Books

I read this book over the weekend. It's a quick and classic read. All-in-all it was disappointing. I love reading about windfall profits just as much as the next guy, but I was hoping it would go more in depth regarding his technical approach.

Some good points:

-Stick to your plan.
-Don't listen to hype or doom & gloom.
-Price action and volume is king.

What I didn't like:

-The technique behind Darvas boxes?!? WTF, throw a dog a bone! Thank goodness for the internet.

"People don't assign the correct weights to information, and they assign too much weight to information, especially if they have collected it themselves." Due to the information glut available to everyone who trades, it is nearly impossible to view all incoming information in the "correct context," especially considering the short-term focus that seems to be pervasive today. As a result, information can be used to make just about any point, or justify any position one wishes to make."

-Markets in Profile

Sunday reading

"Exchanges are owned by members who profit from volume rather than trends. Markets fluctuate, looking for price levels that will bring the highest volume of orders. Members do not know where those levels are, but they keep probing higher and lower...If a market stabs down and recoils, it shows that lower prices do not attract volume. The natural thing for the market to do next is rally and test higher levels to see whether higher prices will bring more volume. If the market stabs higher and recoils, leaving a tail pointing upward, it shows that higher prices do not attract volume. The members are likely to sell the market down in order to find whether lower prices will attract volume...the owners of the market are looking to maximize income." Dr.Alexander Elder

What I've Been Reading

I have enjoyed this fairly quick read of Ken Fisher's book "The Only Three Questions That Count." I won't give away what those three questions are, but just say that they have to deal with not believing the hype, and in most cases the myth, that many investors feed into (i.e. high/low P/E stock markets are bad, as well as a high federal budget deficit, high oil prices, and a weak dollar are all bad for stocks). Critical thinking is certainly the theme of this book. Though it may seem like the author is a typical contrarian, he's definitely not one to assume the exact reverse will occur from the herd mentality, just make sure you look elsewhere when everyone else is looking for that noise in the bushes. The author's point throughout this book is to turn concepts on their head. Derive an earnings yield via a P/E ratio and end up with an E/P ratio. A federal budget deficit does not lead to poor stock returns (actually the opposite is shown with supporting statistics); ever look at the return on assets from the excessive spending that leads to these deficits?
Some interesting ideas taken from this book include:
- Pay attention to the global yield curve
- 1980 Revisited
- The Wizard of Oz as monetary allegory ( Oz had to do with an ounce of gold).
- Think a 300-point drop in the Dow is bad? Why not use a Global Benchmark instead.

Sitting Tight in a Correction

An excerpt from Reminiscences of a Stock Operator by Edwin Lefevre
"I think it was a long step forward in my trading education when I realized at last that when old Mr. Partridge kept on telling the other customers, "Well, you know this is a bull market!" he really meant to tell them that the big money was not in the individual fluctuations but in the main movements - that is, not in reading the tape but in sizing up the entire market and its trend...It never was my thinking that made the big money for me. It always was my sitting...Men who can both be right and sit tight are uncommon. I found it one of the hardest things to learn...It is literally true that millions come easier to a trader after he knows how to trade than hundreds did in the days of his ignorance. The reason is that a man may see straight and clearly and yet become impatient or doubtful when the market takes its time about doing as he figured it must do. That is why so many men in Wall Street...nevertheless lose money. The market does not beat them. They beat themselves, because though they have the brains they cannot sit tight."

Must Read

I wanted to share an exerpt from a book I'm currently reading by Mark Douglas titled "Trading In The Zone; Master The Market With Confidence, Discipline, And A Winning Attitude." The author is attempting to reprogram the reader so as to begin thinking in a way that will lead to successful trading. One excerpt that stands out for me deals with eliminating emotional risk.
"Remember, the market is always communicating in probabilities. A probabilistic mind-set pertaining to trading consists of five fundamental truths.

1. Anything can happen.
2. You don't need to know what is going to happen next in order to make money.
3. There is a random distribution between wins and losses for any given set of variables that define an edge.
   
4. An edge is nothing more than an indication of a higher probability of one thing happening over another.
5. Every moment in the market is unique.

What the author is trying to get across to us is that: "When we accept in advance of an event that we don't know how it will turn out, that acceptance has the effect of keeping our expectations neutral and open-ended...Any expectation about the market's behavior that is specific, well-defined, or rigid - instead of being neutral and open-ended - is unrealistic and potentially damaging. I define an unrealistic expectation as one that does not correspond with the possibilities available from the market's perspective. If each moment in the market is unique, and anything is possible, than any expectation that does not reflect these boundary-less characteristics is unrealistic."
There are some great points brought up and I highly recommend giving this book a read. Thanks to Mark Douglas for the pointers. Go check out "Trading in the Zone."

An Invaluable Book

This book is just an unending source of tutelage. Not only the simple, but omnipresent, concept of R-multiple usage (initial risk), but also the suggestions behind formulating a trading business plan make this book a must have in your trading book library. I'll be referring to this book often through the course of my trading internship.

More Inspiration

Another short, but profound book.

1. "Be Impeccable with your Word: Speak with integrity. Say only what you mean. Avoid using the word to speak against yourself or to gossip about others. Use the power of your word in the direction of truth and love.
   
2. Don't Take Anything Personally: Nothing others do is because of you. What others say and do is a projection of their own reality, their own dreams. When you are immune to the opinions and actions of others, you won't be the victim of needless suffering.
   
3. Don't Make Assumptions: Find the courage to ask questions and to express what you really want. Communicate with others as clearly as you can to avoid misunderstandings, sadness, and drama. With just this one agreement, you can completely transform your life.
   
4. Always Do Your Best: Your best is going to change from moment to moment; it will be different when you are healthy as opposed to sick. Under any circumstances, simply do your best, and you will avoid self-judgement, self-abuse, and regret."

-Don Miguel Ruiz

Candlestick Charting

Japanese Candlestick Charting will be my preferred method of studying price movement.

There's quite a large array of patterns to be keeping an eye out for in the world of candlesticks. I found a good starting point to be this web site devoted to the matter. I'll be keeping an eye out for Reversal and Continuation patterns while using 15 &/or 30-minute bars for noise reduction that's common with the shorter period bars. There's just so much information on the subject matter and I couldn't get by without; Japanese Candlestick Charting Techniques by Steve Nison. It is absolutely indispensable.

A Continuing Source of Inspiration

A man should conceive of a legitamate purpose in his heart, and set out to accomplish it. He should make his purpose the centralizing point of his thoughts...he should steadily focus his thought-forces upon the object which he has set before him. He should make this purpose his supreme duty, and should devote himself to its attainment, not allowing his thoughts to wander away into ephemeral fancies, longings, and imaginings. This is the royal road to self-control and true concentration of thought. Even if he fails again and again to accomplish his purpose (as he necessarily must until weakness is overcome), the strength of character gained with be the measure of his true success, and this will form a new starting point for future power and triumph.

- James Allen