Someone posted a new review of The Essentials of Trading on Amazon which has the title “Covers the bare bones. There’s no meat at all”. I actually know who it was, as the individualÂ emailed me. This is the firstÂ negative review I’ve seen to-date. So far they have all been excellent, but when you have a book read by thousands of people it’s inevitable that there are going to be those who don’t like it for one reason or another. I accept that fact and the criticism.
That said, I do want to address the reader’s arguments as there are points where I believe the book has been unfairly criticized (and others where it’s reasonable). To that end, I am posting the review here (italics)Â with my counter points.
I purchased this book for the purpose of learning more about stock trading. While the author suggests that his text is just as applicable to stocks, his entire focus is on currency (forex) trading. He spends a great deal of the book explaining the software of his favorite forex game platform (which turns out to be irrelevant during the remainder of the text). I can only assume that Oanda subsidized his book. I would not have purchased this book had I known that.
To address the latter point about Oanda subsidizing the book, the reader clearly did not pay close attention. On page 11 there is a point where I specifically state that while I have long used their forex platform both personally and in my educational efforts, I have no beneficial relationship with them, nor have I ever had. Which isn’t to say I wouldn’t mind having one at some point. 🙂
Moving back to the part about theÂ focus being onlyÂ on forex, this is something I’ve heard before, and I can understand why that might appear to be the case. Especially in the early part of the book where trading basics are the main focus, forex is the market featured. There’s a very simple and specific reason for that. Forex trades 24 hours a day.
I developed The Essentials of TradingÂ based on my experience teaching trading in the college classroom. These were evening classes. The stock market was closed. The futures market – including stock index futures – is not sufficiently active many evenings to provide sufficient price movement for teaching purposes. It’s about giving people the opportunity to practice in a real-time, active price movement environment. The forex market is the best vehicle for that.
After getting the reader working on understanding price movements, orders, profit/loss, and all those basics, the focus shifts away from forex. The sections on what moves prices and market analysis are general. They incorporate all of the major markets in the discussion.
In terms of the forex platform being irrelevant during the remainder of the text, that is completely untrue since it most definitely features when I get into the system development and testing area. I did that to allow the reader to once again practice on a platform with which they were already familiar.
While I am glad to know a bit more about forex trading, some of the “logic” behind doing so is faulty in my opinion. One of the premises behind trading currency is the much smaller set of investment vehicles to analyze as opposed to the thousands of stocks available. The trouble with this premise is that one currency in and of itself takes an entire economy to create its value as opposed to a stock which is a microcosm of one sector of an economy. What you end up trading with forex is not just one economy but TWO! To trade the currencies effectively, one should know what’s driving the value of both entire economies. The scope of your fundamental analysis is therefore not more limited, but dynamically multiplied.
Cannot disagree with that at all. Fundamental analysis of the forex market is very complex because you are trading a relationship between two currencies. Of course technical analysis and quantitative analysis are also possible methods for forex trading.
However, that being said, this book only covers the most basic concepts of trading, and in very broad generalities. He gives practical “homework” assignments, such as track market reactions to economic releases, keep a journal, write down your goals, define your strategy, stick to your strategy, don’t drink and trade.
All true. This is a basic, foundational book. The don’t drink part, wasn’t mine, though. It was a quote from a trader on the Trade2Win forum.
Where this book falls grossly short, for me, is in the details of his “methods”. The subtitle is “From the Basics to Building a Winning Strategy”. This should be interpreted as reaching only to the upper resistance area of the Basics. The window left between the Basics and the theoretical Winning Strategy is quite large. There is NO bullish breakout into the Winning Strategy trading area.
Nice use of market related phraseology. 🙂
I’m not entirely sure what was expected in terms of sharing my “methods”. If the reader went in to the book expecting that I was going to lay out a specific technique for trading the markets, they were well off base. The book is in no way intended to do that and I made very sure that it was not advertised by my publisherÂ as doing anything of the sort (though it does present a pretty specific stock tradingÂ methodology in an appendix by way of a fully realized trading plan of action).
He basically says, “go create a strategy”, then “test your strategy”. Then says, “choose a strategy” without a single word of advice as to how to do that with any reasonable or practical sensibility. There is no discussion of the multitude of components that might make up a strategy other than “there’s other books written on the subject”. His homework assignment in this one area would leave the book on the shelf for years while you figure it all out yourself.
The three chapters which cover systems development, testing, and evaluation are intended to outline what a trading system is and how to judge one. Obviously, to develop and test a system one must first have something to be the basis for that system. Only the individual can decide what that basis is. The process of doing so is addressed in the middle part of the book where the discussion involves determining how one takes on the market. Which market? Which instrument(s)?Â What timeframe? Technical? Fundamental? Quantitative? Value or momentum? Trend or range? There are a lot of questions the individual needs to answer before the system comes in to play.
The reviewer uses the term “multitude of components”, and that is extremely appropriate. There are so many possibilities for ways to trade, what to trade, when to trade, and how to do it that no book could possibly cover even most of them in a reasonable fashion. My intention with The Essentials of TradingÂ was to introduce the basic roots and categories, but it is up to the individual to pick the best for them and pursue more detailed research in that area.
He provides a few basic testing examples, but emphasizes that they were created for the purpose of walking through a fictitious test and are not intended to provide any usable results. There’s no list of things that might be testable, what indicators are available, or what variables to use, what formulas to use or how to apply any of his suggestions to the wide expanse of reality. Speaking of formulas, he throws out a great deal of quantitative results, but doesn’t provide the math used to back it up. This is akin to saying, “X=10, please go test for X, and make your choices based on the results.” I’m just supposed to grab these formulas out of thin air I suppose?
WithoutÂ knowing specifically to what the reviewer is speaking, I can’t really address thisÂ critique. I didn’t include much in the way of complex math or quantitative methods, so I’m not really sure what the issue is here.Â
The few formulas that he does provide are either basic math (sell price minus purchase price equals profit), or include variables that aren’t explained at all (i.e. R sub f = risk free rate of return). If you don’t know what Risk Free Rate of Return is, don’t worry neither do I and I’ve read the book.
The Risk Free Rate is generally considered the yield on US Treasury securities of the time span in question. That said, right after introducing it in the text as part of the formula for the Sharpe Ratio I tossed it out for the sake of simplicity since essentially it’s a meaningless thing for the trader. It’s never used again.Â
He doesn’t point you in any direction whatsoever! There’s a big world out there, go invent your tests and your formulas yourself, then test all the possibilities before using real money to trade. While at the same time says that it’s unreasonable for a novice to understand more than one trend indicator at a time. I’m sorry, that’s just not practical advice. If I can only understand one indicator, at least point me in a somewhat limited direction and explain it to me.
The reviewer here seems to make the assumption that everyone who reads The Essentials of TradingÂ is going to follow a path toward technical analysis. At least that’s the impression I get from the discussion of indicators. In writing the book, however, I did no such thing. I knew that some folks would go toward fundamentals, others technicals, and still others quantitative methods. There are excellent books on all those subjects. I couldn’t possibly go into any real depth in any of those subjects. The objective of the book was to introduce them so the reader could make her/his own decisions.
He also does not give any advice as to how to find a broker, just says “find one that suits your goals”. What?! Mind telling me how to do that? Never once mentions how to research their credentials, or what scams might await. How are they regulated (or not)? What should you look for as a reasonable spread? Are there hidden fees to consider? What about those bogus interest rate rules some brokers have? And absolutely nothing he suggested actually related to stocks or stock brokers at all as far as I’m concerned.
Actually, my advice in regards to brokers was to make use of sites like Trade2Win where there are extensive discussions of various brokers in all different markets. That said, the book probably could have done with a more thorough discussion of brokers. That’s definitely something I’ll have in mind for a future revised edition.
Many of his charts are illegible, or incomprehensible due to lack of explanation as to what he’s charted. There are many grammatical and sentence structure errors which make portions of this text difficult to get through. His overview of the technical indicators is slack at best. He merely suggests that “there are many books that already cover that topic in great detail”. In fact he makes similar statements on various topics throughout the book.
I will absolutely agree on the charts. When I originally put the book together I was doing so in a normal 8.5×11 page format. It wasn’t until Brett Steenbarger got me hooked up with Wiley that things changed. Personally, I don’t care much for the way Wiley formats its trading books. They are quite unattractive in layout.
As for the book’s overview of technicals being slack, of course it is. John Murphy’s book Technical Analysis of the Financial Markets is widely considered the best book on the subject. That book runs 500+ pages. There’s no way I could possibly cover a subject with that much depth in any but the most introductory way in a book which was developed to be basic and foundational.
The most amazing thing is that he spends the entirety of the book explaining trading via forex. But then the trading system he shares with you in the appendix is for stocks! And not only that, the system presented completely digresses from his proposal to pick one or two trading vehicles and thoroughly back test them to develop the optimum system for that vehicle. It is the ultimate in inconsistency! Due to the number of errors in the book, there’s no way I’d trust his “sample system” at the end of the book without confirming it against several other sources.
First off all, the reviewer suggests that there are a number of errors in the book, but hasn’t actually pointed them out. Not really sure what can be done with that.
Second, as noted earlier, I included the stock method as an example of a full formed trading plan and strategy. I really don’t know how that contradicts anything. As I’ve already said, I used forex a lot in the book for specific trading elements so they could be readily replicated and practiced. At no point, though, did I say not to trade stocks, or endorse any particular market. I don’t consider trading different individual stocks to violate the idea of focusing on relatively few vehicles, and the system I use is one I’ve tested considerably over the years.
And one should absolutely never trade a system without doing your own testing of it.
If you need someone to tell you that you need to do your homework, apply yourself to ongoing research, and plan properly prior to trading then I’ve just done that. No need to buy the book.
However, if you’re looking for practical advice on how to find workable tools, strategy evaluation methods, or any caveats to watch out for which are prevalent in the industry, I suggest that you seek to purchase one of those other books that he alluded to.
The subtitle really should be “From the Basics and up to (but not including) Building a Winning Strategy”.
My basic feeling from this review is that the reader:
1) Already has experience in and/or experience ofÂ the market. This isÂ suggested by theÂ phrase in their firstÂ sentenseÂ “purpose of learning more about stock trading”. This book is not specfic to stock trading, so a reader who knows that’s what they want to trade should look for a book which covers that subject directly. The same is true of any other specific market or technique.
2) They were expecting something more from the book than it was designed to present. The talk about not being provided with a specific method or indicators indicates as much. As I’ve said, this book is foundational. It was not written to present the reader with anything like “use this system to make money”. I’ll let others sell that kind of book to folks who in most cases will never make any meaningful money using said system.
3)Â What I consider the most important part of the book was essentially skipped. The middle third of the book talks at length about what it takes to develop a strong trading base. This is by far the biggest problem I see with new or relatively new traders. They just jump into the deep end of the pool without learning how to do anything more than tread water. The reader makes absolutely no mention of the sections of the book on developing a strong trading plan or risk management. Everything else was attacked in one fashion or another. Why not those areas?
Like I said before, I accept that not everyone is going to find the book useful. It wasn’t written for everyone. I also agree that there are things which could have been done better. If I were writing it now I would change some things based on the experience I’ve gained working with traders over the last three years since I wrote the book.
They wouldn’t be huge changes, though. I continue to believe that The Essentials of TradingÂ does what I intended it to do, and does it pretty well. The fact that so many folks have had such good things to say about it tells me the vast majority of readers find it very useful.