Trading is not a game of exacts. Perfectionists need not apply. Markets are made up of many irration...
2007--Books on Trading
01/01/2008 12:00 am EST
Well, if there was clearly a pattern for the books I reviewed in 2007: it was FX, FX, and more FX. Since the explosion in FX trading was evident early in the year, this was not a surprise, but made the reviewing process a bit more difficult, and my examination that much more rigorous.
All of the books I reviewed had merits and would benefit those who read them, but in my humble opinion they had irrelevant or misleading information that kept them from receiving my wholehearted recommendation. Having been involved in FX since before the Plaza Accord in 1985 means that I know just enough about it to be dangerous, and this also makes me a bit tougher on the authors. Most of the FX books spent a bit of time answering the question “why Forex?” (i.e. liquidity, leverage, etc.), but after that some provided specific trading methodologies while others provided more a more general view of their approach to trading.
In terms of technical methods my favorite book was John Person’s Forex Conquered: High Probability Systems and Strategies for Active Traders. As I noted in my review in March 2007 some of the topics that John covers include: “…pivot point analysis, pivot point moving averages, Stochastics, MACD, and most importantly, candlestick charting. All are applied to the forex markets, with clearly labeled charts. One chapter is completely devoted to specific candle formations which John finds the most important. He also reveals how he uses moving averages of the pivot point values as a trading system. There are also chapters on applying Elliott Wave and Fibonacci analysis to the forex markets. Pivot point analysis, Fibonacci projections, and candle formations he finds work especially well in combination. For example, observing a reversal candle formation at Fibonacci and pivot point resistance or support gives the trader additional reasons to enter or exit a position.”
I asked John if in hindsight there was anything he would like to add, and received this response: "The trading systems were designed to illustrate that pivot point analysis combined with other indicators can be designed and programmed into a trading system to help generate high probability trades. With proper optimization of risk and reward parameters one can build a successful system that over time will generate profits. Certain markets have specific characteristics, and as a result each market is valued upon its own unique nuances and perceived values by market participants. It is that combined perception of value that creates volatility that attracts certain traders and traders’ style which in turn may help create a rhythm in a market’s trading habit. It is that assumption why certain indicators work better on certain markets in different market conditions. My work on the subject of forex in designing the trading system which compares three different indicators is designed as a foundation for the reader to use this information to build with their own ideas and expand into the direction of trading off of a rule-based trading method."
As the best reference book on FX, you will be likely surprised that I chose Currency Trading for Dummies authored by Mark Galant and Brian Dolan. I noted at the time that many of the FX books had been “…quite good, but most would have been better had they not contained a sales pitch or examples that unreasonably raised one’s expectations for success.”
Currency Trading for Dummies, was a pleasant surprise “as there was a significant amount of background information that is not always covered in other FX books and it was presented in a factual, ‘no nonsense’ manner. Within chapter four, entitled “The Mechanics of Currency Trading”, there were several sections I found quite informative. The discussion of calculating profit and loss, which is not always straightforward for stock traders, and the advice to do this calculation before establishing a position will help many beginning FX traders to survive. The explanation of rollovers is also easy to follow, and I would expect that many who are already trading FX will benefit from the information.” After writing the review I ended up meeting Brian Dolan on several occasions and was impressed by his analysis of the FX markets.
Many of the FX books also have some noteworthy analogies and one of my favorites was in The 10 Essentials of Forex Trading by Jared F. Martinez. As I noted at the time Jared has a good discussion of money management and for those who put on a trade without a stop and end up with a profit, his reaction is “Congratulations, you just ran your first red light without an accident.”
The most thought provoking book I read all year was World Event Trading by Andrew Busch who “examines three types of world events: infectious diseases, natural disasters, and politics, from a historical perspective before showing how all three impact the financial markets.”
Andrew points out that trading on world events is the opposite of a trading system, but provides a convincing argument that world events can have characteristic influences on a market over a period of time. This is not to say, however, that the market reacted the same way to each world event of the same type. By knowing what has happened in the past and being acutely aware of the major financial markets around the world, one can be better prepared to capitalize on these events when they occur. To this end, the book can also be quite handy as a reference guide of charts to easily see how the market reacted at a particular world event, possibly giving insight into market reactions to current or recent world events. I found this to be a very interesting book and on a recent trip had to pry it away from one of my colleagues. I recommend this book to anyone who is curious about the financial markets and world events, and is interested in the relationship between the two.
As a volatile year draws to a close, most traders are very happy with the higher volatility, and I am already looking forward to next year’s crop of trading books. A few good ones have already been selected and as always I look forward to your comments or suggestions, please e-mail me at firstname.lastname@example.org.
Until then best wishes for a happy and healthy New Year!
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