TRADING
John Wiley & Sons, Inc.
Copyright © 2008 by Oliver L. Velez
Published by John Wiley & Sons, Inc., Hoboken, New Jersey
Published simultaneously in Canada
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ISBN 978-1-592-80333-0
Printed in the United States of America
10 9 8 7 6 5 4 3 2 1
Table of Contents
Power Trading
How to Read This Book v
Preface vii
Meet Oliver Velez xi
PART 1 : GUERRILLA TRADING
Chapter 1 : An Introduction to Guerrilla Trading 1
Chapter 2 : The Tools for Guerrilla Trading 11
Chapter 3 : Gap and Snap and Gap and Crap Plays 29
Chapter 4 : Gap Surprise Plays 45
Chapter 5 : Bullish and Bearish 20/20 Plays 61
Chapter 6 : Bear and Bull Trap Plays 77
Chapter 7 : The Pristine Bullish and Bearish Mortgage Play 93
Chapter 8 : Putting it All Together 111
PART 2 : MICRO TRADING
Chapter 9 : Charting Tools of the Microtrader 129
Chapter 10 : Timing Tools of the Microtrader 137
iii
Chapter 11 : Tactics for Phase One 173
Chapter 12 : Tactics for Phase Two 189
Chapter 13 : Tactics for Phase Three 199
Chapter 14 : Profitable Advice 207
PART 3 : CORE TRADING
Chapter 15 : What is Core Trading? 225
Chapter 16 : Micro versus Macro Styles 231
Chapter 17 : Tools of the Core Trader 239
Chapter 18 : The Key Events 251
Chapter 19 : The Strategies 269
Glossary 299
Trading Resource Guide 321
iv
How to Read This Book
This guidebook brings together three trading approaches that have
been used by tens of thousands of traders who have participated
in educational sessions presented by Oliver Velez and the Pristine
team. The whole, in this case, is truly much greater than the sum
of the parts.
Watch the DVD
The DVD in the back of this book brings you right into those ses-
sions that have helped many traders access this powerful informa-
tion. By using the DVD, you can watch the instructions again and
again to absorb every concept, without ever having to leave home.
v
Read the Guidebook
The material in the next 300+ pages puts all of the information
together into a visual roadmap that shows you how to apply the
tactics and strategies that are covered in this multimedia learning
experience.
Take the Online Tests
To realize the full potential of the information you have before you,
we strongly encourage you to watch the DVD, read the book, and
then go online and take the self tests. This guidebook was designed
to help you easily identify the plays that will work best with your
trading style, your personality, and your current portfolio.
Highly respected as one of the most eloquent trading educators in
the business, Oliver engages you and walks you through the plays
in each of these approaches in simple, accessible language. The
guidebook format ensures that you will have detailed and instant
access to Oliver’s full library of information. You will now be able
to reach over and flip directly to the play that will apply to today’s
market and use the highly developed approach that will best ac-
complish your trading goals.
vi Oliver Velez
Preface
You have known one truth since your first trade, or perhaps even
before you ever hit the buy button. And, you are reminded of this
unquestionable truth every day you are in or near the markets. It
is simply: Markets are constantly changing. The very moment you
are lulled into complacency, you will be harshly reminded of the
tidal force that one small change in the markets can bring to bear
on your trading mentality, profitability, and goals.
Yet, in spite of this evolving target, success is always within reach.
A down day should not break a trader. By accepting the certainty
of change, winning traders will see a down day as the voice of the
market speaking to them. It is saying that the path to success has
moved and if that they want to find success, they must change
with the market. The winning patterns that materialized on the
charts just yesterday are still there, but like a chameleon, they
have mastered the art of camouflage and are challenging you to
find them.
vii
The analogies for having a collection of trading strategies to reach
for when the markets shift are endless. Craftsmen have a wide
variety of tools; fishermen have a selection of different baits or
lures in their tackle box; artists begin with pallets of various col-
ors—all of them must be ready for any changes that will come
between them and their goals. To be masters of their skills, they
know that they can’t just bring every tool, lure, or color with them
every day. They have to understand the value of every resource
they bring along.
And as is true in any arena, the rookies are easy to spot. They are
the ones at the dock whose boats are about to sink from over-
loading, or the hikers with packs so heavy they can’t walk. On the
other hand, the master will have a modest, yet very carefully se-
lected collection of tools. There will be a very distinct and logical
reason for each resource he or she has chosen. It will be proven,
or meet some need he has identified in a past experience. The
master will have seen it work and will know when and just how
to optimally use the tool.
In trading, it is a matter of collecting the tactics that are proven
and that provide the flexibility to adapt to changing market con-
ditions. Master traders spend years honing their collection of tac-
tics. Their tools may be certain pattern set-ups or different tech-
nical indicators, but no matter what, master traders build them
into their trading styles because they work consistently for them.
To gain access to a master’s tools and why he has chosen each one
is an unparalleled opportunity.
viii Oliver Velez
For the new trader, it can save immense amounts of time and
money. The risks of missing an opportunity by not having the
right strategy or by using the wrong one are very real and, to a
certain extent, unavoidable. To be able to minimize that risk and
accelerate the learning curve means a shorter distance to the in-
come and freedom that attracts most people to trading.
For the experienced trader, even another master, it can offer a
chance to augment an already powerful arsenal. Any new tactic
should be held to the highest level of critique. Advanced traders
have a clear idea of what they expect and they also know exactly
what they need a new tool to accomplish. Their broader awareness
of the market will have taught them that they need to constantly
be looking out for and evaluating new ways to remain successful.
With very specific and critical expectations, finding new tactics
that are even worth testing can be tedious.
That’s where this book comes into play. The collection of tactics
included in this guide is designed to work in a variety of market
conditions and to offer solutions that fit multiple trading styles.
In uncertain markets, guerrilla trading shows you how to block
out the noise and zero in on individual setups that can be hidden
by nebulous, undefined trends. Because they are frequently driven
by market emotion, they can result in big, very quick moves. The
key is to use a technical approach to see past the emotion and to
directly target the profit.
Preface ix
Micro trading is a style that uses intraday charts and involves
exiting all trades by the end of the day. It employs most of the
strategies found in other approaches, but plays them at a much
faster pace. For the high energy trader, micro trading will keep
you engaged and will fit well with your trading personality.
Core trades can be held for a few weeks to a few months. Often
used on key stocks and indexes that mimic the market, these plays
fit well with Exchange Traded Funds. The key to core trading is
to open up the time frames and use selected technical indicators
to place the most effective entries and exits.
Each section includes the tactics that have proven most effective
for each particular approach. Take full advantage of the informa-
tion here by reading the text, watching the DVD, and taking the
tests. You’ll find then that you will understand and recognize clear
opportunities in the market and you will have the right tactics to
exploit every move the market makes. When difficult markets
prevail, this arsenal of choices will provide you with new ways to
find those elusive winning trades.
Change is always present in the markets, yet change always pres-
ents opportunities. Whether it is the information in this book or
some other experience, keep searching and carefully select new
tactics to keep with you as you trade.
—John Boyer, Vice President and General Manager,
Marketplace Books and Traders Library
x Oliver Velez
Meet Oliver Velez
Oliver L. Velez, best selling author, trader, advisor, and entrepre-
neur, is one of the most sought after speakers and teachers on the
subject of trading financial markets for a living. His seminars and
speaking events have been attended by more than 60,000 traders
all over the world, and his runaway best selling books, Strategies
for Profiting on Every Trade and Tools and Tactics of the Master Day
Trader, are considered must-read classics for anyone interested in
trading markets for a living. Dow Jones dubbed him “the messiah
of day trading” and financial programs on CNBC, Bloomberg and
Fox News frequently seek out his expertise. Mr. Velez and his life-
long dedication to bringing more awareness to trading as a way of
life, have been favorably mentioned in the New York Times, the Wall
Street Journal, Barron’s, Forbes, Stocks & Commodities and a whole
host of other financial publications. He has also been the subject of
xi
numerous articles and books written about Wall Street’s most suc-
cessful traders, including the popular book, Bulls, Bears and Brains.
Oliver L. Velez is internationally known for founding and growing
Pristine Capital Holdings, Inc. (a firm he started out of his New
York City basement apartment) into one of the country’s premier
educational institutions for investors and self-directed, retail trad-
ers. After serving as Pristine’s Chairman and CEO for 12 years,
Mr. Velez decided to turn his full attention to the professional trad-
ing arena. His new training program called Trade for Life™, which
includes a 2-day seminar and 5-day Live Trading Session with Mr.
Velez himself, is designed to train traders to go beyond retail to
trade the markets professionally.
Today, Mr. Velez runs Velez Capital Management, LLC (“VCM”),
one of the country’s fastest growing private equity trading firms.
VCM currently employs 260 professional traders who have been
meticulously trained to trade his own personal account. Mr. Velez
financially backs each one of his traders, absorbing all their losses,
while sharing in the gains with the trader. Mr. Velez’ vision is to
grow his professional team of traders to more than 1,000 globally
over the next 3 years. For the past 19 years, he has espoused the
revolutionary idea that “micro trading,” like “micro banking” has
the potential to serve as a solution to many of the world’s social ills.
Through VCM and the Velez Family Foundation, Mr. Velez will be
opening up trading divisions and training centers in Beijing, Viet-
nam, Moscow and Mexico City. More major cities throughout the
world will be added in the future.
xii Oliver Velez
TRADING
Winning Guerrilla,
Micro, and Core Tactics
