Trading Software and Books Reviews

The Next Great Bubble Boom

The Next Great Bubble Boom is principally a book about cycles. This is not Harry Dent’s first book. He has published others, with reasonable accuracy. One, in the late 1980s – when everyone else was buying – forecast the decline of the Japanese economy, and hence its share and real estate markets. Time has proven him correct. He uses the same type of demographic technique to support his view that North America is about to experience conditions similar to the roaring twenties. Harry is no shrinking violet with his forecasts, predicting the Dow Jones Industrial Index will reach 40,000 by 2009!

Regardless of whether or not you agree with Harry’s bullish forecast, his book is still worth a read for its revelations about observable cycles in the share market, and how demographics plays its part. A central theme is that share markets follow predictable economic cycles every 80 years. Long-term economic booms and busts follow generational spending waves about every 40 years and these can be projected.

In a nutshell, demographics suggests that people experience a peak in their spending between the ages of 46 and 50. The trick is to see how each year’s ‘46ers’ are doing, whether they are increasing in number or declining. In Japan’s case, the late 1980s did not see a baby boom as the United States did following World War II.

Harry also delves into the various cycles contained within the share market. Beginning with the annual cycle, where the majority of gains are made between November and April each year, Harry discusses the four-year presidential and ten-year decennial cycles. He demonstrates how a few simple models that take advantage of these cycles can greatly improve portfolio returns.

Harry includes a discussion of real estate, and explores the implications of what will happen in North America when the baby boomers begin to downsize.

I enjoyed Harry’s simple use of demographics as an explanation for share market movements and, although I found his Dow prediction a little wild, I liked the case he built to support it.

This article was originally published in the Sep/Oct 07 issue of YourTradingEdge magazine (www.YTEmagazine.com). All rights reserved. © Copyright 2009, MarketSource International Pty Ltd.

Trading the SPI: A Guide to Trading Index Futures

A trading book with a narrative! Trading the SPI is written by Brent Penfold, who is eminently qualified to write such a work – apart from being the regular YTE book reviewer, he actually trades the SPI (and other index futures) for a living. Not only that, he might just have produced an instant classic on the topic.

Aimed at being a useful resource for all SPI traders, this well presented book is easy to read and understand. The author explains from first-hand experience all the information a trader needs to know about the SPI, starting from the basics, in three main sections. In part one, he covers things like what a futures contract is; what time in the morning the SPI opens and how to find a good broker. Having spoken to a lot of traders – successful and otherwise – over the last eight years, I can politely confirm that this fundamental information often eludes some, and that all traders should revisit this area every once in a while. There are many exclamation marks in this section, but it contains potentially unsettling assertions, especially regarding the differences between traders and analysts. This is an excellent start for those willing to venture outside their comfort zone and enter a learning environment, as the second part challenges long-held popular wisdom about trading.

The notion that psychology makes the difference between a rich or poor trader has become a cornerstone of trading belief. The author certainly acknowledges its part, but ranks money management and method equal to or higher than psychology. He gives clear and simple reasons, then provides worked examples of different money management techniques and trading methods to back up his line of argument. In the third part of the book the author offers some of his own statistics and analysis, designed to assist readers to work up their own trading plan, rather than take a prescriptive colouring-by-numbers approach.

Continuity is maintained throughout the book with a running commentary on a series of trades made during its writing, providing a personal insight into the workings of a professional trader and the vicissitudes of the market. It is a well written, personal and approachable read, containing new ideas and challenging tired assumptions without ever preaching – a stimulating must-have for SPI traders of all levels.

This article was originally published in the Sep/Oct 07 issue of YourTradingEdge magazine (www.YTEmagazine.com). All rights reserved. © Copyright 2009, MarketSource International Pty Ltd.

Forex Made Easy

Forex Made Easy is an introductory book on foreign exchange (FX) trading.

The book begins with an introduction to foreign exchange, fundamental and technical analysis, FX options and how to create a trading environment at home.

The author then provides a basic overview of trading – stepping the reader through the importance of defining the trend, buying dips in uptrends and selling rallies in downtrends. Traditional patterns, such as triangles, double bottoms/tops and head and shoulders are discussed. A good pictorial image of nineteen popular candlestick chart patterns is provided.

Following the discussion on charts the author provides an overview of his preferred technical indicators (including Bollinger bands, DMI, MACD and RSI). This is followed by an introduction to Fibonacci and Elliott Wave. An explanation of Fibonacci retracements and extensions is accompanied by a look at Fibonacci time and circles. Forex Made Easy then goes on to give a general introduction to Elliott Wave theory.

After the discussion on technical analysis a few general guidelines on trading are given. The final chapter is devoted to the author’s web site where he provides an Internet-based FX trading service.

Overall I couldn’t get too excited about this book. Although it is well intentioned, for me it just didn’t get off the ground. The discussion on trading felt like ‘recycled’ standard technical analysis without any value added, and was little better than a good charting program’s user guide – just explaining what is. Where he lost me was his chapter on Money Management. Would you believe there wasn’t one mention of position sizing! If you’re keen to get your hands on a book introducing FX then Forex Made Easy may interest you. However, if you’re looking for assistance in learning how to trade FX I believe you could do better looking elsewhere.

This article was originally published in the Sep/Oct 07 issue of YourTradingEdge magazine (www.YTEmagazine.com). All rights reserved. © Copyright 2009, MarketSource International Pty Ltd.

Trade Like Jesse Livermore

If you’ve read Reminiscences of a Stock Operator and are a fan of Jesse Livermore (like me) then you’re probably excited to learn of a new book titled Trade Like Jesse Livermore by Richard Smitten. This is Richard’s second book on Jesse Livermore. He is the author of the informative and entertaining Jesse Livermore – World’s Greatest Stock Trader.

In Trade Like Jesse Livermore the author attempts to explain Jesse Livermore’s complete trading system. He claims to have unlocked Livermore’s trading rules covering methodology, money management and psychology through research and interviews with Jesse’s children and daughter-in-law.

The book begins with Livermore’s trade entry techniques and a discussion on reversal and continuation pivot points. Reversal pivot points were used to identify a change in trend, while Livermore used continuation pivot points to confirm the trend. One- and three-day reversal signals are discussed, as is the way Livermore took advantage of them. The author discusses Livermore’s use of dual stops – price and time. If a stock was not behaving correctly Livermore would not hesitate to exit, even though his price stop was not activated. Livermore prided himself on being the best loser. Along with the entry and stop techniques, Livermore’s analysis of industry groups and their leaders is discussed. Following the discussion on method, the author examines Livermore’s money management system. Livermore did not wish to lose more than ten per cent on any individual stock. His method of pyramiding is also discussed. Essentially, Livermore would establish a small initial position in a stock, and add to it when the market proved his analysis correct. This saw Livermore enter at a reversal pivot point and then accumulate at continuation pivot points. Livermore called this his probing technique. By doing this Livermore ensured that when he lost, he lost small, and when he won, he won big.

The author concludes with a discussion of how Livermore maintained emotional control. Livermore thought this was his greatest challenge, – so great that apparently he attended college courses in psychology to try to improve his understanding of the human mind.

I enjoyed Trade Like Jesse Livermore. Although the chart examples could have been improved, the book is well written and presented well overall. The trading discussion is enlivened by a number of fascinating anecdotes about Livermore’s life, like his habit of being locked away one weekend each year in the Chase Manhattan vault to examine his money and review the previous trading year’s results trade by trade. Has Richard Smitten really worked out how Livermore traded? Who knows! However, if you’re a Livermore fan I’m sure you will enjoy adding this book to your trading library.

This article was originally published in the Sep/Oct 07 issue of YourTradingEdge magazine (www.YTEmagazine.com). All rights reserved. © Copyright 2009, MarketSource International Pty Ltd.

Conquering Stock Market Hype

Conquering Stock Market Hype is a book written for share investors who don’t have the time or the inclination to check their portfolio each day.

The author believes the bell does ring at market tops and bottoms if you have the inclination and knowledge to listen for it. When extreme public optimism (cab drivers offering share tips) and pessimism (negative press headlines) fades, people who are listening get plenty of warning that it is time to manage their investments. Allan laments the behaviour of professionals who invariably warn investors to avoid shares when they are cheap and to invest in real estate or government bonds when they are expensive.

Conquering Stock Market Hype begins with a historical review of market tops and bottoms. Beginning with market bubbles the author takes the reader through the roaring twenties, the Japanese real estate and share market euphoria of the late 1980s, the 1990s Asian crisis and the Internet boom of the late 1990s and early 2000s. Using the psychology of bubbles to summarise each boom, the author lays out a road map that all can use to identify the next bubble. However, Conquering Stock Market Hype does not start and finish with market tops. A similar examination is made of panics. Reading the discussion of booms and panics should leave you in no doubt about the folly of listening to conventional ‘financial’ wisdom!

Following his discussion of sentiment, the author introduces the reader to more conservative fundamental ways of measuring whether or not shares are over- or under-valued. He gives the reader a good explanation of the P/E (price earnings), Yield Curve and Fed Model valuation tools.

Conquering Stock Market Hype doesn’t leave the reader in any doubt about what to do once the market has reached a top or bottom. The book cuts to the chase, recommending index funds over individual shares. The author supports views with the plain fact that in the ten years to 30 June 2003 the S&P Index averaged an annual return of 10.04 per cent compared to the average active funds’ 8.29 per cent.

Although Conquering Stock Market Hype is more an investment than a trading book, I enjoyed it for its simple no-nonsense approach to ignoring the ‘professionals’ when it comes to investing and not falling for their spin that their ‘active’ share selection will outperform the market. If you’re looking for a good and easy-to-read overview of share investing and can accept the principle that ‘simple is best’, then Conquering Stock Market Hype is the book for you.

This article was originally published in the Sep/Oct 07 issue of YourTradingEdge magazine (www.YTEmagazine.com). All rights reserved. © Copyright 2009, MarketSource International Pty Ltd.

The Next Step to Share Trading Success

This is Leon Wilson’s follow-up to The Business of Share Trading.

At 468 pages The Next Step is not only a substantial book but also a very detailed and thorough one. Leon begins where he left off in The Business of Share Trading building the case for why private traders should look after their own investments rather than invest in managed funds. Before moving into trading, Leon looks at managing risk and how to select appropriate set-ups according to his trade validation ratio.

The Next Step is full of ideas for trading assistance. From parabolic trend trading to identifying reversal set-ups, there are plenty of suggestions. Whether they are custom indicators, traditional chart patterns or measuring strength Leon gives a thorough explanation and an example of how each can be used. Following his discussion on individual tools Leon provides an excellent chapter describing Nicholas Darvas’s trading technique (Darvas was a famous ballroom dancer who made over $US2.0m trading shares in the 1950s). Beginning with an explanation of how Darvas developed his method, Leon shares his and Daryl Guppy’s refinements to adapt the technique to today’s markets. For traders interested in mechanical trading Leon shares a number of models and discusses not only their strengths and weaknesses but also the various pros and cons of systematic trading. Leon then involves the reader in a serious discussion concerning position sizing and its impact on long-term survival. The book finishes, in what may possibly turn out to be perfect timing, with a whole chapter on bear market trading with CFDs.

I found The Next Step to be well written and structured, with detailed and comprehensively annotated charts. I liked Leon’s discussion on the minimum closing price and I think the book is worth purchasing for the Darvas chapter alone. I liked Leon’s open and frank assessment of CFDs and their hidden traps. With The Next Step Leon shares a wealth of knowledge. I believe his new book deserves serious consideration by all active share and CFD traders.

This article was originally published in the Sep/Oct 07 issue of YourTradingEdge magazine (www.YTEmagazine.com). All rights reserved. © Copyright 2009, MarketSource International Pty Ltd.

Trading in a Nutshell

This is the second edition of Trading in a Nutshell, originally published in 2001.

Within this clear and precise book Stuart covers all the essential elements of successful trading. Although it is a relatively small book with a simple title you should not be fooled by either when considering its merits.

Stuart covers all the basics, beginning with the role of technical analysis in identifying set-ups. The reader is given a good education, with clearly marked and well-explained charts on how the use of patterns and indicators can help to identify good trading opportunities. Once a trading set-up is found, Trading in a Nutshell explores alternative entry techniques. Following this the book explores alternative stop and exit strategies to help traders cut their losses and maximise their gains. Stuart discusses and illustrates three stop alternatives: percentage capital, technical and volatility. He then continues with three similar alternative trailing stops that will help traders gain the most from their winning positions.

Any good trading book will have a chapter on money and risk management. Trading in a Nutshell does not let you down. Stuart emphasises the importance of position sizing in preserving capital and provides a number of easy-to-follow examples to support his view. To bring the practical aspects of trading together the book provides a whole chapter on putting together a trade plan.

An addition to the second edition is a short chapter on the ASX and another on how to manage the psychological challenges of trading. Stuart shares his ideas on the character attributes that all successful traders need in order to prosper in the market.

I liked Trading in a Nutshell. Stuart cuts to the chase. The book is like a good set of university notes – concise and informative. If you ever feel overloaded with too much information, a reading of Stuart’s book will put everything back into perspective and encourage you to keep things simple. I particularly liked the key summary points at the start of each chapter. An inconsistency is Stuart’s statement that money management is the most important element of trading, contradicted later in the book when he makes the declaration that a trader’s mindset is the most important element. Obviously you cannot have two elements which are the ‘most important’. Apart from this small criticism, Trading in a Nutshell is a very worthwhile, concise, factual guide to trading.

This article was originally published in the Sep/Oct 07 issue of YourTradingEdge magazine (www.YTEmagazine.com). All rights reserved. © Copyright 2009, MarketSource International Pty Ltd.

How to Get Started in Active Trading and Investing

How to Get Started in Active Trading & Investing is a book that advocates a top-down approach to trading, combining fundamental analysis with technical analysis.

David Nassar begins by explaining why managing your own investments is superior to giving your money to the professionals, whose interests may not be aligned with yours.

David then takes a look at fundamental analysis. He begins with a discussion of how government fiscal and monetary policy has an impact on the business cycle and what the implications are for the broad asset classes of bonds, equities and commodities. With the landscape painted, the fundamental analysis finishes by drilling down into various sectors. David believes private traders are better armed if they understand where the overall economy is and what time the investment clock is showing.

How to Get Started in Active Trading & Investing then provides an introduction to technical analysis, beginning with a look at the basics of charting, prices and volume. The various stages of accumulation, markup, distribution and decline are explained, along with an investigation of support and resistance levels and how various continuation and reversal patterns provide opportunities to trade. A quick look at candlesticks and oscillators finishes David’s examination of technical analysis.

The book finishes with a discussion of tactical trading.

How to Get Started in Active Trading & Investing provides an introduction for those traders who would like to combine fundamental and technical analysis in their trading. Although the book has a U.S. focus, I have no doubt its ideas would work across all markets. If you’re looking for an advanced book on either fundamental or technical analysis then How to Get Started in Active Trading & Investing may not appeal to you. Although it is a reasonably satisfactory introductory book, I have to say that David Nasser lost me when he essentially declares success in trading is dependent on traders being in the zone, or feeling ‘zen’. I found it disappointing that he finished his introductory book on a silly trading clich?’. Even if the clich? has credibility (which I doubt), it would probably be better placed in a trading book written for a different niche.

This article was originally published in the Sep/Oct 07 issue of YourTradingEdge magazine (www.YTEmagazine.com). All rights reserved. © Copyright 2009, MarketSource International Pty Ltd.

New Markets, New Strategies

New Markets, New Strategies, by Jason Trennert, the chief investment strategist for the International Strategy & Investing Group, provides an insider’s view on how investors should view and approach the markets following the 2000 bear market and 9/11. According to Jason, times have changed and a new approach is required – hence the name of his book.

In a well-written, easy-to-read book, Jason generally builds the case for why a value-based approach to investing will deliver superior returns in the future. The book begins with a chapter on why dividends (which the investment public ignored during the 1990s) and yield measurement will make a comeback. Along with dividends other traditional valuation methods are discussed. They include the Price/Earning (P/E) ratio; the Fed Model (which compares the yield on government bonds to the yield on shares as measured by the inverse P/E ratio); and the Rule of 20 (which suggests the summation of inflation and the sharemarket’s P/E ratio should equal its long-term average of 20). Jason discusses the impact of terrorism. His discussion includes the importance of keeping an eye on oil prices as a leading indicator and why investments in defence stocks, including investments in companies helping to rebuild Iraq, should deliver good returns. Chapter 4 is devoted to encouraging investors to consider using ‘corporate governance’ as a screen for selecting shares since research shows well behaved corporate citizens perform well in the markets.

Jason continues with a look at contrarian investing and how it works. Beginning with a historical perspective, Jason offers a quick look at Lord Keynes and then gives the reader a good insight into the importance of sentiment and how it can be measured. He gives good coverage to opinion-based indicators, market-based indicators and how the media’s enthusiasm plays its part. Jason firmly believes a contrarian approach, combined with value investing, will offer investors the safest and most rewarding experience in future years.

This article was originally published in the Sep/Oct 07 issue of YourTradingEdge magazine (www.YTEmagazine.com). All rights reserved. © Copyright 2009, MarketSource International Pty Ltd.

High Probability Trading

High Probability Trading may in time find itself being placed beside Van Tharp’s Trade Your Way to Financial Freedom (McGraw Hill) and Elder’s Trading for a Living (Wiley). Like Van Tharp and Elder, Marcel Link has put together a book covering the whole trading gambit – method, money management and psychology. When people ask me to recommend trading books I usually refer them to Van Tharp and Elder, as I believe they are good all-round books. I may start including High Probability Trading.

At 383 pages High Probability Trading is a large book. It contains something for everyone: discretionary or mechanical trader, beginner or veteran.

Marcel Link shares the insights he has gained from personal experience as a trader and broker. Starting with the setting of realistic goals, he takes the reader through the steps he believes all aspiring traders should take. The book explores the proper way to treat news. For the discretionary trader he imparts his views on the correct use of technical analysis over multiple timeframes. For the mechanical trader he provides enough useful ideas to keep any system writer happy and busily occupied (TradeStation code is provided where relevant). The importance of trading with a plan, the importance of money management and the challenges of psychology are explored in depth.

I like this book because the author places money management where it should be, at the top. My only criticism of the book is that, unlike Van Tharp and Elder’s books, High Probability Trading is a little loose in structure (for instance, although the author believes money management is king, he doesn’t discuss it until page 286) and somewhat repetitive. However, the content of the book is such that it will help many traders find a path to trading success.

This article was originally published in the Sep/Oct 07 issue of YourTradingEdge magazine (www.YTEmagazine.com). All rights reserved. © Copyright 2009, MarketSource International Pty Ltd.