Trading Book Reviews

Book Review: Essentials of Foreign Exchange Trading

[easyazon-link asin=”0470390867″][/easyazon-link]This review of [easyazon-link asin=”0470390867″]Essentials of Foreign Exchange Trading[/easyazon-link] has been a long time coming. The book is part of Wiley’s “Essentials Series”, which as I understand it covers a wide array of business-related topics. Wiley published my own book, [easyazon-link asin=”047179063X”]The Essentials of Trading[/easyazon-link], as well, but my editor and I came up with that title together without any influence (that I’m aware of) of the “Essentials” books. When I found out about this book being published I was initially a little surprised, thinking it might have spun off from my title, but that clearly isn’t the case (the lack of “The” as the beginning does differentiate).

The book was provided to me by the author, James Chen, for review several months back. It took me a while to go through as I didn’t read it straight through and was focused on other things at the time. On top of that it’s taken me quite a while to actually get to the writing even though the book has been sitting on my desk for quite some time starring at me.

I’m a bit mixed on Essentials of Foreign Exchange Trading. In terms of a basic overview and description of the retail forex market I think it does a pretty good job. Chen covers all the bases from a brief overview of how we got to where we are in terms of market structure, the basics of forex pricing and trading mechanics, and overviews of technical and fundamental analysis. This is something you would certainly expect from someone who works for a broker.

There are also a number of different trading strategies discussed. That ranges from the different time frames (day, swing, position) to the broad styles of trading (trend, range), and incorporates some of the methodologies (breakouts, chart patterns, Fibonacci, pivot points, Elliott Wave, etc.) as well as discussions of topics like carry and news trading. While some basic strategies are introduced, this is not the type of book which outlines a specific strategy or set of strategies. Instead it provides an overview of the different approaches one could take to trading forex.

I do have a few issues with the book, however. You may consider them a bit nitpicky.

First, Chen discusses “stop loss” and “profit limit” orders in a way which suggests they are somehow different than stop and limit orders, which they aren’t. This could confuse some new traders.

Second, the subject of margin isn’t covered quite as fully as I’d like to have seen. Margin call is explained, but the actual margin requirement (initial and maintenance) are not well defined. Given how frequently this confuses new traders, it would have been good for there to have been a more thorough discussion of the subject.

Third, Chen actually talks about “hedging” in a way which suggests it can be a useful strategy (which perhaps shouldn’t be surprising given he works for a broker). The book was written prior to the NFA’s rules in opposition to this practice (see No more hedging for forex traders), but that is only for US brokers. Those in other countries can still employ “hedging”, which is something I have long argued is at best something which has no net impact on one’s account and at worst actually costs the trader money for no net advantage being provided (see Forex Hedging Continued).

I’m also not that keen on the way the author categorizes news trading as being a fundamental approach. It really isn’t. News traders are merely trying to profit from the market’s reaction to data releases. They don’t really care about the meaning of the release in the wider fundamental picture, just how it compares to market expectations. Call it basically a play on market psychology.

I do like the way Chen includes sidebar type boxes introducing and explaining important people and topics in forex trading (or just trading in general). One of them even covers one of my favorite set-ups, the narrow Bollinger Band one he calls a “squeeze”. My first ever published article back in 1994 was on the use of Bollingers to look at the trend situation of a market, and I’ve written about the narrow Band set up and its usefulness many times since.

I also think the author does a fairly good job of talking (at least in brief) about important subjects related to developing a strategy and implementing a trading plan, and the pitfalls traders can fall into. I don’t care for his discussion of risk/reward, because it presents an overly one-sided view of trader performance, but otherwise I think Chen has done a reasonable job of hitting the major high points.

Overall, I found Essentials of Foreign Exchange Trading a pretty quick, easy read. It will probably sound self-serving for me to say that I think my own book, The Essentials of Trading, is a better overall book for new traders, but I do honestly believe that to be the case. I will admit, however, that Chen’s book, because of it’s market-specific focus, does cover forex related subjects better.

Make sure to check out all my trading book reviews.

Trader Resources

A Collection of The Essentials of Trading Reviews

The Essentials of Trading book by John Forman

I found out about a set of reviews of The Essentials of Trading on a site I’d seen advertised, but never previously visited.  It’s Now, I don’t know anything at all about who runs the site or anything like that, so I can’t speak to the overall nature of it, but I was impressed by the reviews folks post for my book. They were quite well thought out and written.

No, I don”t know the posters, though one of them indicates that (s)he knows me from my posting on BabyPips. 🙂

Here are some of the comments:

I purchased this book because I wanted to learn more about trading and this book did not disappoint me at all. It covers essential topics you need to know when you want to start trading.

I also found John’s writing to be clear and concise. He covered important areas such as 1) having a plan, 2) having a reliable system, 3) the importance of testing and of course 4) final application.

This book has really changed my views about trading which is why I would recommend this book to all aspiring traders who also value learning and development.

I think that one hits quite well on the major focus points I had for the book.

I admire the author of this book because he’s able to discuss forex trading like it’s the most interesting topic on earth. He explained the basics thoroughly and made the fundamentals sound easy. He’s got style, he’s organized, and he’s very persuasive. He made it clear (and I agree as well) that hands-on learning and experience are the best ways to acquire forex trading skills. I now apply all the things I’ve learned from his discussions about the different trading systems and strategies on my practice account.

The whole idea of gaining understanding through experience is a big part of what I tried to encourage through the book with lots of hands-on exercises.

Of course not everyone is going to like the book for whatever reason. There is one negative review:

This book sucks out all enthusiasm I have for trading. The author peppered the pages with lots of illustrations, examples of market trades, and testimonials from traders. The subtitle is slightly offbeat because there are only a couple of ways a beginner trader can “build a winning strategy” using this book. The route towards a successful trading is not clearly defined. Trading aspirants would expect definite steps to follow.

Scammers are abundant in this industry and clear-cut recommendations on how to avoid getting scammed might have helped. The author also didn’t include the proper ways to seek credible and reputable brokers. Rate is low.

I can’t speak to a person’s enthusiasm specifically, of course, but my attempt wasn’t to provide a rah-rah cheer-leading text. It was to produce something realistic and useful. If that takes the edge off someone’s enthusiasm, then maybe it needed dulling.

As for detailed steps to follow, there are loads of them but they can only go so far. It’s a foundation book pointing out where the reader is going to have to do her/his own work to identify the path they will follow. That’s an individual decision-making process in regards to markets, time frames, methodologies, risk tolerance and things like that which created a wide array of potential paths. I couldn’t possibly have addressed them all, but the book does point out very specifically (and repeatedly) the decisions the reader is going to have to make to take their trading forward.

That said, the criticism about lack of recommendations for choosing brokers and avoiding wasting money on unnecessary or scam products is fair. It’s something I do wish I’d included and will do should Wiley decide to do a revised edition.

Trading Book Reviews

Book Review: The Daily Trading Coach by Brett Steenbarger

[easyazon-link asin=”0470398566″][/easyazon-link]Today is the official release date of Brett Steenbarger’s latest book, [easyazon-link asin=”0470398566″]The Daily Trading Coach: 101 Lessons for Becoming Your Own Trading Psychologist[/easyazon-link]. If you’ve spent any time on this blog at all you’ll know that I’m a big fan of Brett’s. His two previous books, [easyazon-link asin=”0471267619″]The Psychology of Trading[/easyazon-link] and [easyazon-link asin=”0470038667″]Enhancing Trader Performance[/easyazon-link], are both excellent.

I first linked up with Brett back in 2005 when I was the Content Editor for Trade2Win and he was an article contributor. That was when I was writing The Essentials of Trading. Knowing Brett’s background working in new trader development, I asked him to give the original draft a look. Brett actually got me hooked up with my publisher, Wiley. Later he would write the forward. I was quoted in Brett’s last book, and also contributed to this one, along with several others in a section incorporating the thoughts of experienced market folks.

The Drawbacks – From My Perspective
My one gripe with the book is the Wiley Trading internal book template. They make all their books look the same and I really don’t like the design. Brett was able to improve on things a little bit in places, but Wiley really needs to come up with something new for their layouts.

Also, did this really need to be a hard bound book? The cover actually looks more like it would be suited for a soft bound one and you could definitely argue that the intended use of the book would better suit a soft cover.

Very Solid Content
Complaints aside, this is an impressive book. I would go so far as to say potentially daunting. It is, as the title suggests, broken up into lessons which are then grouped into sections of related topics. Brett suggests in the introduction that the book isn’t really intended to be read straight through, but rather by lesson or section as needed.

I think pretty much every trader can find useful lessons in the book, and I was immediately struck by how relevant quite of a bit of it was to life beyond trading as well. Brett draws on research and experience working with traders in explaining how to deal with the different types of circumstances traders can find themselves in, but doesn’t let it become an academic discourse. Each lesson has action items, so the reader can not just understand what’s causing them to feel they way they feel or act the way they act, but to also address it.

How I’d Use the Book
I am, however, going to disagree with Brett on how best to use the book – at least initially. The problem is the table of contents. It’s daunting in its density. I mean that both in terms of listing all of the 101 lessons and also the titles of them. Lots of multi-syllabic words, which isn’t surprising given the psychology and development focus of the book and the background of the author (former practicing therapist). It might have you wondering how you’ll ever get through it all as it sounds very intense.

Of course each lesson is only a couple of pages long, so it’s not really that bad once you get down to it. That being the case, I’d suggest an initial skim through the book. Flip through and get yourself acquainted with what’s in the book. Read the lessons that grab your attention. Brett has done a really good job in the text of drawing your attention to key ideas and points.

As much as the Wiley layout bothers me, in the end a book must be judged on the content. That being the case,  [easyazon-link asin=”0470398566″]The Daily Trading Coach[/easyazon-link] gets high markets. It will be going on my recommended reading list.

Trading Book Reviews

Book Review: The Motley Fool Million Dollar Portfolio

I realize that most readers of this blog are primarily traders and not investors. As such, the subject of investing in the stock market doesn’t really appeal to many (see The Difference Between Trading and Investing). That said, however, there are those (like me) who do sometimes look for investing opportunities. With that in mind, when I was offered the opportunity to pick up a free copy of [easyazon-link asin=”006156754X”]The Motley Fool Million Dollar Portfolio[/easyazon-link] I took it, figuring a review would be useful for at least some portion of the readership.

[easyazon-link asin=”006156754X”][/easyazon-link]Alas, I cannot recommend this book, even for new investors. I’m not saying it’s horrible or anything like that. I just think there’s better.

First of all, the whole book is an advertisement. The reader is constantly being sold on Motley Fool services of one kind or another. Of course you know going in that the book is going to promote Motley Fool, but it doesn’t need to be so continuous.

Secondly, as I highlighted in my Motley Fool Acting the Part post, there is a painfully obvious error (or rather set of errors) made at the outset of Chapter 3 when the authors are trying to preach the advantage of buy-and-hold investing over active trading. Such obvious mistakes makes me wonder about the attention to detail of the Fools, a problem when you consider company analysis and stock picking is their purported focus.

[easyazon-link asin=”0743200403″][/easyazon-link]Thirdly, while there are some good elements to what the book says, most of it is stuff that’s been said before many times in other places. If you’re really interested in the subject of stock investing, the first place I would go is [easyazon-link asin=”0743200403″]One Up On Wall Street, by Peter Lynch[/easyazon-link]. I read that book back when it first came out – a looonnnggg time ago. There’s a reason it’s one of the best selling stock investing books of all time. Of course there are also loads of Buffett books, but I’m not going to recommend any of those because frankly there aren’t many who can invest the way Buffett does.

If you want to see a good breakdown of the book’s contents and set-up, J.D. over at Get Rich Slowly has posted a review with that sort of detail. He thinks more of the book than I, though he’s admittedly only begun really looking at things from the individual stock (vs. index investing) perspective. He’s also interviewed one of the book’s authors recently.

Trading Book Reviews

Book Review: Fooled by Randomness

[easyazon-link asin=”0812975219″][/easyazon-link]Over the last couple of weeks I have been reading [easyazon-link asin=”0812975219″]Fooled by Randomness[/easyazon-link] by Nassim Taleb on my daily commute to and from the office. Taleb is a bit of a lightening rod figure. He drives some people to distraction, while others have a great deal of respect for him. Certainly, he’s gotten his fair share of media play in recent times thanks to the dramatic market events. Fooled by Randomness is his first major book, one which he eventually followed up with [easyazon-link asin=”1400063515″]The Black Swan[/easyazon-link]. I haven’t read the latter yet, so I’ll stick with sharing my thoughts on the first book.

The first cautionary point I would make the prospective reader is that the author can definitely come off as extremely arrogant. He pulls very view punches when it comes to sharing his opinions, particularly about people, be it groups or individuals. His fellow Wall Street professional are vilified, as are those who can be considered the luminaries of financial theory and plenty of others. Taleb is free with his criticism, though he does also offer complimentary words for some others, like George Soros, whom he clearly respects.

My second cautionary point is that Fooled by Randomness is not a handbook or scientific treatise of any sort. The author is actually pretty upfront about that. It’s not really meant to be a practical text. Taleb classifies it as an essay. I’m not of sufficient literary expertise to know how exactly one defines and essay vs. some other sort of work, so I’ll refrain from commenting on that aspect. What I will says, though, is that to my mind the book is an expression of personal observation, opinion, and philosophy.

The main thrust of Fooled by Randomness is quite simple. It’s that people are fooled into believing that what are likely random things have instead some meaningful causality. Taleb talks about all the different ways this can happen, and they are fairly numerous. This is probably the aspect of the book which upsets the most readers (or prospective ones), because he essentially says that we cannot necessarily assume the success someone has in trading or business or life necessarily has anything to do with that individual’s intelligence or skill or whatever. It might just be luck, good or bad.

This is not, as I understand it, to say that Taleb believes everything is a matter of luck. Rather, he suggests that certain ventures (trading, for example) are much more influenced by randomness and uncertainty than others (dentistry, to cite his favored example). Naturally, the idea that randomness may be more important than our decision-making abilities is something that’s not going to sit well with many people.

Something I would have liked to see as a compliment to the uncertainly discussion was a bit of practical talk about the implications of uncertainty in how one operates, for example in how one develops a trading strategy. Aside from highlighting the requirement to account for that uncertainty, though, Taleb is mostly silent on the application side of things. Nor does he bring in much specific science or math into the discussion. I would have liked more of that, but the author states from the beginning that such will not be the focus, and he’s supplied a number of notes and references in the back of the book toward that end.

It’s worth noting that the randomness angle isn’t the only one in the book. There are plenty of other philosophical ideas discussed in the text as well.

In terms of writing style, I found Taleb generally engaging and easy to read. There are some complex concepts he discusses which necessarily slow you down, but as I noted about, he doesn’t get into stats and math and stuff like that, so the text is generally fluid. Grammar sticklers might be a bit put off by the relatively frequent use of sentence fragments at the start of paragraphs, but the ideas are communicated effectively nevertheless.

As for the overall presentation, I personally found the latter part of the book to get a bit scattered, causing me to wonder where the author was going. Generally speaking, however, it was an enjoyable read. Taleb certainly triggered in me a number of different thoughts and ideas. Given that [easyazon-link asin=”0812975219″]Fooled by Randomness[/easyazon-link] is above all else a philosophical exposition, that is exactly what should have happened, so I would say the book definitely achieved it’s objective. I definitely recommend it

Actually, Taleb has given me some ideas for little “experiments” I can do to demonstrate the influence of randomness on trading as part of my ongoing educational efforts. Look for posts to that effect in the future.

Trader Resources

Reviews of Trading Books

Since starting this blog I have written up a number of book reviews and I’m sure I’ll be writing more in the future as I read new ones. Here is the list as it currently stands (listed newest review to oldest).

If there’s a book you would like me to review, by all means let me know. If I can do so I will.

Alternately, if you would like to offer up a review of a trading book you’ve read, pass it along. I’ll give it a look and if it’s a good quality write-up I’ll post it with your byline.

You may also want to take a look at My Top 5 Trading Books

Trader Resources

Trader’s Wish List – Third Installment

Here the third installment of my Trader’s Wish.

The book I want to talk about today is Liar’s Poker by Michael Lewis. Thanks go out to Mary de Cobos for reminding me about this one.

Michael Lewis is probably best know in the wider world for his book Money Ball. You may be familiar with that one, as in it he chronicles the evolution in baseball to a more statistically based system of evaluating players, as made popular by the Oakland Athletics. Liar’s Poker, though, is the book that put Lewis on the map in the first place.

Liar’s Poker is a semi-autobiographical look at Lewis’ relatively brief career in investment banking. He was in the middle of the 1980s glory days as a member of the Salomon Brothers team. The people he worked with are some of the truly significant names on Wall Street – some of whom would eventually go on to found the now notorious Long-term Capital Management (LTCM).

Through a combination of financial markets history and the sharing of his own personal story, Lewis provides an excellent view of life on the trading desks of the major Wall Street institutions. It includes a first-hand view of the madness that took place during the Crash of ’87.

If you have any interest at all in understanding how the financial markets work behind the price movements you see on your screen, Liar’s Poker is a must read. The mechanics of the financial system may have advanced since Lewis’s days at Salomon, but the people are still at the core of things and they way they act has changed very little.