Customer Reviews

The Market Maker's Edge: Day Trading Tactics from a Wall Street Insider

5 star:		(28)
4 star:		(7)
3 star:		(8)
2 star:		(6)
1 star:		(5)

 

 

When you buy a used book, you can tell a lot about the previous owner by what they decided to highlight. In the case of the copy I purchased, the person who originally purchased this title was intrigued by the discussion of trend following and support/resistance. Unfortunately for them, the advice this book gives in those areas is thoroughly ordinary. The fact they felt this title was worth selling is really the fault of their not realizing that it's the sections on position size, indicators, and gaps that are the really the world-class discussions in this book.

To anyone who has really struggled with the problem of position sizing (how much of a stock to buy/sell), there is only one right answer: determine the position size based the combination of where your stop order will go combined with how much money you can afford to lose. Josh provides a straightforward and totally accurate way to do that, something you'll rarely find in any recommendations for day traders. If you don't recognize chapter 2, "Five Steps to Determine the Proper Position Size" as the only right way to trade, you need to keeping reading it over again until it's totally natural to you. If you trade and you're not familiar with thinking in terms of stop loss risk relative to position size, you need this book desperately.

The chart-based examples in this book are mediocre, but the indicator ones are excellent. The biggest standout section (Chapter 17, "Oscillators and Reversal Indicators") covers a few of the popular technical indicators, showing you exactly how you could trade with them in a way most likely to be profitable. The little chart showing exactly what divergence between price action and an indicator looks like is worth the price of the title for those who don't know what that looks like--this is the clearest set of examples I've ever seen on this subject. Equally clear discussion of trading Moving Averages, Bollinger Bands, MACD Histogram, Stochastics, RSI, and Momentum follow. I agree with that author that he's hitting all of the indicators worth following for the short-term trader here. Focusing on this reliable set instead of some of the more bizarre things some traders follow is absolutely the right approach to trading.

Additional good sections in here worth owning include a look into the mechanics of what makes an opening gap in terms of what's happening on the market-maker side and a very nice chart of popular economic reports (CPI, housing, employment, etc.) showing how the market will normally react to new reports in those areas.

The main real problem with this book is that it was written before the switch to decimal notation on the exchanges, and it focuses a little too much on trading in terms of a fraction of a point. The author usually writes in terms of a percentage basis, the right way to look at stock movements, with a small conversion chart included for those not familiar with this approach. But there are a number of times where he breaks
from this and falls back to the weakly justified "set stops 1/8 point below this" kind of commentary that plagues bad trading titles.

I don't give out a 5 star rating on a book unless I consider it a classic in its field or it offers something really unique, and "The Market Maker's Edge" meets the latter critera: the sections that are good reads for day traders are both more accurate and clear than any title I've read. That's a very rare thing indeed in a body of literature dominated by ill-conceived trading ideas and downright fraud.

Although this book contains useful techniques to increase the novice trader's knowledge about trading, no market maker techniques and strategies are actually even mentioned in the book. In markets such as the NYSE, AMEX, etc. specialists (market makers) are privileged with the knowledge of every single order that comes across for the securities that they are trading. These specialists are then able to use this "information" to trade profitably. A recent WSJ article (March 2001) reports that specialists on the floor of the NYSE are making more money than EVER. On the NASDAQ, market makers use Level II and Level III "information" to make profitable trades. It is widely believed that 95% of market makers NEVER lose money and that 95% of individual investors (wannabe traders) ALWAYS lose money. So what does that mean? Trading is a zero sum game, somebody has to lose (YOU), and somebody has to win (MMs). This book should have talked more about how to trade (and win!) like a market maker, and not about old moving averages, macd, and what nonsense that individual investors (wannabe traders) use to lose money day in and day out. Market makers actually use ma's macd's and other technical signals to find out what the ignorant public is likely to do and use that information to trap and make money off of them. They know where the public puts stop orders, so they'll find an opportunity to dump/short stock, temporarily triggering sell pressure, then accumulate shares as the price drops to cover their shorts. Of course MMs use many other strategies to make money (that I don't know of), but this is an example of the mechanics of trading as an MM and this is their "edge". As none of this crucial information is even mentioned in the book, I feel three stars is actually quite generous.

Lukeman, a market maker at Morgan Stanley Dean Witter, offers up a work that covers a very large spectrum of trading info that is crucial to any investor. The title specifies its utility for day traders, but I found that it would actually be better suited to a momentum or swing trader (active traders, but not as active as day traders). If you are a savvy investor who has already read a number of books on investing techniques, this may not be the book for you. It is a bit basic, but not to the point of "stocks are..." or "bonds are..." Covered topics include risk control, trend spotting, fundamentals, timing and execution, technical analysis such as candlestick patterns, advanced trading tactics, and market psychology. The only complaint that I have about this book is that it lacks nitty gritty details, but it does have some depth. Also, it was a bit disappointing that there was little on actual market maker techniques, with the "dead cat bounce" being as advanced as the book got. But overall, this is an excellent book. If you are a novice and interested in active trading, then this book will give you so much knowledge that can almost guarantee your success. And if you are a very savvy trader, it may pay to pick this up anyway, because it may have one or two jewels that you are unaware of. Highly recommended!

I think I've read most of the books on daytrading out there. Too bad, I could have read just this one along with perhaps John Murphy's "Technical Analysis of the Financial Markets" and Velez and Capra's "Tools and Tactics for the Master Day Trader".

Josh Lukeman very unselfishly shares his valuable insight of the daytrading game. Imagine how powerful your trading would be if your last job was being a market maker for MSCO. Lukeman gives you that insight. Obviously, a few of the reviewers above didn't "get it" because they were too busy looking for a simple solution to their trading woes to support their beliefs that someone else (the market maker) is to blame for their losses.

If you're mature enough to accept responsibility for your trading, this book will give you the edge.

This book is well written and very simple to understand. I've been trading full-time for the past 3 years and have done very well. However, this book enabled me to simplify my trading screen and eliminate many technical indicators. My performance has improved--with less stress. The Holy Grail to successful trading doesn't exist, so stop looking for it. But if you want to learn (or reinforce) some sound trading principles and see things from a market maker's perspective, this is an excellent book.

I thought this was an excellent read to for someone like myself who admittedly is just getting started in daytrading. It covers a lot of ground and educated me to among other things, Japanese candlestick charts, how market makers work a big institutional order, how to use oscillators against a price chart, scaled entry and exit techniques. It also continually harps on the need to listen and follow the market rather than try to outguess it. Perhaps to battle hardened trading veterans this is old news, but for someone in my shoes you can learn a lot from this book. I also like his "keep it simple" attitude and the idea the best traders don't get lost in all the data overload, they just execute well on some fairly simple basics. The book is actually not so much about market makers as it is on developing the skills & knowledge base needed to be a sucessful daytrader, so I would have to say it is somewhat mistitled.

Seeing the book title, I had hoped to read about trading from the view of a market maker. To my disappointment, this book could have been written by anyone: it's just like many other books on trading. Nothing in the book is a special contribution from a market maker. This is, of course, understandable: why would a market maker reveal his secret of how to make money and beat the traders and the public with his profession? But then, don't make a misleading title, since you are writing the book just as any other author on trading.

you will be disappointed if you had hoped that the book is packed with explanations and examples into how market makers work orders for their institutional clientele, disguise their orders, and adjust to other market makers' behavior. instead, you will get lessons on economic reports, japanese candlestick techniques, money management, chart patterns, etc. nothing wrong with this, just not what i expected nor wanted.

i've always believed that if you can gain at least one good idea from a book, then it is worth reading. the book does satisfies this criteria. personally, there were 5-10 pages out of the 286 pages that were worth reading.

The book provides a good breadth of trading tactics that is at the right level to prepare people who are switching from an investor mindset to a short-term trading paradigm. Before reading this I was trying to bottom fish markets, more like a valued-investor. However the author can't emphasize more about the importance of recognizing the momentum and listening to the market. It's great not just for day trade but short term momentum trade. The level of TA is also appropriate as an introduction. Last thing is I really like is the treatment he put on the psychological preparedness.

Lukeman provides a well organized but basic introduction to trading techniques, many of which are available from numerous financial web sites. What is lacking is the real nitty gritty tactics of market makers. How they really "get involved" by working institutional orders, retail order flow and their own inventory. "Tactics" like late prints on follow up orders, front running firm inventory, headfakes, trend fading , stop gunning, bid slamming and dozens of other trading techniques which are the real "Market Maker's Edge." Lukeman should write a follow up book: " The Inside Edge: Market Maker Tactics." Give the real dope! Spill the beans Josh!