Customer Reviews

Forecasting Financial Markets: The Psychology of Successful Investing

5 star:		(4)
4 star:		(0)
3 star:		(0)
2 star:		(1)
1 star:		(2)

 

 

Believe it or not, I got to re-read the Foreword and the Introduction to check whether the objective of the book is that of the book title. I must praise the publisher for being able to get the endorsement from Financial Times, The Independent, Futures Magazine and even a Sir in the back cover. However, I really doubt whether those critics (no personal name given indeed) had read the book at all.

As a pro mechanical (using TA with as little personal judgement as possible, vs the large judgement needed of, say, Elliot Wave Theories) trader/CFA/trading book lover I really dislike the book. I admit that I am prejudiced against Cycles/Elliot Wave Theories coz it's nearly impossible to tell what phase/stage of what cycle one is in and thus what high profit probability action one should take, except from hindsight which may already be hundreds of pips away. Pathetically, the key theme of the book, if present, is to provide academic background of various types of cycle theory. Psuedo science/psychology/economics, forgive me.

In case you really want to read something to sharpen your trading/investment edge, I strongly suggest you to give it a pass.

Many technical analysts like to forget that they live in the real world. Technical analysis is based on the idea that the patterns drawn by stock prices can be used to forecast the financial markets. The field of behavioral finance essentially looks at this psychological give and take from an academic perspective, while technical analysis is largely a real life application. Tony Plummer brilliantly bridges this gap by showing how and why these patterns develop. He also discusses his own take on Elliott Wave Theory in a cogent and interesting manner. (Disclosure: This reviewer wrote "Applying Elliott Wave Theory Profitably" and Mr. Plummer wrote the foreword to the book.)

This book is just an incoherent collection of fancy words and phrases (like crowd psychology, feedback systems, fractals, etc). The book is supposed to show the scientific basis behind technical analysis. But, the reasoning (or lack thereof) is mediocre at best. I got the feeling that the author wants the book to sound scientific without any science.

In certain cases, the book makes conclusions that are absolutely and shockingly false. For example, in page 58, the author makes a conclusion that boils down to this: as you increase the window of a moving average, there will be a very high correlation between the values of the moving average at any two times T and T-1. Hence, the author claims, this (the high correlation) shows that financial markets are predictable!!

This "reasoning" is absolutely ridiculous. Moving averages BY DEFINITION smooth out curves and hence increase correlation between time steps of the smoothed curve. In fact, if the window is large enough the value of the moving average will be approximately constant and that will imply that the correlation between T and T-1 is almost 1. This will be the case for almost ANY stationary data series. Does that make any such data series predictable?! Absolutely not!

The author uses biology and sociology to create a systems theory for financial markets. It's a great read on the human element in trading. Even if most trades are done by quants and algos, they were human once (joke).

I found this book difficult to read due to the author's writing style and the organization of the book's contents. The author picks anecdotal evidence from strange sources that are not clearly related to financial markets - not a convincing method in my opinion. The organization of chapters and sections within chapters do not carry the reader through a logical progression of the topic.

As someone else said, the author attempts to write like a scientist which just results in a confusing book that does not give the reader a clear message or understanding of the topic. I don't feel any better prepared to "forecast financial markets".

Whether you are an Elliot Wave fan or not, the early chapters of this book identify, in layman's language, what behavioural economists are now developing into their technical trading systems. This is a pioneering book that deserves consideration by all TAs.
When we think of TA we are attempting to quantify how market participants are behaving and what they might do next. This book uniquely explains a behaviour process of a substantial portion of market participants.
This book remains in my top five all time favourite trading books!

Forecasting Financial Markets: The Psychology of Successful Investing offers college-level readers a fine, well-detailed introduction to investment psychology. The focus here is on how group mentality and perceptions of financial wealth have serious implications for financial market swings - and it explains why trading success depends on the ability to understand finances in logical terms, recognize emotional responses to market fluctuations, and handle clues to buying and selling trends. Investment and business libraries at the college level will find this a fine classroom supplement.