Top positive review
19 people found this helpful
Great Book. Informative and interesting.
on December 22, 2012
I liked this book a lot. One of the first things mentioned in this book is a problem that I, and I have to assume many traders, deal with. It is the issue of selling too early, leaving "money on the table" and exiting a trade before it hits your designated sell zone or before it comes to fruition. The author admits (and I appreciate the honesty) that this is a problem that he has grappled with and still deals with. The author suggests that this issue is tied into shame and regret. In other words, there is a sense of shame that develops from having had a profit turn into a loss and obviously, along with that, there is a sense of regret. In my case, I'm not really tuned into a sense of shame, but the regret issue truly strikes a chord. Later in the book the author does implement strategies that deal with these issues. I have always felt the psychological component to be the most important part of the trading equation, but the author states that an edge in the markets is composed not only of a mental edge but also the ability to see patterns and to see them in a way in which they are not seen by the crowd. There are multiple illustrations of real trades and the explanations behind these trades. The author is a successful investor and once worked for George Soros as well as Karsch Capital Management. He now works for himself and manages his personal wealth. In the world of professional performance (investments, athletics, entertainment, etc, I do tend to listen a bit more to someone that has hands on experience. This may be a flaw, I realize that many with no experience in a particular discipline can teach us a lot about that discipline, but I guess what I'm trying to say is that it's interesting to hear from a player and not someone in the dugout).
The book starts by stating that "self awareness" is perhaps one of the most important characteristics that any trader can have. The entire book seems to be based on the premise of, "trader, know thyself". So, what kind of trader are you? Are you a value player that can withstand a stock trading against you for quite a while or are you a short term trader trying to catch the "ebbs and flows". Is your analysis more Macro based or are you comfortable with reading and interpreting charts? Speaking of charts, the author states that he used to look at charts as "voodoo", but has since changed his mind/attitude toward them and now states that charts can give very important psychological information about the types of traders/shareholders involved with a particular equity. His take on charts I found particularly interesting. His interpretation of support and resistance and what it is that brings these about is for me worth the price of the book. I again appreciated the author's honesty in admitting that he once thought charts were almost absurd but now states that any trader that is not aware of at least the basic aspects of support/resistance, euphoria spikes and panic sell-offs, is at a disadvantage. I've always thought it obvious that the lines on a chart hold significant information. So the aspect of self-awareness is critical because if you don't find out what type of trader/investor you are it is somewhat like endlessly trying to fit a round ball into a square hole.
There are many moments while reading this where I recognize that the author is talking about an issue or a subject that has been spoken of before, but he has a different perspective with which I'm not familiar and it just "feels right". Ironically, a significant portion of the book has to do with intuition and developing this special "feel". It is the author's contention that without this feel the trader/investor is at a disadvantage. Where he differs in what I've read before is that he states that intuition, long thought to be some mystical sixth sense, is really the mind recognizing with great speed something it has seen before. It's just that it happens so quickly it seems almost mystical, but it is more the sensing of a pattern with which we are familiar. The author states that intuitive power can be developed, but that it takes effort and time. From what I can see, there are two important modes of development. One is to use visualization and this is explained in detail in the book and the other is keeping a journal. The author is big on diary keeping and journaling. He states that there is empirical evidence as to the positive effects of writing about our trading experiences or for that matter writing about life. He equates journaling to professional athletes watching film and gathering information on what works and what doesn't work all the while keeping in mind the conditions under which these successes and failures take place. He also notes intensely that what works now, the "edge" so to speak, can last for a short duration or many decades. You get the feeling that the edge that can't be taken away is the mental edge. Fundamental and technical edges last only as long as they take to be noticed and implemented by "the crowd". As I said, this can be weeks or decades. The real edge, from what I can see, is mental preparation and the ability to apprehend patterns and to empathize with the other players in the markets. How are patterns noticed? This is delineated in the book and part of it has to do with "deliberate practice". The author near the end of the book analogizes market mastery with chess grandmasters. I found this especially interesting though, as the author states, the comparison begins to break down as the market presents us with an element of randomness/luck that he believes chess does not have or at least does not have in the same way. He gives illustrations of market randomness, how money can be made via pure luck and he addresses what he believes can counteract randomness. To me, this is extremely dangerous because as our luck grows so does our confidence and so does our position size and, well, we all know where this can end. All in all, this is a book well worth adding to your trading library. There's just tons of great information within it. I hope this review helped a little.