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Trading Book Reviews

Book Review: Nerds on Wall Street

[easyazon-link asin=”0471369462″][/easyazon-link]I finally finished reading [easyazon-link asin=”0471369462″]Nerds on Wall Street[/easyazon-link]by David J. Leinweber the other day. It’s a book I actually started reading nearly a year ago when I was preparing for my visit to the ICMA Centre at the University of Reading to talk to some of the faculty there about the PhD program. I figured it wouldn’t hurt to bone up on some of the history of high quantitative methods employed by Wall Street since that was what I was about to be talking about. I didn’t end up getting overly far in the book because of other things coming up, and have been reading it slowly, in fits and starts since then. Not that this should be taken to indicate the quality of the book. It’s just not the type of thing I normally pick up when I’m looking to kick back and relax.

Nerds on Wall Street largely comprises of a collection of articles the author has published over the years, though I personally didn’t feel like I was reading a bunch of separate items. Leinweber did a pretty good job smoothing out the transitions. The result is a pretty expansive look at the history of computerized methods applied in the financial markets, the author having been involved in quite a bit of it himself. It covers subjects from fairly simple methods just about any trader or investor can use today (many of which are relatively recent developments) to highly complex systems employed primarily by institutional level operators.

For traders looking for something that goes beyond a history lesson, there are a couple of sections I really think have a lot of value. One is the chapter on data mining which does a good job of highlighting the pitfalls of trading system back-testing. Another is the chapter on stock market manipulation across the years, which ties in with a chapter on collective intelligence, social media, etc.

My one disappointment with the book is toward the end where the author starts talking about ideas for resolving the banking crisis (the book was published in 2009)  because it’s dated at this point (which comes after a rant about how financial engineering was taken to a ridiculous extreme). One can also question the last chapter which talks about how the brain power so recently applied to coming up with complex financial engineering could be shifted to the energy sector, though it does make some interesting points. All in all, though, I found the book a very interesting and potentially valuable read.

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Trading Book Reviews

Book Review: Trading on Corporate Earnings News

[easyazon-link asin=”0137084927″][/easyazon-link]If you’re a stock market trader I think you’ll want to pick up a copy of [easyazon-link asin=”0137084927″]Trading on Corporate Earnings News[/easyazon-link] by John Shon and Ping Zhou. It’s a book that’s focused on short-term options trading, but which could have a fair bit of value to non-options traders and general market watchers as a whole. The authors are a pair of PhDs (Shon is an academic, Zhou a portfolio manager) who really get into the numbers about what stocks do around earnings announcements. It’s interesting and potentially quite useful stuff if you track stocks at all.

Don’t worry about the PhD thing, though. This isn’t an academic paper. The language is very easy to read and there isn’t a bunch of Greek in the text. What they have done is incorporate a considerable amount of academic research (7 pages of references) about earnings forecasts, price performance, and related subjects into a pretty well done discussion which features loads of visuals.

The book starts off by taking an in-depth look at earning surprises, including empirical evidence of how they are distributed and how their patterns have tended to change over time. It then moves on to look at how stock prices react to earnings surprises. I outlined some of their results in Some Numbers on Stock Market Earnings Reactions. The rest of the book focuses on options trading strategies.

By the way, there’s nothing too complicated about the option strategies, so even if you’re not an experienced options trader you shouldn’t have much problem following along with the discussion. There are lots and lots of examples provided and explained. I would have liked to have seen some empirical data on the performance of the strategies outlined, though.

Short-term options trading is not my personal thing, and I was well aware of the different types of options strategies that could be employed for the type of trading the authors discuss in this book. Still, I found it a very worthwhile read for the information presented on earnings estimates and how the markets react to earnings releases. It’s information I could very likely put to use in other ways in my market analysis and trading. From both perspectives I think it’s a good read.

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Trading Book Reviews

Book Review: Profiting With Condor Options

[easyazon-link asin=”0137085516″][/easyazon-link]The latest trading book I’ve finished going through is [easyazon-link asin=”0137085516″]Profiting With Condor Options[/easyazon-link] by Michael Benklifa. The author’s bio indicates he “manages millions of dollars worth of condor trades every month for private investors”. I opted to give this one a read because condors have become a common strategy talking point, at least among the websites and blogs I pay attention to on a daily basis. I’ve never traded condors myself, so I figured maybe this would be a good introduction to this options trading approach. I’m conflicted as to whether I want to recommend this book, though.

My first problem with this book is that I couldn’t actually find a definition of what a condor is in the text. I was about half-way through the text when this occurred to me and I flipped back through the earlier pages thinking I must have missed it, but to no avail. There are examples of condors, of course, and from that you can deduce what a condor option spread is, but I never saw it properly defined, which is something you’d think should be a feature of a book like this – one which takes a fair number of pages to talk about option basics.

The other problem I have with the book is that it’s rambling. The author covers a lot of ground, but does so in a rather meandering way. The text is kind of disorganized. I don’t mean the overall structure of the material in terms of content progression. That’s generally fine. I’m referring more to the actual writing, which could have done with some editing to produce a tighter and more focused end project. Instead it’s something that can be challenging to follow at times.

Now, I will say that author does provide a very specific set of rules for trading condors. This is mainly for SPX index options because of their liquidity and tight spreads, but he also talks about individual stock options late in the book when he spends a bit of time addressing day trading. This is probably the part of the book that will be of benefit to most readers, whether they actually use the outlined strategy or not.

I guess the bottom line is that I’m not inclined to recommend this as a strictly educational book for someone totally unfamiliar with the subject. For those looking to get ideas how they could apply condors to their trading, however, there’s probably some value to be had.

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Trading Book Reviews

Book Review: Capital Offense

[easyazon-link asin=”0470520671″][/easyazon-link]Another of the genre of books about the causes of the financial crisis that’s been been released of late is [easyazon-link asin=”0470520671″]Capital Offense[/easyazon-link] by Michael Hirsh, which I’ve recently finished reading. This is a book that focuses more on the broad array of personalities than the others I’ve read – in particular on the leading policy makers of the last couple decades. The authors primary cast of characters includes Milton Friedman, Alan Greenspan, Robert Rubin, Larry Summers, Joseph Stiglitz, with copious biographical information included for all of them.

I will readily admit that I’ve not been a student of economic history and as such don’t really know all that much about the individuals who have shaped it over the years. One of the things I found most interesting about this book was the discussion of how the economic philosophies of Milton Friedman and Alan Greenspan were developed and shaped.

The basic theme of Capital Offense is the growth then dominance of free market thinking in US and global policy making, starting most powerfully in the Reagan era and progressing right through the intervening administrations and into the Obama presidency. Hirsh points to Friedman as the leading initial force of this movement, but seems to be hesitant about actually blaming him for what he calls the free market zeitgeist that created the financial crisis. He is not, however, shy about placing that blame firmly on Alan Greenspan, Robert Rubin, and Larry Summers for their attitudes to regulation and actions to reduce its impact on the markets.

Interestingly, Stiglitz is portrayed as the hero of the period because he had it right in terms of seeing what was to come, but was generally marginalized when it came to actually being a part of the policy mechanism. My one little issue with that is the implication he’d have been able to get the policy right given the opportunity. Maybe he could have done. We just don’t know.

The author leaves us with a critical view of the Obama administration in how it features many of the same individuals who were integral in the way the free market mantra was so entrenched during the Clinton administration and how it’s missed opportunities to enact needed change to the financial system. He doesn’t leave the reader feeling very positive about future prospects.

Overall, I found Capital Offense a very informative and engaging read. I definitely recommend it to anyone looking to get a look at the underlying economic philosophies which brought us to the current point.

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Trading Book Reviews

Book Review: The Complete Trading Course

[easyazon-link asin=”0470594594″][/easyazon-link]By way of full disclosure, I received a free copy of Corey Rosenbloom’s new book [easyazon-link asin=”0470594594″]The Complete Trading Course[/easyazon-link] from Wiley at the author’s behest. Wiley is also my own publisher and Corey is a personal contact of mine. Oh, and he also lists me in the acknowledgements to the book. That was more for sharing my perspective as an author and commiserating on things than for any direct contribution to the text, however. This is the first time I’ve actually seen the book, so this review is coming from the perspective of a fresh impression. Corey, by the way, is an active blogger at AfraidtoTrade.com and contributed to my New Trader FAQs book.

Perhaps a more accurate title for this book would have been The Complete Technical Trading Course. That is what we’re talking about here – a front-to-back approach to applying technical analysis to trading. This is not, however, a survey book that attempts to walk the reader through all the various sorts of technical methods and techniques. The author, instead, focuses on the tools he actually uses in his own market analysis and trading.

The book starts off talking about trends, both in terms of defining them and in terms of identifying them. It then progresses into the subject of momentum, and that is followed by a chapter focused on market phases. All of this lays the groundwork for the second part of the book where it gets into strategies and tools. These include candlestick charting, price pattern analysis, Fibonaccis, and Elliott Wave techniques. The final section of the book focuses on trade set-ups and strategy execution.

It should be noted that this is NOT a trading system book. It’s about analyzing the markets and identifying good set-ups. If you’re looking for something mechanical you’ll want to look elsewhere. Also, the author is very much a stock market oriented trader, and that is reflected in the text. This doesn’t mean the methods and concepts are not applicable to other markets, however.

Overall, I’d say this is the exact sort of book I’d recommend to those readers of The Essentials of Trading who were interested in seeing how technical analysis can be applied in trading. It’s well structured and loaded with examples. I have a personal pet peeve with the standard internal formatting of Wiley Trading books, but that’s not the fault of the author and it doesn’t really detract from the message or lessons. Oh, and the bibliography is huge!

Bottom line: If you want a nitty gritty detail-oriented book on how to apply technical analysis techniques and methods, [easyazon-link asin=”0470594594″]The Complete Trading Course[/easyazon-link] fits the bill quite nicely.

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Trader Resources

What Should I Read on my New Kindle?

Last week I finally gave in and ordered myself a Kindle from Amazon. This is something I’ve been thinking about for quite a while. I read a ton, and some of it happens on my daily commute. While that’s fine for paperbacks, it’s not so great for hard covers, especially bigger ones. Just can’t handle them in one hand while holding on to a rail with my other riding on the train (I don’t get to sit very often). Plus, in the warmer months I like to read outside, and since I live near the coast that means wind flipping pages around when reading a larger book. The Kindle helps in both those situations.

I’ve also got a bit of green thinking going on here as well. I’ve started to feel guilty about buying print books when they are so readily available in electronic format now – and often at lower prices in any case.

Now, I’ve only just got the device, and have a few print books to get through before I’m likely to be focused on a Kindle book, so I won’t have a good impression on things for a little while yet. I have begun accumulating books to read, though. Project Gutenberg is a good source for public domain books and I grabbed a couple dozen of the classics from there last night. One of them is Adam Smith’s Wealth of Nations.

What I would love to find is old trading books, which basically means early 1900s. I’ve started doing some research. If you know of any, definitely leave a comment below.

I’m also going to be developing a list of books to read and include among my trading book reviews here on this blog. If there’s a book (or books) you would like to see me write about, definitely let me know. And they need not be strictly non-fiction. There’s a fair bit of trading and markets oriented fiction out there (for example, the books by Paul Erdman). I like to read that kind of stuff, so definitely include those titles too.

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Trading Book Reviews

Book Review: Harmonic Trading, Volume One

[easyazon-link asin=”0137051506″][/easyazon-link] [easyazon-link asin=”0137051506″]Harmonic Trading, Volume One[/easyazon-link] by Scott Carney is a book I was given the opportunity of picking up for free. It looked interesting, and a bit different from others I’ve read and reviewed, so I took the opportunity to get a copy and give it a look.

The underlying subject matter of the book is Fibonacci based technical analysis and trading. As such, it is a highly mathematical approach which utilizes ratios and retracements and projections. It shares considerable similarities to Gann Theory and Elliott Wave approaches, so those with at least a passing understanding of either will have no problem following the discussion.

As much as there is an annoying arrogance to the author’s writing, he does present a pretty comprehensive market analysis and trading approach in this book. Specific patterns of importance are described with numerous chart examples. That makes for a fairly easy read. Entry and exit strategies are outlined. Carney even talks about the mental side of trading.

I personally don’t go in for this approach to analysis and trading, but I know folks who have used similar techniques successfully for many years, so I won’t dismiss them. As with anything other method, it’s a question of matching up personality and trading style. If a mathematical, pattern-oriented approach is appealing to you, then Harmonic Trading, Volume One is probably a book worth picking up.

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