A few weeks back, I kicked off the Intelligent Investor Series as part of my weekly commentaries. Th...
High Probability Trading Strategies
05/01/2009 12:01 am EST
Over the past twenty years, Bob Miner has been teaching and refining his unique combination of Fibonacci and Elliott Wave analysis while publishing a wide range of market advisories. Other traders, such as Carolyn Boroden, credit Bob with their trading success. I had the pleasure of reviewing Carolyn's book last year and was anticipating the release of Bob's new book. Though both books cover some similar ground, they are still quite different and I feel that I have learned something from each of them.
Bob's goal, as stated in Chapter 1, is to teach you "The four dimensions of market position: Multiple time frame momentum, pattern, price, and time." The book also includes a CD that should not be viewed until you have finished reading the book, therefore, I will discuss the CD later. Those aspiring traders who are still under the delusion that one can become a successful trader without hard work will probably not make it through the first few chapters. Those who are willing to commit the time will understand the methodology and definitely extract valuable knowledge.
The book is full of many well-annotated charts and examples, some of which I needed to go through more than once before moving on. The extra effort was worth it as I was then able to apply Bob's methods even without the benefit of his customized software, which does look impressive.
Since there is so much detailed information, it is not feasible to discuss each of the chapters, so I will focus on a few of them that I found particularly interesting. One should note that there are countless observations from the author throughout the book, such as: "Momentum indicators represent momentum trends, not price trends." Bob's discussion of multiple time frame momentum in Chapter 2 is handled in an excellent manner with examples of weekly-daily as well as 60-minute to 15-minute intervals. The methodology is broken down into easy-to-understand tables and actions depending on the indicators at the higher or lower time frame. On the charts of the lower time frame, the reading of the higher time frame oscillators are noted, which puts the price action on the short-term charts in context. In this chapter, Bob also delves into various indicators and what you can do to adjust the indicator's look-back period.
My knowledge of Fibonacci analysis was broadened by reading Chapter 4 as Bob looks at what he refers to as the "internal and external" Fibonacci projections. The retracement levels that are used by many traders come under the internal category. The external projections include (APP) Alternative Price Projection that compares price swings in the same direction. Simplistically, this would take the length of the A wave in an ABC correction to project potential targets for the C wave. The other type of external retracements that Bob feels most traders do not use are the 127.2% and 161.8% extensions from the A-B wave to project the C wave high. High confidence price targets are indentified when price levels, using each of these methods, overlap.
Bob discusses cycles in Chapter 5, and in Chapter 6, he discusses "Entry Strategies and Position Size." Chapter 6 also explains two distinct entry strategies that can be used on any different time frames. There is an in-depth discussion of why position size is such an important factor in surviving as a trader. In some examples, the risk per trade using the weekly and daily charts is quite high, and in these instances, Bob looks at the entry strategy on a short-term chart. In either case, the entry and stop points are then used to determine the appropriate size position to protect your portfolio. The calculation is quite elementary and the author advises that if you can't do it, you should stop trading.
In the next chapter, Bob covers exit strategies and trade management where he advocates multiple-unit trading and recommends scaling out of the short-term unit and then holding on to the long-term unit until the market action dictates using a tighter stop. The guidelines provided are quite specific and could be implemented by all traders. Instead of taking profits on the short-term unit at a pre-determined level, he uses a trailing stop method to reduce the position size once the minimum target is reached. Though I have always been more comfortable selling out part of a position at pre-determined levels, Bob's approach clearly seems to have merit.
In the book's conclusion, Bob stresses the importance of analyzing each of your trades and has some very good advice for the novice traders. Unfortunately, too many new traders may not be willing to put the effort into studying this book, but those who do should be part of the small percentage that survives. Following Bob's instruction, I reserved the CD until I had completed the book. Because of time limitations, I was only able to study a few of his examples, which I found do an excellent job of reinforcing the principles of the book and can also be used as a self-test. Bob Miner has put serious effort into writing this book and he has done an excellent job. I highly recommend High Probability Trading Strategies and plan on reading many of the sections again.
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