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Take this with a grain of salt
on February 10, 2011
In the first part of the book, Thomas Carr gives some general advices about trading; the second part contains 8 short-time trade systems developed by him. From what I've heard, developing profitable short-time systems is not an easy task. The book confirms this.
But back to the first part. Thomas Carr begins with the explanation that he took his trade ideas from the Bible. While this sounds a little strange, the Bible seems not so bad as a trade advisor, as the first part of the book is indeed a good read with good advices for beginners to day trading. He's aware however that 90% of his readers bought his book because of the trade systems, so he gives stern warnings that they will suffer losses when they skip the first part.
Unfortunately, they'll probably suffer anyway. Thomas Carr is honest enough to admit that he is not familiar with technical analysis programming and backtesting. Still, he has (sort of) back tested his systems by "eyeballing" - looking through years of the charts and manually adding the profits that the system was supposed to make. He also claims that he traded his systems with real money, but here I have my doubts. Or he had a lot of luck.
I ignored his repeated warnings that backtests are no good, and tested two of his systems. His "Bread and Butter" system generated an impressive loss of $8,367 per 100 shares with the S&P500 in 2008-2009, although the book claims a $8,754 win for the same time by "eyeball" testing. Admittedly, Carr was vague in the setup description - "go long when the signal candle is bullish, i.e. hammer, doji, piercing, etc." - so the "etc." might account for the difference between losing and winning.
The second system I backtested was extremely simple - "enter one trade in the morning, go long when the SMA(20) is above the SMA(50), go short otherwise". I wonder why all traders aren't rich yet when trading is this simple. At least this system was very easy to backtest, and fared better than the first one insofar as it generated only a loss of $1543 with the S&P 500. I did not backtest the other 6 systems.
- Update: I had meanwhile the occasion to test the other systems, and found that one was indeed profitable, but that one was taken from a book by Perry Kaufman. 7 of the 8 systems are not profitable in the long run. Details in the comments. -
Carr has proven the success of his systems with selected example days in 2010, with many winning trades. The examples are indeed correct, the back test mostly confirmed the trades. Unfortunately he forgot to mention all the losses on the other days in 2010.
As a conclusion, this book is not totally bad - the first part gives a good trading introduction with some interesting war stories, and Carr's writing is easy to read. I especially like his suggestion to have your trading controlled by a buddy, who stops you in time before you've lost all your money. This is certainly a good advice when you try to trade one of Carr's 8 systems. But if you're looking for short term trade systems that really work, better wait for another book.