Trading Software and Books Reviews

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.

Dynamic Trading

Dynamic Trading is the discretionary trader’s book. Having originally purchased my copy of Dynamic Trading in 1998, I found that in the second edition, except for some additional examples, there appears to be very little difference.

Dynamic Trading is a large and comprehensive book that provides a complete methodology for trading any markets across any time period. What you won’t find in Dynamic Trading is a comparable discussion on money management or psychology. This is a strength, as the book focuses on how to use pattern, price and time to find high probability trading set-ups and how to take advantage of them with entry, stop and exit techniques.

Without over-simplifying Dynamic Trading, the author’s philosophy is to combine three dimensions of trading – pattern (Elliott Wave), price and time (Gann and geometry) – into a cohesive approach to market analysis that will stack the odds in the trader’s favour. Although using three dimensions is no guarantee of success, the process of using each dimension to confirm the other helps to find good probability set-ups.

In addition to finding set-ups Dynamic Trading spends an equal amount of time discussing how traders can sensibly take advantage of their analysis. With the depth and breadth of pattern, price and time techniques that he discusses, Robert Miner is very aware that Dynamic Trading will be the technical analyst’s book. He is conscious that those traders who spend a lot of time analysing can become more analyst than trader. So, Dynamic Trading continually stresses the importance of using a sensible and logical trade plan, that will allow you to trade the market and not your analysis. This practical aspect of Dynamic Trading will help keep people’s feet on the ground.

Dynamic Trading is a meticulously planned and well-written technical trading book, detailed and practical, with plenty of examples and clear, easy-to-read charts. It is a good source from which to learn more about Gann, Elliott and geometry without having to buy three separate books.

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.

Understanding Eminis: Trading to Win

When I first flicked through Understanding Eminis: Trading to Win, my initial reaction was unfavourable. I thought the book was no more than a dictionary on indicators and little better than my old SuperCharts manual. On closer inspection I saw that my initial thoughts were a little harsh.

Understanding Eminis: Trading to Win focuses on the Mini Nasdaq and S&P contracts. It does not provide the reader with a complete overview of trading, but rather focuses on method. Very little is written on money management or psychology. It’s primarily a collection of ideas.

The book starts with the basics, describing the Emini contracts’ specifications, types of charts, timeframes, pivot points and support and resistance. The book then does its best to imitate an introductory candlestick book by illustrating various candlestick patterns. Following this the author provides a good summary of the key trend, momentum and breadth indicators.

I found the last section, devoted to trading strategies, more interesting. Here the author explains various trading ideas of such prominent traders as Toby Crabel, Larry Williams (his “oops” trade), Gary Smith, Tom Busby, Larry Connors and Linda Raschke. Interspersed with the traders’ ideas, various breakout, gap and swing trading tactics are presented. There are enough ideas discussed here to fill many late nights with researching and testing.

Understanding Eminis: Trading to Win is compiled like a good set of university notes – brief and to the point. There is no unnecessary print to distract the reader. I think any book is worth considering if the reader can pick up just one new idea – and I believe the section on trading strategies might just be the place to look.

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.

Investing On Wall Street

Investing On Wall Street, as its name implies, is not a trading book but rather a practical guide to investing in the US. If you have ever been curious about how to invest in the world’s largest economy but have been too afraid to ask, then this book is for you.

Andrew Quin develops a logical case for considering investment opportunities in the US. It’s like comparing cars to go-karts. By not investing in the US, which has a population of 292 million people compared with Australia’s 20 million, traders are restricting the growth potential of their investment portfolios.

Investing On Wall Street is divided into two parts. The reader is first introduced to the investment opportunities offered by the US in terms of its population, demographics, product range and capital markets. The reader then enjoys a discussion on investment theory and investment psychology.

Part Two makes up the bulk of Investing On Wall Street, with a practical look at how to get Aussie dollars invested in the US market. Andrew Quin provides an easy-to-follow explanation of the differences between the Australian and the US markets, how to access the US market efficiently and effectively, how to find a suitable US online broker and how to manage the currency risk. There is also a section dealing with tax and other offshore investment issues.

Investing On Wall Street is well written. Although the book is a little light on investment methods (and the author does acknowledge this, deferring to those who are more astute at such things) it well and truly makes up for it with its practical section on how to invest in the US. For the small price of $A34.95 you too can safely learn how to become a US investor.

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.

Starting Out In Shares – The ASX Way

This is the first book in a series of three that the Australian Stock Exchange (ASX) has produced to help people learn more about the sharemarket. If you’re new to shares, this book is for you.

Starting Out in Shares assumes the reader has no prior knowledge and provides a solid foundation to understanding what the sharemarket is. The book begins with a good introduction to shares and their important place within a wealth creation strategy. The book takes the reader through a comparison of shares with alternative asset classes and then explains the role of the ASX, where to find information, how to get started finding a broker and the purchase and sale settlement procedure.

Following the basics, the book provides a good introduction to that $64 question – which shares to invest in? The book gives a helpful summary of the two approaches we can use – fundamental and technical analysis.

The book gives a very good outline of fundamental analysis, which, alone, is worth the price of the book. If you’ve been wondering where the property market and interest rates may head in the future, you’ll need to buy the book and check out the investment clock on page 111! The section on fundamental analysis is followed by an introduction to technical analysis. While the discussion on fundamental analysis is more than a mere introduction, the section on technical analysis is certainly just that. However, it does give a good heads-up on what all the fuss is about with charts, lines and indicators.

The book finishes with a handy note on the taxation implications of shares, and the importance of record keeping.

The book is well written with margin notes throughout defining key terms. If you’re new to the sharemarket then this book is a must have. If you’re looking for a good introductory book for a friend or child, Starting Out in Shares won’t let you down.

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 Options – The ASX Way

This book is directed at the confident share investor, as it opens the door to the world of options.

Have you ever been curious about options but too scared to ask? If so, there’s no need to continue worrying, because this book is for you. It’s an excellent introduction to options.

Part One begins with the basics of buying and selling call and put options. Each major factor that has an impact on option prices is explained with clear and easily understood payoff diagrams.

Part Two deals with option trading strategies. It begins with a good explanation of option pricing models, margins, volatility and the Greek (no, it’s not a Latin lesson). The book then dives into strategies, starting with writing covered calls. By the end, the reader is well familiar with spreads, straddles, strangles and synthetics. Each strategy is clearly explained with its own easy to follow payoff diagram.

If you’re a confident share investor, then options are certainly worth studying. Like the earlier books in The ASX Way series, this book is well written and easy to follow. And, like the other books, it won’t let you down if you’re looking for a good book on options that is more than just an introduction.

As a final word, I think Paul Dolan and his Investor Education team at the ASX should be congratulated. As I understand it, the three books comprising The ASX Way series originally consisted of six titles that had evolved over the years. Paul and his team, with the help of Wrightbooks, have been able to compile and distil the information into three well-written and concise books. The ASX Way series is the accumulation of many years of effort, allowing readers to benefit from both the ASX’s experience and its authority.

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.