Disclaimer, this article is in no way a marketing tool for the authors mentioned, rather my take home lessons from the knowledge I have gathered from reading their book material cover to cover. I hope you grab one of these books and read it for yourself. After all, ignorance is pretty damn ugly. I’m going to start with my current read, Trend Commandments by Michael Covel. One of the nuggets I like from this guy is his phrase, “Eat dinner or be the dinner”. In his entire book, he goes to portray that trading the financial markets is just a game of survival. More like Capitalism right? Whether or not you agree with it, it does exist and those who take advantage of it, make a great killing in the markets. Trade Hard, Slay Hard. That you really don’t have to be college educated, all you need to know is how to ride the markets. Digest how Michael puts it,
“Consider those who pursue academic PhDs. A PhD is a specialist, not a generalist. In the real world, not the academic one, the generalist is today’s winner. Not all PhDs are motivated entrepreneurial competitors capable of “killing it” (of course there are exceptions). A PhD, or any degree, does not protect you from failure. A degree says more than anything that we passed the test. My comments are no knock against degree winners, but they are a reminder that it is you against the world. If you have a degree, any degree, that’s awesome. I have three letters behind my name, but so what? Don’t use the degree on the wall billboard, circa 1950s leave it to Beaver America, to imply you are special? Those days are long gone…or maybe not!” In short, papers are good but they are not everything. Which is why at Sylvia’s Traders Lounge, we accept all types of students in different career paths, we also love high school drop outs.
The second book I really enjoyed is The Master Swing Trader by Alan Farley. This is a book I’d recommend to mature traders, those who’ve already identified their trading style falling under the classification of a Swing Trader. Meaning that you hold onto positions for a longer time frame. Alan emphasizes the need to identify the type of errors you can make and how to preserve your trading capital. Quoting him “Trend relativity errors steal more profits than any other trading mistake. An excellent position for one holding period often fails in the next larger or smaller time frame. Natural price waves that generate through multiple trends must align with reward targets and the chosen time frame. Make sure that strategies always focus on the right elements for that setup.
Investors make frequent relativity errors, but their broad position timing often forgives mistakes. Swing traders that miss their time frame will wash out of the markets quickly. Shorter holding periods spawn more critical time errors than longer ones. Short-term trends generate very noisy signals that trigger early positions. High transaction costs and lost opportunity also take their toll on these misinformed entries. Control this tendency through longer-term charts that capture broader price movement and filter errors”.
Let’s get a bit more technical, if you haven’t read Trading in the Zone by Mark Douglas, drop everything and find your way to the library right now. This is a great read especially for new traders because it covers trading psychology. We all know that the markets do not really care about your status, your prowess in communication, your background, I can go on and on. If your psychological make up isn’t right, you’re bound to fail. Your energy capital, brain capacity matters just as much in fact more than your skill to trade and analysis of data or news. In his own words, the legendary Mark Douglas says “I’ve worked at a personal level, one on one, with virtually every type of trader in the business, including some of the biggest floor traders, hedgers, option specialists, and CTAs, as well as neophytes as of this writing, I have spent the last seventeen years dissecting the psychological dynamics behind trading so that I could develop effective methods for teaching the proper principles of success”.
He goes on to add that “What I’ve discovered is that, at the most fundamental level, there is a problem with the way we think. There is something inherent in the way our minds work that doesn’t fit very well with the characteristics shown by the markets. Those traders who have confidence in their own trades, who trust themselves to do what needs to be done without hesitation, are the ones who become successful. They no longer fear the erratic behavior of the market. They learn to focus on the information that helps them spot opportunities to make a profit, rather than focusing on the information that reinforces their fears”.
Fooled by Randomness by Nassim Taleb one of the guys who made a killing during the 2008 global financial crisis completely takes my mind to a new planet. Look out for the lesson in part 2 of this blog post.