The ART of Trading
05/01/2008 12:00 am EST
Since I have had the pleasure of watching Bennett McDowell lecture to an obviously engaged audience in the past I was looking forward to reading his new book The ART of Trading; Combining the Science of technical Analysis with the art of reality Based Trading®. One of the many attractive features of his Applied Reality Trading system is that it can be applied to any market, any time frame, and any style of trading. His software program, which he includes on a trial basis in the book, uniquely identifies the different trading setups that he discusses in detail, so one is easily able to identify the past as well as current signals.
The book is divided into five major parts, the first of which contains five chapters and discusses the realities of trading. Part of the reason for this section is his view that many traders fail because they are dealing with their perception of reality, instead of reality itself. In the early chapters of the book, the reader is encouraged to find out what ‘type’ of trader they are. Although this may seem simplistic as an approach, this step is very important, as it turns out many are ill-suited to the trading style they have adopted, or may simply be better suited to another style. Risk management is discussed in the first section, and is also expounded upon in Part III from both a psychological and mathematical perspective. This emphasis is quite apropos, since it was the subject of Bennett’s first book, A Trader’s Money Management System: How to Ensure Profit and Avoid the Risk of Ruin. In chapter three he reviews seven different types of stops and correctly emphasizes their importance as trading tools. While all of this is quite sound advice, I was a bit surprised that he does allow for the use of “mental stops,” which I have found to be unrealistic for many traders. Challenging the readers to identify their own ART profile concludes the first section of the book and is an important step in the process. To develop an accurate profile Bennett recommends keeping a daily “Sunrise Trading Journal” and also completing a “Contract for Success.” This will assist you in developing a profile that will more accurately reflect your experience and trading style.
The second part contains several lists of do’s and don’t’s that will benefit both novice and experienced traders, some of which should be reviewed regularly by novice traders. For those who have never traded but have thought about ‘paper-trading’, Chapter 13 provides a logical and well thought-out way to get started. Although a large emphasis has been placed on the ART software system throughout the book, the guidelines for evaluating personal progress are useful, even if you do not use the ART software. The book contains many other valuable insights and techniques for trading; however, I found the frequent reminders to try the free 30-day trial of the ART software distracting. Although I do not evaluate software, the ART system’s stated goal to “simplify your trading and add structure, which helps to lessen anxiety that can lead to emotional trading” is an admirable one.
Part IV of the book explores the basics of the ART system with many examples of how the signals are generated as well as how they are different for the trend trader, scalper, or countertrend trader. Also discussed are the ART Reversal Bar Signals, which can be used in several different ways, such as scaling out of a trend, scaling in to a trend, scalping, etc. Advanced techniques are covered in the final section of the book. Here you will find chapters on a wide range of topics, including trading bracketed markets, stop and reverse methods, scaling in/out of a position, as well as others. As a long-term advocate of scaling out of a position, this section was right on target as was the discussion of the psychological effects of trading bracketed markets. There is also a discussion of what are referred to as “ungrounded assessments”, such as Elliott Wave analysis, and how they contrast with the “grounded assessment” of the ART methodology.
The book includes not only a series of Appendices but also a DVD. A quick review of the tutorials revealed that Bennett does a nice job of teaching the methods contained in the book. There are also full color copies of the charts in the book as well as the 30-day trial to the ART software. It is clear that a lot of effort and experience has gone into both the book and the software. The technical methods place a strong emphasis on discipline and risk management that are essential ingredients for trading success. New or intermediate traders will benefit most from this book, as it will either expose you to new concepts or reinforce ones that may have been forgotten.