“Realize that you are playing the coldest, bitterest game in the world...Almost anything is fair in stock trading. The whole idea is to outsmart the other fellow.”

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One might think that a book written on trading in the 1930s would be extremely outdated and hold little credence to the modern day.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As would be expected from a book written in the 1930s, there are several elements that are outdated.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

Tags: day trading, market dynamics, read the tape, supply and demand

This entry was posted on Monday, March 22nd, 2010 at 3:48 pm and is filed under Book Reviews, Inbox Education. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.