Like many of the other best trading novels, Market Wizards leaves you with a sense of inspiration; you now know what it takes to improve your all-round trading! It is a comprehensive guide on how to prepare for what lies ahead, using the experience of some of the best traders as your foundation. By leaning on their experience, you can learn vital lessons from the information the market will throw at you on a daily basis. The book is neatly constructed in a question and answer format making it literally “full of answers”. Each clearly labeled chapter covers the traits or style of each trader meaning you can delve into those sections most relevant to you. 

The overriding theme of the book is that despite the differing trading approaches of the traders, each one has similar underlying principles. These are easy to grasp as each trader makes repeated reference to what they feel made them into the traders they are today. The book is written by active traders which gives a real credibility to the content you are reading. It is also riddled with trading psychology and ‘the trader’s mindset’ which means the reader with the ability to spot weaknesses in their own psychological makeup will be able to replace these with the strengths described by these successful traders.

I recommend this book as it provides a well rounded guide to what is required to become a successful trader. It obviously focuses on discipline and familiarity with the markets, but also provides an analysis and evaluation of a range of trading approaches and underlines a series of essential psychological rules.

Why is volume important? 3 words; volume precedes price. This basic technical concept was discussed as early as the beginning of the 1900s by authors such as Richard Wyckoff and was originally used to establish a market’s strength or weakness. In the days of pit trading, traders would use the increase in noise that accompanied elevated trading activity i.e. an increase in the volume of contracts traded, to decide whether an established support or resistance level would break or hold. Not long after that, it became a staple and stand alone indicator, implemented when looking for confirmation of chart patterns. For example, a head shoulders pattern should have diminishing volume during elements of its formation, accompanied with a spike in volume upon a break of the neck-line.

Two common methods for observing volume are: looking at the change in volume from the prior time period, or simply looking at the ebb and flow of volume in real-time using time and sales. The original and still viewed by many as the most valuable way to chart volume is using cumulative bars directly below and corresponding to the relevant chart. The second most common way to view volume is a cumulative tally. In 1963, Joe Granville created On Balance Volume (OBV) which keeps a running total of volume which is increased or decreased in line with the direction of the market. For example, starting at 0 if the following day is up then you would add the volume to 0. If day two is a down day, then you would subtract the day’s volume from the running tally. The principle is that volume is the motive behind price action. There are many variations on these basic concepts, but as mentioned earlier, simplicity is often the safest bet in trading and certainly when it comes to technical analysis.

The most important principles of volume are: if a move is not accompanied with strong volume, it is likely a false break and will be short lived; if a market breaks with strong volume it will in all likelihood continue; if a market is trending and peaks with elevated volume, the market may have capitulated which could signal a top/bottom. To learn about volume in greater detail, we strongly recommend picking up a copy of any of Richard Wyckoff’s books such as The Day Trader’s Bible.

An understanding of volume is essential to any trader, irrespective of his chosen timeframe - be it seconds or weeks. However, as with all technical indicators, a trader should not rely solely on one indicator in isolation when making trading decisions. A trader must think of them as pieces of a much larger market jigsaw and weigh the evidence they produce objectively alongside all other available market information.

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The analogy that Faith uses is of Fangio the great F1 racing driver. The story he uses is from the 1950 Monaco Grand Prix when he led after the first lap, only to swerve to a halt ahead of a bend in the second, raising his hand to warn his rivals of trouble ahead. The trouble in question was a pile-up of eight cars competing in the race. Fangio’s quick reactions had saved the day for everyone else. But how could he have known about a crash hidden from sight on the other side of a bend? Fangio explained he would always expect spectators to focus on the lead car, generally his. At Monaco he said: “They were not looking at me leading the race, but were looking the other way.” Instead of a light-coloured blur from their faces, the spectators in the stand had gone dark, with heads turned to look at the crash. The impact was unsettling. Fangio’s intuition was to brake.

The book points out that we make sense of the world with the left side of our brains. We use it to analyse, categorise, theorise and rank things on a conscious level. The right side, however, is concerned with broader spatial relationships at a subconscious level. When you feel uneasy, but unable to pin down the reason, this is the right brain at work. Its ability to trigger a defensive reaction is part of the human survival mechanism. If you have not guessed, it triggered Fangio’s decision to brake. The priority is to reach a quick verdict rather than understand it. So right-brainers find it hard to explain why they need to act in certain ways, to the irritation of left-brained market participants.

Faith does not only introduce his ideas as a concept, he also provides some practical exercises to aid the reader to trust the intuitive side of his/her brain; something that I am now employing in my trading.

Futex Academy give this book a STRONG BUY recommendation ]]> http://www.futex.co.uk/inbox-education/trading-instincts-how-to-become-a-master-trader/feed/ 0 http://www.futex.co.uk/inbox-education/the-money-machine/ http://www.futex.co.uk/inbox-education/the-money-machine/#comments Fri, 23 Jul 2010 07:36:14 +0000 John http://www.futex.co.uk/?p=2167   The Money Machine – How the City Works is one of the few financial books I have read that strikes the right balance between in-depth explanations and easy to read concepts, even for people with limited financial knowledge. Very few numbers and formulas are included in this book and most concepts are explained with historical examples in an easy to understand format.   Another good point is that the book is written in a similar style to many leading financial journals such as the Financial Times (the author used to write for the FT and the Economist); this will help beginners to become familiar swiftly with this reporting style and the terms and concepts often used by the FT.

The main concept of this book is that financial markets consist of borrowers and lenders; the role of the financial system being to put them in touch with each other to facilitate business. The book then provides a concise explanation of each market participant’s role, how they aim to benefit from the financial system and the type of financial instruments they employ. Most of the content of this book is nothing new but the day-to-day language and examples used throughout make it easy to grasp each concept. Historical examples used in the book are up to date (until early 2009), so readers can expect up to date case studies.

In my opinion, The Money Machine should be the first book to read for anyone looking to improve their fundamental knowledge of the market, or participating in the financial markets for the first time. Although I doubt that just by reading this book your profits will increase exponentially, I still think this book is an essential read for any trader who wants to build a solid fundamental profile of their market. Adding fundamental knowledge to other core trading skills, such as tape reading ability, understanding of market psychology and discipline, will definitely improve your game in the competitive world of trading.

One of the main concepts highlighted by the author is the variability of market behaviour. Following a behavioural change, many market participants from all time frames find it difficult to move away from an approach which previously made them money, and continue to stay attached to their ideas and methods. Every market participant strives towards consistent performance; but how can this be done if the market itself behaves inconsistently? The answer is that we as traders need to determine these changes and adapt to them.

Trending and ranging are the two fundamental phases all markets shift between, and identifying when one changes into the other is a difficult skill. In a ranging condition, the market essentially finds an area of fair value and auctions between two extremes where market participants respond to the divergence from value by buying or selling. A trending condition occurs when there is a shift in perception and market participants across all time frames begin buying or selling at prices which were originally deemed expensive or cheap. The author emphasises that this shift in perception can be determined from analysing the volume involved when the market moves away from value. A relatively high volume move can indicate that participants from many time frames are moving in the same direction. However, a low volume move indicates a false move with less conviction.

Alongside these main concepts, throughout the book, the author uses examples to describe market profile patterns and how to interpret them. This is the main factor separating this book from other market profile texts including Mind over Markets. Based on this, in my opinion, Markets in Profile is a must read for any aspiring trader.

Futex Academy give this book an OVERWEIGHT recommendation

What sets this book apart however is the level of detail the author goes into to explain the actual thought processes that occur when negative impulses are triggered and the provision of a plethora of techniques to interrupt the emergence of such impulses.

The central idea proposed is simple: behaviour is patterned. The author submits that negative patterned behaviour can be interrupted and there are specific effective techniques that can be utilised to achieve this. The author also encourages the reader to form an “Internal Observer” for the purposes of continuous self-monitoring. The idea here is to be constantly aware of one’s emotional state. As these concepts are discussed in detail the reader is also encouraged to embark on a journey of self-discovery and analysis in order to explore the best trading style suited to his psychological predisposition.

Personally I found this book to be very educational in fostering the understanding of the human psyche. The techniques proposed have certainly helped my trading by leaps and bounds. For example, I have come to understand that often a person’s negative patterned behaviour can manifest itself physically, which is why I am more acutely aware of my posture when trading because it helps me observe my emotional state.

In short this book is very easy to read with a narrative that is delivered through a series of some interesting anecdotes. Although slightly lengthy in certain sections, it is also packed with ideas, advice and techniques to help the aspiring trader achieve a higher level of performance. A must read.

Futex Academy give this book a STRONG BUY recommendation

The Turtle experiment which forms the subject of this enlightening book began as a bet between trading gurus Richard Dennis and William Eckhardt over 20 years ago. Dennis’s hypothesis, in contrast to his colleague’s, was that he could transform almost anyone into a winning trader.

The trainees that were recruited, trained and backed financially with million dollar trading accounts were known as the Turtles as Dennis believed that he could raise traders in the same way they raise turtles on farms in Singapore. This book was written by one of the most successful Turtles, Curtis M. Faith. In Way of the Turtle he shares his experiences, what he was taught, what he believes are the most important aspects of trading and why he succeeded where others failed.

The Turtles were taught to think of the long run and were given a mechanical system with an edge that overtime would be successful. Their primary goal was to stay in the game and the rules the Turtles had to follow were very simple. The key to their success would be consistency and discipline. The Turtle method was based on market movements that result from the systematic and repeated irrationality that are embedded in the majority of traders’ emotions. They never tried to predict market direction, but looked for indicators that a market was in a particular state. Dennis believed that good traders don’t try to predict what the market will do, but understand what the market is actually doing. For example, during fast market conditions the Turtles were advised not to panic but to wait for the market to stabilize before placing their orders. They were also implored to ignore the outcome of individual trades, to forget the past, to learn from it, to not worry about it and to believe in the effects of trading with positive expectation.

The difference between the best and worst performing of the Turtles was their individual psychological makeup. The author reveals the insurmountable challenge for some of the Turtles of accurately following the instructions of their mentors. Even though they were shown a successful trading system, many Turtles simply could not overcome their characters, emotions and ego to achieve significant profit. Although Faith proves that trading can be taught successfully, I firmly believe that some individuals are better suited to it than others. I believe you have to be committed, disciplined and most of all honest with yourself if you want to make it as a trader. The key lesson for me from Curtis’s book was to understand the importance of psychology in both market behaviour and individual performance. Whilst human emotion can be a source of great opportunity in trading, it can also be one of the greatest obstacles to consistent success. Market participants in financial markets do not always act rationally. Winning traders, like the best of the Turtles, take advantage of this irrational behaviour.

Futex Academy give this book a STRONG BUY recommendati

For anyone searching for a holy grail in trading, this book is definitely not for you. However, anyone looking to understand market dynamics and the drivers of supply and demand within a market, I would recommend that you read this book immediately.

One might think that a book written on trading in the 1930s would be extremely outdated and hold little credence to the modern day. This would be incorrect. Too many people nowadays are looking to indicators for a ‘holy grail’ that will give them immediate and consistent success. There is only one technique that has been able to consistently produce profitable day traders, and that is the ability to ‘read the tape’.

“But remember that your charts are records only of past human behaviour.”

Charts will only demonstrate past activity; in order to be a profitable trader one must be able to interpret the information as it is presented to you. This is the essence of tape reading; the ability to interpret the imbalance in supply and demand as the trades are printing on the tape.

The author goes into great detail to explain market dynamics and what factors drives price movement within a market. However, the topics discussed in this book are refreshingly simple and, as I mentioned earlier, they are the techniques that have produced successful traders and survived the test of time. The main element of the book is how supply and demand is depicted on the tape and the author uses several detailed examples to ensure the information is presented to the reader in the most complete way. The author also discusses the price action that takes place at key levels and how to interpret this action in order to successfully speculate upon the future movement of the stock.

There is also a section included in the book on market philosophy and human behaviour. However, there are more comprehensive guides to market philosophy and I believe that this was included by the author to help build the extensive picture of market dynamics.

As would be expected from a book written in the 1930s, there are several elements that are outdated. For example, the author talks about monitoring the movement of steel as a major component of the Dow Jones Industrial Average. Such elements are obviously not as relevant to the modern day but demonstrate to the reader the comprehensive nature of market dynamics. An example of this that the author discusses is that he witnesses a lot of pullbacks retracing to the 50% mark of the initial move. This theory has evolved into Fibonacci retracements, a common technical tool today, but the underlying principle remains the same.

This book provides the reader with an excellent guide to the market dynamics that drive supply and demand. I regard this book as highly as Reminiscences of a Stock Operator in terms of ‘must reads’ for anyone wishing to develop a successful career in day trading.

Futex Academy give this book a STRONG BUY recommendation