Trading Book Reviews

Book Review: The Option Trader’s Workbook

[easyazon-link asin=”0132101351″][/easyazon-link]I have had [easyazon-link asin=”0132101351″]The Option Trader’s Workbook[/easyazon-link] by Jeff Augen sitting in my to-be-review pile for a little while now. I’d have gotten to it sooner, but for some reason I’ve not been reading as much of late. This is not my first read of a book my this author. Unfortunately, I didn’t think much of one of his other titles (Trading Realities). This one I found a bit more useful.

Workbook is the key term in the title of this book. It is a basically a collection of problem-solving exercises. The author lays out a scenario and asks a question, with the solution provided right there. There are hundreds of them, some simple and some complex. As such, it may not be the best point to start for someone just getting going in their options education, but it definitely has potential value for something with at least a bit of a foundation who’s looking to apply that knowledge. Not only do the scenarios and questions ensure a good working knowledge of options, they also will get readers thinking about options applications in ways they probably would not have done otherwise.

This isn’t the type of text you’ll just read through. If you’re willing to do the work to go through the problems, though, you could get a lot out this workbook.

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Trading Book Reviews

Book Review: Currency Trading for Dummies

[easyazon-link asin=”1118018516″][/easyazon-link]I was given the opportunity a little while back to pick up a copy of [easyazon-link asin=”1118018516″]Currency Trading for Dummies[/easyazon-link], written by Brian Dolan. I’m always on the look out for good books to help introduce trading, either generally or in terms of specific concepts. I thought this book might make for a good resource I could recommend when asked about “a good forex trading book”. With that in mind, here’s my review.

Overall, I’m mixed on [easyazon-link asin=”1118018516″]Currency Trading for Dummies[/easyazon-link]. The book could have been structured much better to my mind and there are parts where I don’t care for the way the author has talked about things. There are, though, also some pretty good, useful parts.

The discussion of forex trading mechanics could perhaps have been done better. I think the author too closely associates it with the likes of stock trading in terms of buying and selling. It makes the general point, but could leave some readers with the wrong impression of how things work in retail forex in that it may imply to readers there’s actual currency ownership involved, which isn’t the case.

I also found the section on order types rather clunky. It takes up much more space than is necessary to talks about stop and limit orders, even accounting for the different ways they are referred to in some cases.

The author takes a very thorough look at interest rates, monetary policy, and currency policy in his discussion of drivers of exchange rates. Dolan goes into sources and types of information and the major economic and other data elements that go into forex market analysis. This includes a listing of the key reports for each of the major economies, though I would suggest that these things tend to change in importance over time.

The section of the book I think a lot of readers will find most valuable is the one which goes through the major currency pairs and talks about their individual characteristics. This isn’t something I’ve seen done in such detail in other books. This includes both technical and fundamental considerations for those pairs.

There’s also a good section on risk. It does a nice job of explaining leverage, margin and position-sizing, as well as addressing other elements of position and general trading risk.

The latter part of the book gets into subjects having to do with trading strategy and touches on subjects which aren’t strictly forex related, but will be of value to many readers.

My inclination is to compare this book to Essentials of Forex Trading. I think the latter book is a tighter look at the basics of foreign exchange trading. [easyazon-link asin=”1118018516″]Currency Trading for Dummies[/easyazon-link] is a more expansive text, going beyond the basics to take a more comprehensive view. Each has its strengths and weaknesses. I think maybe the two together provide a good comprehensive job of explaining forex trading to someone new to the market.

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Trading Book Reviews

Book Review: Laughing at Wall Street

[easyazon-link asin=”0312657854″][/easyazon-link]Books by successful traders and investors seem to be eagerly consumed, and with a title like [easyazon-link asin=”0312657854″]Laughing at Wall Street: How I Beat the Pros at Investing (by Reading Tabloids, Shopping at the Mall, and Connecting on Facebook) and How You Can, Too [/easyazon-link], I wouldn’t be surprised if this one by Chris Camillo is as well. Camillo’s claim to fame is running $20,000 up to $2 million in three years trading the stock market. The book describes his methodology for doing so.

It should be stated that the author’s approach to the markets is not dissimilar to the one suggested by Peter Lynch in [easyazon-link asin=”0743200403″]One Up On Wall Street[/easyazon-link] many years ago. Lynch, who was the wildly successful manager of Fidelity’s Magellan fund, suggested using what you know to invest in the stock market. Camillo takes the same approach, though brings modern developments like Facebook and online forums into the discussion. The book does a good job of describing the thought process which needs to be at work and how one needs to go about things.

The major wrinkle the author introduces here is the use of options. This is where we really go from this being an “investing” strategy based on identifying mis-valued stocks to a “trading” one which employs leverage, albeit a fairly simple one based strictly on plain vanilla long call and put positions. Of course its takes considerable aggression to increase an account 100-fold in three years, especially when working on a valuation type basis where positions aren’t entered frequently and take time to make the big moves. This is no day or swing trading strategy. The author looks for the moves to take 6-9 months or longer to unfold.

The aggression goes beyond just using options, though. Camillo takes on position sizes which would leave most traders in a cold sweat – like putting half his account in a single option. His doing so, however, is rooted in the way he funds and views his trading account. It is truly risk capital only, totally separate from his long-term investing funds. His concept of OPM is one worth thinking about for many new, low-capitalization traders. I venture to say, though, that even in this case it takes a certain mentality to be able to risk the loss of half one’s account in one single trade.

My biggest gripe about the book was the author’s constant sniping at Wall Street professionals throughout the book (he also tears into both technical and fundamental analysis, though his strategy would clearly be classified as the latter). The point was made plain enough early on that individuals can take advantage of things overlooked by the pros, with which I fully agree. There was no need for continued pot shots through the rest of the text.

The other issue I had was the failure to include a discussion of the impact of volatility on option prices. I’m on the side of those who don’t think options trading needs to be nearly as complicated as some tend to want to make it, but those thinking to trade them should understand the volatility influence. Camillo discusses intrinsic value and time value, but in his description the latter includes volatility. It could be said, though, that given the length of hold period and the types of moves he’s after, it’s not really a major issue.

Those two complaints aside, I do think [easyazon-link asin=”0312657854″]Laughing at Wall Street[/easyazon-link] is a good read. It provides support for the ability of individuals to do well in the markets and offers up an interesting concept in the author’s concept of Other People’s Money (OPM). The strategy requires work and effort, and perhaps the risk-taking aspect would need to be adjusted to individual tolerances, but overall the approach is a very reasonable one.

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Trading Book Reviews

Book Review: The Inner Voice of Trading

[easyazon-link asin=”0132616254″][/easyazon-link]I’ve read a whole lot of trading books over the years. At this point there isn’t much that really gets me excited when going through a new one. I have to say, though, that [easyazon-link asin=”0132616254″]The Inner Voice of Trading: Eliminate the Noise, and Profit from the Strategies That Are Right for You[/easyazon-link] by Michael Martin is very much an exception. From very early on it grabbed my attention and kept it.

I was not familiar with the author before reading the book, so aside from the obvious trading psychology focused implied by the title, I really didn’t know what to expect. What I found was a very engaging discussion of many aspects of the mental side of trading. Martin combines anecdotes from his own trading with wisdom from some of the [easyazon-link asin=”1592802974″]Market Wizards[/easyazon-link], among others, into a very worthwhile read.

Know yourself, trade to your personality
The two major themes of The Inner Voice of Trading are that you need a trading methodology which suits your personality and that successful traders are very conscious of their own emotional states. The former is something you hear quite often (and rightly so). The latter takes things a little beyond the usual “be disciplined” type of trading psychology dogma into the realm of emotional intelligence. Martin makes the point that developing traders spend too much time focusing on mechanics and external education, and not nearly enough time cultivating their internal tools.

Develop a meditation routine
The author is clearly a fan of meditation as a way to develop emotional intelligence. He talks about it throughout the text. His own personal meditative practice seems to be yoga oriented, but he also talks about other forms of mediation. For example, one of the traders he mentions runs as his meditative exercise. The point is to do something both to develop your emotional self-awareness and to put yourself in the right mindset for the trading day. In many ways you can think of it like the pre-game routine athletes use to prepare for competition. The idea and intent is the same, though obviously the methods vary considerably.

My one little gripe with the book is its lack of structure. There are chapters, but the subject matter tends to wind around, back and forth. It’s a relatively short book, and and easy read, though. Overall, I think [easyazon-link asin=”0132616254″]The Inner Voice of Trading[/easyazon-link] is very worth while and I would recommend it just about any trader.

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Trading Book Reviews

Book Review: Mastering Market Timing

[easyazon-link asin=”0137079303″][/easyazon-link]You want to learn how to identify stock market tops and bottoms? Then [easyazon-link asin=”0137079303″]Mastering Market Timing: Using the Works of L.M. Lowry and R.D. Wyckoff to Identify Key Market Turning Points[/easyazon-link] by Richard Dickson and Tracy Knudsen may be exactly the sort of book you’re looking for. It is a book with the sole purpose of showing you a set of techniques for spotting tops and bottoms as they are developing and estimating how far the reversal trend may go.

This is, however, very much a stock market oriented book. Some of the specific techniques can be applied in other markets, to be sure, as they are based on charting methods. Since volume and advance/decline information is also used, however, the unified approach outlined is not universally applicable across markets. Also, these methods are applied to daily time frame charts and higher, so they won’t be of much use on a day-to-day basis for short-term traders (though certainly they can be used to frame the larger market pattern).

As the subtitle indicates, the methods presented are based on those developed by Lyman Lowry and Richard Wyckoff. The latter name is one many technical traders and analysts are likely to know (Law of Supply and Demand, Law of Cause and Effect, Law of Effort vs. Result), but the former probably not as much. Both men developed their approaches to market analysis in the first half of the 20th century. Wyckoff’s focus is more on price/volume patterns, while Lowry brings market breadth into the equation. There is also a discussion of Point & Figure analysis. It’s mainly limited to use for projections, however, one should not expect a full education on the subject.

The book does a very good job of explain how these methods are used, both singularly and in combination. Market tops and bottoms going back to 1966 are examined in detail, providing the reader with ample opportunity to see how they work with real charts, not just idealized models. As such, I think [easyazon-link asin=”0137079303″]Mastering Market Timing[/easyazon-link] is an excellent educational resources for learning how markets form tops and bottoms and act during trending periods.

Actually, one of the bottoms outlined is the one from 2009. The book was written in early 2011 (charts are through February/March) and interestingly it projects a top in the S&P 500 near 1350. The index hit 1366 in May and revisited the 1350s in July.

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Trading Book Reviews

Book Review: Time the Markets

[easyazon-link asin=”0132596628″][/easyazon-link]Technical analysis of fundamentals data is the subject of [easyazon-link asin=”0132596628″]Time the Markets[/easyazon-link] by Charles Kirkpatrick. To be specific, this is a book about developing trading systems which use fundamental data as the primary input. Actually, to be even more specific, it’s a book about using moving average crossover systems based on fundamental data to time stock market investment.

I’ve got mixed views on this book. It’s very narrow concentration on only one type of system inherently limits its usefulness. I like the overall concept of applying technical methods to fundamental data (we’re talking corporate, economic, monetary, and sentiment figures), and the author touches on a broad array of potentially useful fundamental data. Most of those statistics are put aside as not being of any use, however, because the testing couldn’t find a moving average combination that worked. The author admits that another system might show different results in that regard, but as a reader we spend a fair bit of time, in a book that isn’t very long to begin with, going through variations on “no useful system was found using this statistic”.

I’m also not that keen on the writing. It may just be a question of my level of experience, but I felt like a lot of the discussion was VERY basic. Someone brand new to technical analysis might find that useful, but I can’t help but feel the author went a little too far in explaining simple concepts like moving averages. It makes for unnecessary verbiage. To be honest, the meaningful material in this book aren’t really enough in my mind to warrant more than a pamphlet.

That said, there are some interesting discussions of trading system development and testing. Also, for those interested in the application of technical methods to fundamental data there are certainly things which could provide inspiration for further research.

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Trading Book Reviews

Book Review: George Lindsay and the Art of Technical Analysis

[easyazon-link asin=”0132699060″][/easyazon-link]I was recently given the opportunity to pick up a copy of [easyazon-link asin=”0132699060″]George Lindsay and the Art of Technical Analysis[/easyazon-link], written by Ed Carlson. I was attracted to it by the reported quality of George Lindsay’s market analysis, though he’s not someone with which I was familiar prior to reading the book. He was a bit before my time in terms of when I started following the markets. 🙂

This book comprises a couple of primary parts. The first is a brief biography of Lindsay. It’s not particularly lengthy, however, as apparently Lindsay wasn’t someone well known on a personal level. He is known for his stock market newsletter writing back during the 1960s and 1970s. His market calls were apparently so good that key market followers of the time praised him very highly.

After the bio, the book gets into the featured technique of Lindsay’s – the Three Peaks and a Domed House chart formation. The author lays that out over four chapters. Although Lindsay didn’t really leave behind any singular technical manual type of explanation of the pattern, the author (Carlson) does do a pretty good job of teasing out the specifics from his writings on the subject.

The next part of the book covers The Lindsay Timing Model. This the application of “counts” to project market turning points. We’re not talking cycles here. It’s not about consistently repeating patterns, but rather taking a recently completed chart pattern and using it as the basis for a projection of a trend move timing.

The final section extends the counting element and brings in intervals and cycles. It also provides some case study evidence.

Now, it should be noted that the patterns and counts and whatnot discussed in the book are not short-term in nature. They are mainly based on daily bars and can take quite a while to unfold. For example, Three Peaks and a Domed House is a daily chart pattern which takes months to play out, though there are elements of it which could be traded along the way in slightly shorter-term ways.

Overall, I found the Lindsay work interesting. Readers familiar with Elliott Wave analysis will see some of those elements in the patterns described in the book. I would have liked to have seen more in the way of real world examples, particularly more modern ones. For someone interested in studying price action, however, this book could provide quite a bit of inspiration for research.

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