-lunch movements.
• Trade Zones: Specific times identified for trading to maximize opportunities.
• Global Awareness: Use a 24-hour trading clock to monitor global markets.

Chapter 3: Trading is a Numbers Game

• Key Numbers: Essential for understanding market resistance and support points.
• Historical Influence: Examples such as Dow's 10,000 points illustrate market psychology.
• Establishing Key Numbers: Through historical significance and recent trading patterns.
• Trading Approach: Use key numbers to determine entry, exit, and risk management.

Chapter 4: Read the Tape

• Tape Reading: Essential skill in trading, involves understanding numbers in context.
• Indicators: Key indicators include $ADD, $ADDQ, $TICK, TRIN, V-Factor, and TTICK.
• Big Picture: Maintain a long-term and short-term market perspective.
• Trust the Numbers: Follow indicators rather than preconceived notions.

Chapter 5: There's No Crying in Trading

• Emotional Management: Key emotions are greed, fear, and arrogance.
• Realistic Goals: Set achievable profit targets and control greed.
• Fear: Manage fear to avoid paralyzing trading decisions.
• Exit Strategy: Always have a plan to exit trades.

Chapter 6: Riding the Rail

• Strategic Plan: Essential for successful trading.
• Three Ts of Trading: Tick (quick profit), Trade (slightly larger profit), Trend (maximize profit).
• Execution: Proper timing and use of key numbers.
• Adaptability: Recognize market changes and adjust strategies.

Chapter 7: Worry about Risk, the Rewards Will Come

• Risk Management: Primary focus before seeking rewards.
• Account Management: Define a tilt number for acceptable losses.
• Protection: Use of protective stops and understand market volatility.
• Long-term Success: Preserve capital and manage trading risks effectively.

Key Lessons Learned

• Patience and Timing: Vital for successful trading.
• Education: Essential to avoid expensive mistakes.
• Risk Management: Always prioritize controlling risks.
• Adaptability: Be ready to adjust strategies as market conditions change.

These notes summarize the essential strategies and lessons from Tom Busby's book, focusing on trading techniques, emotional control, and risk management.