Trading books reviews
Share Trading – Tenth Anniversary Edition
Share Trading comes from the prolific author and educator, Daryl Guppy. First published in 1996, this tenth anniversary edition was revised in 2001.
The book is divided into three parts. First, Daryl takes the reader through a solid grounding in the basics for survival. The reader learns the advantages of being a private trader and Daryl provides a much needed reality check for anyone considering active trading. This book will not fool the reader into thinking trading is a guaranteed road to riches. Trading tools (charting packages, newsletters, data vendors), benchmark returns and trading targets for various groups of shares are explained in detail before any trading techniques are even mentioned. Daryl ensures the trading landscape is clearly explained before discussing actual trading.
In part two, Daryl discusses the importance of defining the trend and how to go about it. The importance of knowing how to use trend lines and channels for identifying support and resistance levels is explained. The reader also learns of their importance in locating entry and exit points.
Part three is devoted to money management. Daryl discusses the two per cent fixed fractional approach and how it works when combined with various levels of pyramiding.
Although 10 years old, Share Trading has stood the test of time because, although shares and market participants have changed over the years, the markets and people’s reaction to them – hope, fear and greed – have not. You will not find any grandiose promises of trading riches in Share Trading, but sensible and solid ideas on how to approach the business of trading. Share Trading is a book I would recommend to new traders for a sensible insight into active trading; and to old timers to remind them to keep it simple, keep it real and keep it conservative.
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 Little Book that Beats the Market
This is a book for all value investors. Joel Greenblatt is an experienced manager whose fund has averaged 40 per cent per year over 20 years. The book manages to distil successful value investing down to a single formula designed to beat the market.
Joel comes from the Benjamin Graham school of investing and takes the ease of value investing one step further. The reader learns that the existence of a single formula to select good companies at bargain prices isn’t new, as Ben Graham bought companies close to their net asset value.
Like Ben Graham, Joel believes the market, over the short term, will price shares based on emotion, while over the longer term it will price shares based on value. So the objective is to take advantage of the market’s short-term ‘emotional’ pricing to buy good companies at bargain prices. Joel defines good companies as those that provide a high return on capital. He defines bargain prices as selling at a high yield. The trick is to find companies that are the best in both categories.
Scanning 3500 companies, Joel’s ‘magic formula’ has (when choosing the best 30 companies) averaged 30.8 per cent per year over a 17-year period compared to the S&P500‘s average annual return over the same period of 12.4 per cent per year.
I thoroughly enjoyed the book, which is written in an easy style. Joel takes the reader on an enjoyable journey containing plenty of amusement, research and explanations as to why his magic formula approach to value investing works and will continue to work. I have no hesitation in recommending this book to value investors and suggesting they purchase extra copies for their children and grandchildren. It will make a gift for life.
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.
Warrior Trading
Warrior Trading attempts to take the reader inside the mind of an élite trader. The book begins with why the majority of economic theories and fundamental analysis are flawed and how the Warrior Trader can take advantage of such flaws. Clifford encourages people to think independently and find real-world economists who treat their field of observation as more art than science, accepting the limitations of their theoretical models.
Clifford believes a correct combination of fundamental analysis with technical analysis will help a trader succeed. He believes all major trends are fundamental price shifts evolving within a broad band of price action, the details and following sub-movements of which can only be understood and traded profitably using technical analysis.
For technical analysis, Clifford prefers to keep it simple. He believes markets trend within Elliott’s five-wave structure. However, Clifford does not believe the market should adhere to the strict rules of the theory since Elliott Wave, like economics, is not a perfect science. The author encourages the reader to keep technical analysis simple and look to complement the analysis with continuation patterns and support and resistance levels, particularly failed levels that flip-flop into new resistance and support levels.
Looking at how investment banks create and distribute their consensus market views, Clifford builds a good case for why it pays to be a contrarian. Using previous market calls on the AUD and the Euro, Clifford demonstrates that although it can be hard at times to go initially against the majority’s view, it is rewarding to do so in the longer term.
The book finishes with a section that aims to help readers decide what type of trader they are. Clifford continues his warfare analogy, describing swing traders as “Swordsmen” and trend traders as “Archers”. He then discusses the eight battle steps a “Swordsman” or “Archer” can follow to take them to total victory.
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 Bell Does Ring
The Bell Does Ring supports the belief that it is possible to pick market tops and bottoms. To support its claim, The Bell Does Ring describes a collection of methods that people could consider using to stay ahead of the crowd.
The book begins with a look at the power of crowd psychology, by exploring previous booms and busts. Pauline provides a good summary of previous financial mishaps with a look at Tulip Mania, the Mississippi Scheme, the South Sea Bubble and the more recent Poseidon and Asian financial crises. By learning how to watch out for and identify signs of fear and greed the alert trader is able to identify tops and bottoms and stay ahead of the crowd.
Following the look at crowd psychology, Pauline provides a review of reversal patterns that can be used to identify turning points. From head and shoulders and diamonds to double and triple tops and bottoms, the book provides clear and concise examples of how reversal patterns have developed in the past and so can be identified in the future. A look at traditional continuation trend patterns such as pennants, wedges and triangles follows. There is a brief discussion on technical indicators.
Pauline then entertains the reader with the core part of her book – an explanation of Elliott Wave. Part III, which discusses Elliott Wave, occupies 10 of the 18 chapters. In her discussion of Elliott Wave, Pauline provides a good summary of the role Fibonacci plays. With clear and concise charts, the reader is given a good introduction to Elliott Wave and how the identification of a 5th wave can signal market tops and bottoms.
The Bell Does Ring finishes with a discussion on WD Gann and how the use of his ideas can help to time reversal points. Looking at squaring the triangle and circle and Gann’s square of nine, readers are given an insight into timing trades.
In summary, The Bell Does Ring provides an introduction to reversal patterns, Elliott Wave and an element of Gann’s work. The book is well written and easy to follow with plenty of chart examples to support the narration. My only note of caution is that, although appealing, looking to identify tops and bottoms is usually fraught with danger and littered with more tears than smiles.
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 Secrets – 2nd Edition
This is the second edition of Louise Bedford’s book, originally published in 2001. Readers of the original text should not dismiss this edition as a re-badged version. Although Louise has kept the short tutorial summaries throughout the book, it has also been updated with the latest tools to assist traders (such as CFDs), and has been totally restructured to reflect the way Louise believes traders should approach the markets to succeed.
The book begins with how people should approach trading as a business and be prepared to invest in good data, charting software and education. Part Two provides encouragement to anyone who is considering trading; pointing out that the market does not distinguish between traders and treats everyone equally. Regardless of who, what or where you are, the markets have never been so accessible. Sound advice about such things as why men and women are different and how that can have an impact on your trading is scattered throughout Part Two. And, by the way, you’ll learn that women, statistically, are three per cent smarter than men are! Part Two finishes with a practical examination of the psychological hurdles traders will need to manage if they are to succeed.
Part Three is devoted to trading tools. The reader is given an introduction to the visual display of market price, beginning with charts, particularly candlesticks. Following the candlestick discussion, Louise takes the reader through the generally accepted indicators for measuring trend, momentum and divergence.
Part Four takes the reader into the nuts and bolts of trading, where everyone gets their hands dirty. Skip Part Four and you’ll be taking a shortcut to the poor house. Here the reader is introduced to various stop techniques, both initial and trailing. Part Five discusses bear markets and how traders can take advantage of CFDs and options, not only to survive but also to prosper. The book finishes with some final words of wisdom that help bring everything together.
Louise’s book is not only well written but also entertaining, as Louise’s engaging personality shines through. It is a book I would recommend to those new to trading and those veterans who need to be reminded to keep it simple.
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 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.