The Finance Book Club

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1. Note the similar max drawdowns of fixed capital, Williams fixed risk, fixed percentage, and fixed volatility. This is a coincidence caused by limiting all strategies to a 100 contract maximum. These strategies all hit their largest dd at the 100 contract level.
2. No ‘hard and fast’ rule for selecting the superior method
   1. However Penfold says we can do away with fixed risk because of its lower profit despite its lower std deviation, and highest net profit to dd ratio
   2. Fixed ratio had the lowest dd but Williams fixed risk was 5 percent worse dd with 8x the profit outcome, so it seems superior to fixed ratio
   3. However Williams fixed risk had std deviation of 6.3, twice that of fixed ratio

3. Percentage dd only considers the risk side of the equation - not the reward
4. An alternative is to measure dollar dd (risk) against dollar reward generated
   1. Look at net profit to $dd ratio or value payoff
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In fact, Penfold goes on a drawn out multi-variable analysis to determine which system reigns supreme, and while interesting, and possibly even useful, I won’t duplicate it here. I’ll just mention that he considers

1. Speed to reach the contract limit
2. Ability to handle catastrophic losses
3. Value payoffs (net profit/dollar dd)
4. The pro's choice (fixed percentage)
5. Ability to withstand long streaks of losing
6. Minimizing risk of ruin
7. Removing the 100 contract cap
8. Specific Profit objectives
9. Individual trader needs (no one size fits all)
10. Monte Carlo analysis
11. Equity curve stability (use a system stop much like you use individual trade stops)
12. Ultimately the best MM depends on too many factors that are dependent on the trader and the system being traded
13. If you’re disappointed that I omitted this part, pick up the book. Probably, every trader should own this book anyway, it’s that good, no matter what comes next.

The two main takeaways every trader should get from this chapter is

1. Obviously this is the most important (and longest) chapter in the book because this is the meat of profitable trading if you believe (as Penfold and I do) that the markets are mostly random. I say mostly, as I don’t think they’re entirely random; that would ironically, make things easier.
2. The more time spent on this aspect of your strategy is likely not wasted time, yet most traders do this backwards, and that’s why they’re outside the ‘winner’s circle’.

Is this the final word on money management? I think after finishing the chapter you will realize there are other ways to get creative with this - for example hybrid techniques that could ‘ramp-up’ safely, but I guess the odds are at least one of these approaches will work with any system even without modifications.

1. Setups
   1. Identify possible future support or resistance areas

2. Trade plan
   1. Clear instructions on how to enter, place stops, and exit
   2. Should pass the 'McDonald’s test'
   3. Validated using TEST
   4. Calculated risk of ruin

3. Choose discretionary or mechanical trading or a hybrid
   1. Discretionary traders have a flexible trade plan
      1. Flexible on what and when and how they trade
      2. Constantly making decisions

   2. Mechanical traders follow a rigid trade plan
      1. Unyielding rules-based strategy which may not be deviated from
      2. No discretion
      3. Automatic and systematic
      4. Unthinking (apart from the execution of trades)
      5. Must take all trades dictated by the system

   3. Hybrids are obviously, a mix of both

For me there is no question about which camp to join -- at least in the majority - because I almost agree with Robert Miner that rules cannot entirely take the place of reasoned thinking. Mechanical. I choose to trade based on science and there is no discretion in science. Especially, if you believe as I do that the markets are mostly random, there is no advantage in treating some trading opportunities differently from others. We are not such finely-tuned intuitive creatures that we can avoid fooling ourselves. Of course, it’s possible that there might be some profitable discretionary traders, but my guess (based on my own personal experience) is they just make their lives harder for themselves by being ‘flexible’. They build up cognitive loads trying to make constant decisions and eventually break under stress, or take advantage of opportunities haphazardly. Not only do I think most traders benefit from being mechanical, but also from then offloading execution to an algorithm/robot. And if you intend to do that you must remove all as much discretion from your system as possible.

Once again Penfold takes my side as he says traders often begin discretionary and after many disappointments begin to make their methods more mechanical. Penfold encourages new traders to consider mechanical trading “from the start”.

1. Key ingredients in executing a trade plan:
   1. Consistency
   2. Discipline

2. Keep it simple
3. Enter when you find a S&R level that will hold
4. Don’t let your chosen market theory or school of analysis dominating your thinking
5. Styles
   1. Trend
   2. Counter-trend
   3. Penfold recommends starting with a trend-following method, as it’s safer
   4. However ‘in the fullness of time’ he recommends also developing a countertrend system
   5. Having both allows for a smoother equity curve

6. “The objective is to trade a diversified portfolio of trading methodologies across multiple time frames that do not duplicate but complement each other.”
7. Setups
   1. Found through market analysis
   2. There are many schools of analysis

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1. Searching for an elusive edge is ‘thrilling’ but likely to damage their wallets (like trading itself!)
2. Writing out strategies is more satisfying than placing market orders (after writing 200+ strategy documents I can confirm)
3. Sadly, but not surprisingly Penfold abandons us at this stage, like Gandalf heading off to Minas Tirith just before the company of adventurers must enter Mirkwood forest. There is just too much to do and this is the ‘universal principles’ not the ‘technical analysis-specific principles’
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“Stay on the path!” (but which one?!)

1. I don’t blame him, but I also dispute that S&R is the underpinning foundation for TA
2. Think for yourself
3. Just because an ‘expert’ believes it doesn’t make it true
4. Validate independently
5. Not all can be right, decide what makes sense for you
6. Remain a skeptic until you can validate a ‘voice’.
7. If a methodology fails your TEST - discard it
8. Knowing what doesn’t work in trading is almost as good as what does (superb advice)
9. Penfold groups the main schools of theory into three groups
   1. Predictors
      1. Astrology
      2. Cyclic analysis
      3. Elliott Wave Theory
      4. Fractal Analysis
      5. Fundamental Analysis (interesting)
      6. Geometry
      7. Gann
      8. Drawbacks:
         1. Looking for future turning points encourages picking tops and bottoms (but what is looking for S&R levels if not the same thing?)
         2. When focusing on the future you lose sight of the present
         3. Reassuring in a false way
         4. Offers promise of controlling your destiny
         5. The intellectual trap
            1. “Traders become attracted by the intellectual appeal and challenge of solving the market’s puzzle, where they believe complexity is best. The predictors love complexity.” (omg - it's the Talosian trap!!)
            2. Penfold singles out Gann who is pilloried (ironically) by Elder who reveals Gann supported his family by writing and selling courses not by trading (like most gurus, and we’ll revisit Penfold’s trading success later)
            3. Williams dismisses EWT and Gann
            4. Penfold dismisses Gann
            5. Most schools of analysis have too many degrees of freedom (curve fitting)
            6. Before attending a course, request copies of the promoter’s real-time trading statements (do we get yours, Mr. P?)
            7. Penfold goes on to decry those who don’t make their money by trading but by selling courses, but I don’t know if he should be so quick to cast the first stones.
            8. Penfold admits he used EWT for 15 years, overlaid with geometry (Drummond?) and was unprofitable that whole time. How long do you stick with something before switching? And will Penfold reveal what he does now that is so ‘boring’ and successful?

   2. Dreamers
      1. ...are indicator users. So basically FF readers
         1. average directional index (ADX)
         2. directional movement index (DMI)
         3. envelopes
         4. ratio analysis
         5. moving average convergence/divergence (MACD)
         6. moving averages
         7. rate of price change
         8. relative strength indicator (RSI)
         9. stochastic oscillator.
         10. Most indicators derivatives of price that contain adjustable parameters
         11. Worse than curve-fitting, they are second-hand curve-fitting (as I like to say, an abstraction on top of another abstraction)
         12. Does not hold true for all indicators (which ones???)
         13. Use fewer, avoid doubling up
         14. If they pass TEST, then go ahead

   3. Pragmatists...use:
      1. breakout analysis
      2. chart analysis
      3. Dow theory
      4. intermarket analysis
      5. market profile
      6. pattern analysis
      7. pivot point analysis
      8. seasonals
      9. spread analysis
      10. statistical analysis
      11. tape reading
      12. volume analysis.
      13. They focus on raw price and raw volume
      14. Not interested in what they cannot control
      15. Focus is on price, not indicators
      16. Most successful traders are in this group

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1. “your trade plan can confirm the market’s strength before entering by checking whether:
   1. the day closed higher than its open
   2. the day closed higher than the previous day’s close
   3. the day closed higher than the previous close of two, three, four, or five days
   4. the market rallied through the previous day’s close or high
   5. the market rallied through the previous week’s close or high
   6. the market rallied through the previous month’s close or high.” (all signs of momentum)

2. Keep it simple (minimize parameters, etc)
   1. Tom DeMark - advisor for Paul Tudor Jones and Steve Cohen in ‘Market Beaters’
      1. “The bottom line was, after 17 programmers and 4 or 5 years of testing, the basic 4 or 5 systems worked best.”

   2. Curtis Faith in ‘Way of the Turtle’
      1. “Keep it simple. Simple time-tested methods that are well executed will beat fancy complicated methods every time”

3. Ensure logic supports the methodology (so what is the logic behind ‘support’ or ‘resistance’? A simple chart pattern that can be seen by everyone is likely to have an effect on future price directions? No way.)
4. Use stops - initial, breakeven and trailing, and time stops, dynamic stops
5. Be wary of profit targets
6. Entries are important - despite what you’ve been told
7. Avoid large stops
   1. Increasing stops will create a hypothetical good looking equity curve but result in ruin

8. Confirm expectancy through TEST
   1. Design setup to find S&R
   2. Develop trade plan
   3. Validate with TEST -positive expectancy and smooth curve
   4. Combine preferred MM with validated methodology and calculate risk of ruin
   5. It must be zero. If you survive, you’ll succeed.

9. 4 important facts about trend-trading
   1. It’s the safest way to trade
   2. Trends move markets and are the basis for all profits
   3. Trend trading is miserable - you lose on ⅔ of all trades
   4. There are two ways to trade trends
      1. Breakouts - with the trend
         1. Never miss a big one
         2. Use large stops (which we were just warned against)

      2. Retracements - resuming in the direction of the trend
         1. Might miss big trends
         2. Use small stops
         3. As this allows smaller stops this is the focus

10. More support and resistance (boo)
    1. Practically reciting a mantra
    2. “A good support level will exist in, and confirm, an uptrend. A good resistance level will exist in, and confirm, a downtrend.” What makes it good? How do you know?

11. Price does not move linearly

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1. “Practical retracement trend trading is all about patience in waiting for markets to come down to areas of support in an uptrend before entering longs and waiting for relief rallies in downtrends to find areas of resistance to sell.”
2. Penfold says trend trading should be easy but then decides to break it down into 3 parts with a ‘philosophy’, ‘objective’ and ‘execution’. Now this is devolving into a typical trading book!
3. Philosophy
   1. In an uptrend, prices need to come down to go up
   2. In a downtrend, prices need to up to come down

4. Objective
   1. In an uptrend, locate a ‘good’ support level to enter long and catch a continuation
   2. In a downtrend, locate a ‘good’ resistance level to enter short and catch a continuation

5. Execution
   1. Locate trade setup
      1. Identify trend
      2. Wait for retracement level
      3. Wait for retracement pattern

   2. Implement trade plan
      1. Enter
      2. Place stop
      3. Manage trade
      4. Take profits

6. The market’s maximum adversity will make every effort to mask its true direction (how can a random process have a ‘true’ direction?)
7. Why you trade
   1. To earn expectancy through many trades over the long term
   2. You will often not get the trend direction right

8. Penfold apologizes for repeating himself (this is a step up from most trading gurus)
9. Trend traders fail for the reasons other traders fail
   1. Poor MM
   2. Poor method
   3. Poor mindset

10. Penfold really pads this chapter out, like he wanted it to match the length of his ch.8 opus.
11. Penfold tells us that the moving average is
    1. One of the best indicators available
    2. Personally used by him (200 day period)
    3. A poor trend tool (so how is it the best??)
    4. Penfield says the variable length of the MA filter is what makes it unreliable
    5. You can input any number and get any result you want back (mirror of Erised)
    6. However its single variable makes it superior to MACD or ADX

12. Tools with variables are too subjective, too flexible
    
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13. Poor retracement tools
    1. overbought or oversold conditions
    2. divergence
    3. chart patterns
    4. percentage retracements.
    5. ROC (rate of change) indicator
    6. RSI (relative strength index) indicator
    7. stochastic oscillator indicator.
    8. These all suffer the same parameter-dependency

14. The more variability, the more wiggle room
    
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1. Subjective tools kills traders
2. Wait for a confirming entry signal
3. Developing and combining complementary and independent methodologies should be your objective
4. Any tool that allows you to place enough levels on a chart is bound to be right
5. Penfold demolishes Fibonacci ratios (great! saves me some effort
   --
6. Most traders are ‘placebo’ traders
7. Their medicine doesn’t work but it gives them the confidence to engage with the market (exactly)

This chapter is a little bloated, a little meandering, somewhat repetitious. Although I dislike S&R and I don't feel Penfold has made any real effort to defend his 'method' (maybe out of concern of revealing too much); this chapter is packed with good tips and elegantly supports many of the conclusions in Clemmo's first lemma of trading. Penfold's fundamental message is something you'll need to contend with (and overcome) if you think you have found meaning and structure in market prices.

1. Psychology is about managing your three main emotions
   1. Hope
   2. Greed
   3. Fear
   4. “Psychology is the glue that holds money management and methodology together.”
   5. “I would argue that without money management and methodology there wouldn’t be anything for psychology to glue!”

   
   

2. If you’re feeling stressed about your trading you should stop. (except in the early days it’s nearly unavoidable to feel some stress)
3. The consensus view is you need ‘unlock’ your subconscious mind to unlock your potential
   1. Penfold dismisses this view
   2. The talk of ‘limitations’ and ‘unlocking’ your potential is silliness (bullshit is what he wants to say)

   
   

4. Psychology only becomes an issue when ‘the subconscious mind is not satisfied that the trader knows what he or she is doing on the conscious level. That’s it.’
   1. Most traders are clueless - and the subconscious will let you know about it.

   
   

5. Traders who adopt a sensible MM plan and methodology will begin trading with zero percent risk of ruin
6. MM and positive expectancy are the two weapons against ruinous risk
7. Listen to your subconscious if it’s warning you about a problem
8. Once you have zero % risk of ruin and have TESTed your strategy you will be more relaxed
9. Hope
   1. The lesser evil of the 3 hurdles
   2. Hope happens when not using correct MM and expectancy

   
   

10. Greed
    1. Pushes your insecurity button
    2. Traders want unrealistic returns and unrealistic accuracy
    3. Visualize achieving your modest return targets and feeling good about them

    
    

11. Fear
    1. Confront your fear
    2. Penfold is a short and medium-term pessimist
    3. You must handle the ‘pain’ of trading
    4. Trend traders especially are miserable
    5. Maximum adversity means there is no easy money to be made
    6. Most people need to suffer first-hand the consequences of not listening to good advice
    7. Most traders know that trading is “a world of hurt and pain” and have learned how to numb it
    8. Penfold conquers his pain by systematic trading

    
    

12. Ok, I’m good. Are you good? He’s going to say the same thing over and over until the chapter is long enough to justify itself
13. What works for me is reciting the Bene Gesserit litany against fear from Frank Herbert’s ‘Dune’ but I'm a big old nerd, as you probably guessed.
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1. Methodology - does a setup exist; if it does execute trade plan entry level, stops, exits, calculate risk size per contract or position size
2. MM - determine if you’re still within your risk capital limit
   1. System stop laid over your method’s hypothetical single contract equity curve - if the curve is above the stop, trade, otherwise don’t
   2. Hypothetical trade history
   3. 30 emailed simulated trades (TEST) collected during validation
   4. Live hypothetical results

3. Psych
   1. Expect to lose money - the best loser is the long-term winner
   2. Place your order

4. Order Placement
   1. preorder placement checklist:
      1. whether a setup exists
      2. your entry and stop levels
      3. your exit instructions
      4. the dollar risk per contract/position size
      5. whether you’re within your financial boundary’s risk capital limit
      6. whether your single contract equity curve is above your system stop
      7. what your position or trade size is.

   2. You should then have done the following:
      1. debited your profit and loss spreadsheet with your expected loss
      2. accepted your expected loss
      3. gone through your positive affirmations to help manage your hope, greed, fear, and pain.

   3. Wait to hear from your adviser about whether your order was filled (???)

5. Penfold goes over basic order types - I’m skipping a lot of detail as I assume this is already familiar to you but if it isn’t - go through the first chapters of BabyPips school or look up the definitions on Investopedia
   1. Market - enters the market immediately and is susceptible to volatility
   2. Best - a futures term? Allows your adviser discretion in terms of time and price
   3. Limit - identifies a specific price to trade at
   4. Stop - an order set to guard against adverse movement in a position
   5. Stop Limit - has 2 parts.
      1. 1. A condition to be triggered by the stop instruction
      2. 2. A limit on the price at which the order can be executed

   6. Market if touched (MIT) - futures again? - enters in your chosen direction if the market reaches a certain price, no matter how briefly and even if it’s not currently at that price
   7. Market on Open (MOO) - transact an order at the the market’s open
   8. Market on Close (MOC) - the same but at the close of day
   9. Stop Close only (SCO) - A stop limit order that will be activated on the closing price only
   10. Fill or Kill - (FOK) - an order that must be filled immediately or else cancelled
   11. Fill and kill (FAK) - an order that must be filled as much as possible and if there is any balance, that will be cancelled
   12. Expansion order - enters the market after it has opened and moved a certain distance
   13. If done - A condition that will be executed if the first instruction was successful
       1. Sell 1 March FTSE at open -10 on stop.

if done
Buy 1 March FTSE at open +10 on stop.

1. The second instruction will only be filled if the first one is filled

1. One cancels other (OCO) - allows traders to place two order together but the client adviser executes only the order that has its condition triggered first

1. You can see why some traders might prefer futures trading over forex. There’s much more flexibility in manual order handling. However with an EA most forex traders can simulate this more sophisticated order placement.
2. Duration of orders
   1. Day only
   2. Good Til Cancelled (GTC)
   3. Good Til Date (GTD)

3. Traders should be wary of using limit orders
   1. focus on risk management, rather than how much money you can make trading
   2. greatest risk is not losing a few points by going to market, on either stop or MIT orders, but the risk of missing out on a good trade by placing a limit on entry level
   3. Slippage is a good sign as it indicates that the supply or demand wasn’t there for you, which suggests you’re on the right side. (Livermore)
   4. You don’t want to get stuck with a losing position just because of a limit price on exit
   5. Penfold prefers not to use GTC orders but to re-place his orders each day even if his levels never change so his orders don’t ‘fall through the cracks’ at the broker. Are these concerns still valid in this electronic age?
   6. Always get an acknowledgement from your broker
   7. Check notifications for accuracy
   8. Prepare a monthly report
      1. Summary of financial benchmarks
      2. financial boundary risk capital limit (wouldn’t this just be in your trading plan?)
      3. modest expectations (how does this differ from benchmarks?)
      4. money management rules (trading plan?)
      5. system stop (trading plan!)
      6. monthly trading result
      7. accumulative result
      8. account balance

Summary
What distinguishes the winners from the losers— awareness and acceptance of the six universal principles of successful trading:

1. preparation
2. enlightenment
3. trading style
4. markets
5. the Three Pillars
6. money management
7. methodology
8. psychology
9. trading

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1. Obsessive collector of trading books
2. Failed until he found ‘market profile’ developed by Peter Steidlmayer
3. Became one of the first ‘outsourced currency traders’ and institutional teachers
4. Has a rule that allows him to break his rules (???)
5. Uses ‘Market-Analyst’ to find setups, his own ‘Barro-Metric’ method, Ray Wave and Market Profile
6. Uses E-signal and Channelyse (Brian J. Millard?) for cycle analysis
7. Trades S&P500, ‘main’ currencies, gold, and 30y bonds over a MN time frame according to an 18 day swing (sounds Hurstian)
8. Stickler for record-keeping
9. Records his screen using Camtasia to keep a record of his trading
10. Of course he has a book. They all have a book.
11. New traders lose because they mistake luck for skill
12. They also lose because they perceive trading success as ‘attained’.
13. Tells a story about the 1934 flight training program in the US army air corps (not the air force?) where student fatalities were as high as 25%. This did not change until Edward Link invented the Link Simulator. It allowed pilots to make errors without dying, allowing them to practice more deeply. ‘Deep Practice’ is a concept introduced by Daniel Coyle in ‘The Talent Code’ (similar to deliberate practice’ by Anders Ericsson?)
14. Trading students practice the way pilots used to. They read a book or two (if that), attend a seminar (maybe). A trial and error practice. They risked their lives, we risk our financial lives
15. Error learning cycle
    1. Set the context (chunk - which I think is ‘chunking’ in the cognitive psych sense of the term?) identify the core tenets of our learning and divide them into component parts
    2. Set goals that are just outside our comfort zone
    3. Simulated practice with an outcome in mind
    4. At the end of the exercise - compare results with desired outcomes
    5. Note the gap, and reflect and decide on actions to close the gap
    6. Repeat the cycle until the gap closes
    7. Very good advice for learning anything

Mark D. Cook

1. So addicted to the markets that he hasn’t even written a book (can it be true? Haha - no. he has a book. They all have a book.)
2. Executes up to 40 trades a day
3. Profiled in Market Wizards
4. Inventor of the CookCumulativeTickInidicator
5. Mark noticed what was, basically, mean reversion
6. Fades extreme tick readings
7. Won 1992 US investing championship
8. Studies and learns from his old trades
9. Trades mainly S&P500 e-minis
10. Since the early 2000s Mark has had an open invitation to any trader who would like to challenge him to a trading contest. It’s a million-dollar winner-take-all challenge. He has never had one other trader accept his invitation
    1. I have to call BS on this. I can’t find anything about it on the internet.

    
    

11. The article goes on to say all these other things that Mark does but he was so addicted to trading he didn’t have time to write a book, remember? Whatever
12. His advice? It’s easy to make money but hard to keep it.
13. His ‘truths’:
    1. I will lose money. I accept it.
    2. Avoid opinions. Trade facts
    3. Find opportunities. Trade them. Don’t overstay
       1. Amateurs stay in trades too long. (unless they’re scalpers)

       
       

    4. Be confident. Trade to win. Don’t trade to avoid losing.

    
    

14. Mark never overstays his welcome in a profitable trade. Yet traders are indoctrinated to ‘‘let profits run,’’ not to cut profits short. Yet Mark does the complete opposite. (I would guess many if not most successful traders do the opposite of what novice traders are told to do)

Michael Cook

1. won the real-money Robbins World Cup Championship of Futures Trading1 in 2007 with a 250 percent return
2. Early trading career was unusually, successful
3. Hired at BoA London emerging markets fixed-income desk
4. Looks for momentum setups using methods “built on just 20 or 30 lines of code”
5. Mechanical but introduces discretion when necessary
6. Uses Genesis, Excel, E-signals FutureSource
7. His advice? Trade smaller
   1. a new trader tends to hugely overestimate the correct size and number of positions for a given level of risk capital (which is why dealers love new traders and high leverage)

   
   

8. If you want loyalty or excitement, get a dog or take up sky-diving
9. Trading small early on won’t make you profitable but it will help you survive
10. This advice is a bit like a doctor advising his overweight patient to eat less and exercise more. Obvious, and likely unheeded.
11. If you survive you have time to learn everything else

Kevin Davey

1. In 2006 he won the Robbins World Cup Championship of Futures Trading1 with a 107 percent return.
2. “Kevin is unique in my collection of traders because as far as I know he is the only one who operates fully automated mechanical trading systems in which his PC does most of the trading” Which gives you an idea of how old this book is - 2010, so 11 years old.
3. Emphasizes exit strategies
4. Uses TradeStation to research, develop and backtest
5. Short-term, multiple TF
6. His advice? Simplicity is best
   1. Occam’s razor
   2. Avoids Elliott, Gann as ‘complicated’

   
   

7. One strategy only uses the most recent two closing prices to determine the next trading signal (sounds like an interesting scalper idea)
8. One computer, two monitors
9. This guy seems to be my trader spirit animal and his books look interesting. I will be checking them out.

Tom DeMark

1. Bigwig who has advised bigwigs
2. I know him as the author of a pivot indicator
3. Penfold points out that DeMark and everyone else helped out just because he asked and not for a financial interest
4. Began trading off ‘Victoria Feed commodity charts, Abe Cohen point and figure charts, and Wyckoff charts’
5. TD sequential indicator - attempts to make Elliott Wave objective
6. Countertrend trader - anticipates tops and bottoms
7. “Mr. Anti-trend”
8. Dismisses general TA, sees himself as a market-timer
9. Markets don’t change over time because markets only reflect human nature
10. Repeats the ‘17 programmers, five years of testing” quote - simplicity wins
11. His advice?
    1. Avoid the trend
    2. Avoid following other market advice and consensus outlooks - this is comforting herd behaviour that works in other fields but not trading
    3. Trends end because the last buyer or seller, “figuratively speaking” has bought or sold (yeah, but so, what does this mean exactly? The smart money is done buying and selling and now only greater fools are getting in to the trend?)
    4. Short covering may look like prematuring buying but then the decline resumes
    5. Buy into weakness
    6. Sell into strength
    7. “This anti-trend approach has proven to be more rewarding as it relates to selling than buying a market”
       1. Buying is cumulative, traders with a rising position will add-on until they’ve exhausted their ability to buy
       2. Once a trader turns negative on a market, the entire position is usually sold at once
       3. Markets therefore decline three times faster than they advance so anti-trend trading is more rewarding at market tops than at bottoms

Lee Gettess

1. Trades a 21-year old mechanical system called Volpat
2. Such enduring systems are rare according to Penfold
   1. “Richard Donchian developed his four-week (20-bar) channel breakout system during the 1960s, which achieved ‘‘celebrity’’ status after Richard Dennis and Bill Eckhardt’s Turtle experiment in the 1980s.”
   2. “There is also another trend-trading system that was developed in the mid-1980s, based on John Bollinger’s Bollinger Bands.”

   
   

3. Sold Volpat for $675,000
4. “Lee still trades volatility breakout systems with pattern recognition, although he now combines his strategies with momentum. However, out of the three components, Lee will place a greater reliance on pattern recognition.” (LOL wut)
5. Advice?
   1. Every good trader also must be a pessimist. Too much positive thinking morphs into wishful thinking.
   2. Focuses on what he can lose as that’s all he has control over

Daryl Guppy

1. Speaks mandarin
2. 12 print runs of his book ‘Share Trading’
3. Uses GuppyTraders Essentials, Metastock, OmniTrader, NextView Adviser, and Gousen for the China markets
4. Advice? Humility
   1. Acknowledge that other people know more than you do, in the market
   2. You cannot be smarter than the market
   3. All their info and analysis is revealed in the price chart
   4. First & second basic relationship is stable & dynamic support & resistance (ugh - definitely going to have to do some real-time tests of this theory)
   5. Third basic relationship is between traders and investors - uses the GuppyMultiple Moving Average to understand and analyze this relationship (interesting)
   6. Humility means ignoring your opinion if the market doesn’t confirm it
   7. Humility means listening to the chart
   8. Be humble and the market will reward you

Richard Melki

1. Global macro trader (enters and exits any market for any reason)
2. Traded for merchants banks for a decade
3. Discretionary, uses ‘very little’ TA
4. Uses his own analysis and interpretation of global macroeconomic events and knowledge of market flow to support his decisions
5. “He’s one of those lucky few who has the rare gift and ability to absorb many economic variables while monitoring multiple markets, and distill it all down to a clear binary decision about whether to trade.” (I have to admit I am curious if there are people who can do this - a bit like what you see on the TV show ‘Billions’. I suspect it’s not as rewarding as a purely mechanical approach using a set of variables but I cannot say for sure. Of course these days creating your own trend (GME) is even more interesting.)
6. Uses technicals to time entries
7. ‘Effortlessly’ lets go of a market view, stops himself out, and reverses position
8. Has a high regard for systematic mechanical traders
9. While at BT the best-performing trader was actually an algorithm designed by the chess player Richard Farleigh. (I suspect this is becoming more common if it’s not already the norm - but as a chess lover, I love this story. Farleigh’s book which I am going to check out is called ‘Taming the Lion’)
10. Advice?
    1. “the most important thing is to have realistic expectations, a robust capital management system, and a trading plan applicable to your time frame”
    2. So, kind of a boring cop-out answer that is not improved with specifics.
    3. “it is very important to move on and not remain overly focused on losses or become obsessed with making up those losses. Remember, an opportunity presents itself nearly every day.”
    4. Richard it seems, actually does not have a book or a website, so maybe he’s a real trader

Geoff Morgan

1. Also a non-book writer, no, scratch that - wrote a book about backgammon but did not publish it (?)
2. In fact there’s so little info about him that I wonder if he’s a fabrication or a pseudonym
3. Sold a business selling risk assessment software for the insurance industry
4. Trades pattern-based volatility breakouts in the direction of the medium term trend
5. Hilariously Geoff’s written response to Penfold is to decline to offer advice as “I have a philosophical problem—I am a trader, not an educator. Futures trading is a zero net game, that is, for me to make money somebody else must lose money. Why would I want other people to stop losing?”
6. Not surprisingly, Penfold was a little disappointed with this answer, but argues that Geoff is still a good example of a ‘successful private trader”. Again, sounding more made-up all the time.
7. During his time at a brokerage he only saw one punter actually make money
8. Before you can start winning you must stop losing (this seems like the inverse of the advice given by Penfold/Art Simpson)
9. Concentrate on minimizing losses as it avoids difficult psychological situations (it takes a special kind of person to able to make rational decisions when you are on a 10-trade losing streak and down 50% of equity)
10. His only losing year (out of 21) was when he overtraded and went on holiday
11. “Good defense wins games”

Greg Morris

1. Formy Navy fighter pilot
2. Wrote ‘Candlestick Charting Explained’ and ‘The Complete Guide to Market Breadth Indicators’
3. Advice?
   1. Discipline
   2. “Discipline is not something you can adjust or use partially, you either have it or you do not.
   3. Once you have a good technical model, you will then need a set of rules to follow for asset commitment levels (percent of available assets) based upon various readings from your model.
   4. When your model is initially calling for you to invest, it is probably wise to limit your exposure until you get more evidence that the trend is going to materialize into something that is tradable. As the model improves, the buy rules will let you commit more assets.
   5. At each stage you must also know exactly at what price you will set as the stop loss—and then follow it as if your life depended on it. Never second guess a stop-loss level.”
   6. You can have all the knowledge, all the ideas on how to engage the market; however, if you don’t have the discipline to follow your plan, you have nothing.

Nick Radge

1. Ex-associate director of one of Australia’s leading investment bank, Macquarie Bank
2. author of “Every-day Traders and Adaptive Analysis”
3. Synthesizes Elliott wave with traditional chart patterns and volume analysis
4. Consistent profitable trading took him 10 years
5. Long-term trend follower
6. Trades 3 different TF with 3 different mechanical strategies, avg hold time: 10 months
7. For research and development uses TradeStation and Amibroker
8. Advice?
   1. Perseverance
   2. “Why do so many people fail at trading? They simply don’t have the perseverance or patience to allow the market to reward them.”
   3. “It’s time not timing”
   4. The market pays its dues when its ready, etc.
   5. “When the market is trending up, I want to be involved. When the market is trending down, I want to be in cash. It need not be any more complex than that.

9. Why can’t everyone do it?
   1. Because they think that each and every month must be profitable. Indeed, they demand that each and every year be profitable.”

10. The professional trader has:
    1. Cash
    2. Confidence
    3. Perseverance
    4. A ready, proven strategy

Brian Schad

1. Ex Navy Seal
2. Near death experience while patching a ship
3. Larry Williams disciple
4. Uses GenesisFT and ‘System Writer’ software
5. Backtests, knows the odds
6. Advice?
   1. Take your time to get things right the first time to avoid having to make the same mistake twice
   2. “Strive to be able to define your trading ideas to an advanced trading software platform to backtest your market convictions as early in your trading career as possible.” (and if you can do this, why waste time trading manually?)
   3. “being able to test what they feel are strong convictions about recurring market patterns and potential entry/exit signals as early in their trading career as possible will help them navigate where they want to go sooner than most—like a traveler using a GPS, rather than stopping and asking others for directions to their destination”

   
   

7. Would have advised paper trading for as long as possible but the problem is:
   1. If the market is trending the trader will think there can be no wrong
   2. If the market is choppy or sideways or nearing the end of the trend, it could lead you to scrap a good method
   3. Repeat success and fine tune methods every couple of years

Andrea Unger

1. 2005 he won the European Top Trader Cup competition
2. Back-to-back 2008 and 2009 winner of the real money Robbins World Cup Championship of Futures Trading
3. Engineering background
4. Day trades off five minute bars
5. Uses Genesis and Tradestation
6. Advice?
   1. Your beliefs won’t always be right
   2. Plan your trading, stick to your plan
   3. Choose a way to trade that fits your personality
   4. Don't try to adapt the markets to your beliefs
   5. Test your ideas and review the results
   6. Better to work on a new approach then spend time getting a faulty one to work
   7. Always be curious; markets change and you have to figure out each day how to change with them
   8. Don’t find excuses to do a necessary task
   9. If you happen to buy on the lows and sell on the highs it’s more due to luck than good trading
   10. I’ve seen his promotional materials for a video series and it did look interesting. Add him to the list.

Larry Williams

1. Hardly needs an introduction but Penfold gives him a big one
2. LW has done a lot to influence trading (COT, %R; in my view has most of it been useful? Not at all, but interesting, all of it worth investigating at least briefly
3. Penfold gives him credit for inventing volatility breakouts and MM
4. Discretionary, and doesn’t believe trading should be ‘paint by numbers’
5. Uses Genesis and TradeStation (how much of the popularity of this software is due to the time this book was written?)
6. Author of 9 books
7. Advice?
   1. The business is amazingly simple, yet complex (boo)
   2. You have to have control
   3. Focus != control; control has the added aspect of taking action
   4. You have to have control to actually use your MM - it’s like mom and dad advising about eating correctly, exercising, avoiding bad people - you know it’s true but you still have to follow the advice
   5. Trading is a battle; it’s easier to talk it then do it
   6. Questions, not answers, make for better traders
   7. “Without risk, there is no reward; without work, there is no reward; without dedication and perseverance, it’s the same thing; there is no reward.”

Dar Wong.

1. Worked on the floor of the Singapore International Monetary Exchange (SIMEX)
2. Worked for Citigroup
3. Reuters and Bloomberg for real-time live data feeds
4. Transitioned from floor trading to screen trading in 2006
5. 30 minute bars, day trading, using his own ‘PowerWave’ setups
6. “For his countertrend pattern, he looks for snapback reversal opportunities after extreme price extensions. For his trend-continuation pattern, he looks for breakout opportunities after price congestions”
7. Mostly indicator free,
8. Advice?
   1. I’ll be frank and say I didn’t really ‘get’ his advice. It reads like it was translated to English from, guessing: Chinese?
   2. “Trading is a game of probability. There is no fixed rule on how to play it until you get it right. In summary, the winning concepts are based on the efficient management of risk in lieu of the forecast trend to be realized later.” That’s about the clearest sentence in his section.
   3. “Recommends identifying low-risk exposures that can offer a 1:3 risk reward payoff, and believes traders need to determine firmly whether their preference is for day trading or positional trading if they wish to consider a career in trading”
   4. Trading is a game of probability
   5. “Dar’s advice to you is to focus first on the trade setup risk, and only pursue the trade if the risk is both low and accompanied by a potential reward offering a 3:1 payoff.”

Summary

Attached Image

1. trade small relative to the size of their account
2. focus on risk
3. trade simply
4. trade against the majority who lose
5. trade with an edge
6. accept losses as part of the business of trading
7. be discipline
8. be patient
9. be humble
10. be in control.
11. Their individual advice emphasized the importance of the universal principles of successful trading.
12. No entry techniques or ideas were discussed
    
    Next: the final chapter (for real this time) and an examination of Penfold's record

1. Barriers to entry have never been lower - best of times
2. Traders continue to lose - worst of times (and I’d argue it’s harder than ever to win now that traders are fighting mainly robots)
3. “Traders have been overloaded by the choice available, distracted by the marketing hype and promises of easy riches and have lost sight of the basics that work—the universal principles of successful trading”
4. Resist:
   1. the pain of losing
   2. the pain of resisting your strong inclination to close a winning trade to bank a profit
   3. the pain of leaving imaginary money on the table
   4. the pain of not being in the market to catch the next big move
   5. the pain of drawdowns
   6. the pain of not knowing when the winning trades will come
   7. the pain of believing everyone else is doing better than you
   8. the pain of believing everyone else is doing it easier than you
   9. the pain of impatience
   10. the pain of wanting everything now
   11. the pain of continuous research and development that rarely leads to a new profitable idea
   12. the pain of tiredness
   13. the pain of never having enough
   14. the pain of believing everyone else has a better strategy than you
   15. the pain of never really being satisfied with your methodology
   16. the pain of continually searching to improve your edge.
   Attached Image (click to enlarge)

   
   
   Life is pain your highness, anyone who tells you differently is selling something
   
   
5. Usually the hard choices succeed in trading.
   1. Studying, learning, and implementing the ideas in this book
   2. Studying charts to discover repetitive patterns to trade
   3. Reading and researching market theories
   4. Learning a software program to back test strategies
   5. Coding up strategies for back testing
   6. Validating methodologies with the TEST procedure
   7. Calculating your individual risk of ruin
   8. Being quick to take losses.
   9. Being slow to bank profits
   10. Trading small is trading without excitement
   11. Buying higher highs
   12. Selling lower lows
   13. Doing the work
   14. Defying human nature
   15. Always be wary of the easy option because it's usually the wrong option.
   16. Be patient - don’t rush

   
   
   

So from what I’ve read this book has to go into my top 3 all-time favorites. I don’t agree with everything but this book has way more practically useful information than anything I’ve read in a long time, and definitely stands out from most books published since 2000. It would get an 'A' just for the money management chapter but it has lots of good advice on top of that. The only thing it's missing is a critical evaluation of method. Penfold talks about S&R but apart from a diagram he doesn't really say why this can be trusted and from my experience and testing I don't trust it.
So, for such a good trading book author, can we expect a great trading record? Let's find out.

Google doc with footnotes

1. Larry Williams MM
2. Won the 1987 world cup of futures trading
3. Turned 10k into $1,100,000 or 10,900% profit
4. His daughter (actress Michelle Williams) won the 1997 world cup championship of futures trading - 900% profit in one year at the age of 17
5. Core concept
   1. Geometric growth
   2. Start with 1 lot, $1000 account, win $1000 with that lot
   3. Now with $2000 trade 2 lots
   4. You’ll win $2000, trade 4 lots
   5. With $8000, trade 8 lots
      Attached Image (click to enlarge)

      
      

6. The blue bricks show what you’d be doing with a fixed lot approach
7. LW formula
   1. Vol = Risk x Equity / Lmax
   2. Where vol is your volume in contracts
   3. Risk is your tolerable risk %
   4. Equity is the free funds in your account
   5. Lmax is the max loss per 1 contract, basically take your worst (max) loss and divide by the number of contracts

8. Example
   1. Start with a $10k account
   2. Margin is $1k, so Equity is $9k
   3. Assume worst loss is $200 per contract
   4. Risk arbitrarily assumed to be 5% (but Kirill mentions Kelly Criterion as a way to assign risk, to be discussed later)
   5. 5% x $9000 / $200 = 450/200 = 2.25, round down to 2 contracts

9. An unexpected trap
   1. Losses are 1.5x greater than previous profits; because you are always augmenting the volume each step, each new loss will be greater
   2. As a result, even if you were trading with 1:1 R:R where SL = TP, and assumed that if you were risking 2 units for 2 units, since the next loss (whenever it occurs) will always involve the next step’s larger volume count, your actual expected loss is not 1:1 but 1:1.5

Not this:

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1. Risk is skewed towards losses. If your break-even is set @50% your BE with LW is actually 60%. So a system that works with a linear MM will actually lose with LW.
2. Advantages:
   1. Exponential growth
   2. Simple formula

3. Disadvantages
   1. High risk
   2. Risk distortion - “the trap”
   3. Simultaneous positions amplify risk
   4. Consecutive losses can be drastic

4. Works best for growing smaller balances
5. Consider money invested in LW ‘already lost’ and if it works out, great (well, this should probably be your attitude to trading in general)

1. Developed by Ryan Jones of ‘The Trading Game’
2. Turned $15,000 into $107,000 in 90 days
3. Introduces the concept of ‘delta’; one way to think about delta is that it represents the ‘width’ of each step in the staircase of your equity curve
4. Starting with $1000 balance and trading 1 lot
5. The delta tells us when to increase lots
6. If we use a delta of $1000 the progression is as follows:

Attached Image (click to enlarge)

1. Each lot in play must earn a delta before the lots can move to the next step, increasing linearly

Attached Image (click to enlarge)

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1. Although risk is increasing steadily, the proportion of risk per lot is decreasing; this makes the fixed ratio method safer than the Larry Williams method
2. Advantages
   1. Exponential growth
   2. Safer than Larry William’s method
   3. Table of risks removes complexity

3. Disadvantages
   1. Less profitable than the LW method
   2. Initial SL/TP ratio can be high
   3. No single formula - you must use a table says Emerenko (?? It certainly has one. N = 0.5 * [ (1 + 8 * P/delta)^0.5 + 1] where N is the number of contracts, P is the total closed trade profit, and delta is the fixed step width.)

1. Developed initially by John Kelly, Jr. & Claude Shannon at Bell Labs as a formula for solving loss of signal over telephone lines. Ed Thorp applied these techniques in ‘Beat the Dealer’ and Bill Gross used them in his hedge fund, Pimco which manages trillions in assets.
2. Poor money management can take a positive expectancy system and ruin it
3. Order doesn’t matter
   1. If your risk isn’t excessive (so that you would blow up early based on a streak of bad luck) the order of losses and wins doesn’t affect the outcome because:
   2. Result = account balance x (winning profit x losing profit) ^N where N is the number of times you bet

   
   

4. In a coin-flipping game we can simply look at the expectancy for a pair of results and extrapolate long term based on what is likely to happen as the probability of any result (heads or tails) is perfectly known. Of course, trading is not so simple. We don’t have perfect probabilities for any result even if we have lots of historical results to extrapolate from.
5. Emerenko splits the outcomes into four types - optimal, sub-optimal, break-even and ruin but doesn’t explain how these distinctions are useful (yet).
6. Long-term assessment method
7. Provides the optimal investment to maximize return over the long run
8. Simple Formula
   1. K = [PxB - (1 - P)] / B
      1. Where K = %risk that will lead to the optimal outcome
      2. P is probability of winning, odds of winning in a coin-toss are 50% but in trading odds can be simulated using historical win rates only imperfectly
      3. B is the expected payout on the bet, the ratio of winning amounts to losing amounts - again, not always perfectly known in a trade as it is in a hypothetical game
      4. In a coin toss game where
         1. P = 0.5
         2. B is 2.0 (win twice what you bet)
         3. 0.5x2 - (1-0.5) / 2 = 1- 0.5 / 2 = 0.5/2 = 0.25
         4. So the optimal amount to risk on this simple coin game is 25%
         5. Selecting anything other than 25% will be sub-optimal at best in the long run

Attached Image

Attached Image (click to enlarge)

1. Volatility
   
   Attached Image

   
   1. Kirill says he isn’t entirely sure he agrees with this chart
   2. The idea is that as we increase our bets, volatility increases, unboundedly, but our returns have an optimal peak, the kelly efficient bet
   3. Recall that as we lose more money we need to win much more money to regain our losses, so volatility in returns can lead to ruin
   4. Volatility formula, purely for reference

Attached Image (click to enlarge)

1. It logically follows that trading more than Kelly efficiency is illogical (insane to use Kirill’s term) but as we’ll see there may be logical reasons to trade less than full Kelly efficiency
2. ½ Kelly provides added stability with reduced volatility; 50% reduced volatility with a trade-off of only 25% reduced return, which Kirill says is a 50% reduction of risk but I wouldn’t go that far.
   
   Attached Image (click to enlarge)

   
   
3. Since some of our assumptions about our system are likely inaccurate, trading less than full Kelly offers a safety buffer.
4. Inputs come from trading history
5. You have to have a positive expectancy with K > 0 otherwise don’t trade

Exercise for the reader:

Calculate the Full Kelly value for the following Forex Strategy:
TakeProfit = 20 pips
StopLoss = 20 pips
Approximately 66% winning trades

Prize: First correct answer wins the acclaim of your peers and I'll follow you on FF if I'm not already.

1. Introduction
   1. A somewhat humbler than usual introduction where Langer admits this is just a book, not a course or a mentor, and it’s just an introductory basic text that cannot hope to prepare you for everything
   2. At the end he gives his email address and invites you to contact him for any reason
   3. He also offers a link to his video course, which makes me wonder if the real ‘secret sauce’ is here or in the course? Maybe put the video offer at the end of the book? Anyway, I have not checked out the video at this time

   
   

2. How to lose 50k working hard
   1. Traded for 7 years before he started this book (so, two more years than me)
   2. Most of what’s sold in trading books is ‘pure crap’ (true)
   3. Lost close to $50k in savings learning to trade; not rich; that was his life savings
   4. Paid for coaches, courses and lost with everything (a familiar story now)
   5. Lost count of accounts he blew? (really?)
   6. Glad he wasn’t married or had a family as the pressure was enormous
   7. Indicators seem more discretionary in real life but in charts they seem easy and clear
   8. Wondered if the universe was out to get him
   9. Trading is a zero sum game so someone is winning - but who?

   
   

3. Strange meeting and some wine
   1. Lost 80% of his capital; struggling; deep in debt; day job not meeting his needs
   2. Girlfriend now wife was still studying so he was the breadwinner
   3. Ready to empty what’s left of his account ($9k) and pay off his credit cards BUT then….
   4. He has a meeting with his Abbé Faria (Robert) whose real name he can’t reveal because “he’s retired from the business) (uh-huh)
   5. Robert is a banker (Deutsche) and they decided to keep in touch because they both like red wine
   6. Robert is a senior trader at a forex/ futures desk
   7. Langer tells him his sob story; and Robert agrees to mentor him for $6k and an expensive case of wine
   8. Started making 4 figures a week and he was fully recovered in 20 months; admittedly over-levered
   9. 6 figure income at the end of the year; 7 figures possible; not easy, quite difficult
   10. Your biggest enemy is yourself, but everything depends on you, so…

   
   

4. The Infamous Aha moment
   1. In other trading materials this moment is mentioned but Langer never experienced it ...til now
   2. Trading becomes second nature to him; forex currency pairs started ‘to unfold before his eyes’ and he ‘became pretty good at predicting forex movements’ (hmmm)
   3. The system is the easiest part
   4. Must be disciplined and always follow your rules; no magic, just a good method

   
   

1. The right mental framing or why traders don’t make money
   1. Just a note that we’re now five chapters in and there is no discussion of method; This would drive me nuts and I’d start skimming ahead. Does this type of story really draw readers in? Do they really love books that start off this way? This is junk food, not nutrition.
   2. Opened his first trading account with $60k (lost $51k)
   3. Had another $7k in savings
   4. Earned from his business and day jobs; he had blown up some smaller accounts - $500, $2000
   5. After a small success he deposits his 60k and starts trading ‘for real’.
   6. His system was ‘infallible’. He was aiming to double his account every six months
   7. Bought an MT4 trading system that gave him ‘accurate signals’
   8. A trade starts to go against him and he initially delays but then takes the loss
   9. He sees his loser now start to win (of course) and his system gives him a new signal
   10. He enters with less volume this time. He watches all the fluctuations of his trades thinking of his total win/loss constantly but cuts his winner short.
   11. Now he wishes that he’d played the full volume trade.
   12. His mind was constantly ‘struggling against him’.
   13. He goes on a trip alone to Buenos Aires because he can’t face his girlfriend (?)
   14. Anything can happen in the market.
   15. It’s a game of probability like flipping a coin.
   16. Every time you toss the coin you hesitate and think ‘maybe I shouldn’t toss it this time or use another coin.’ <- Most people trade this way, says Langer
   17. Most traders think their system isn’t working and they look for another one or they look for relationships between facts that are not connected
   18. The market will often turn right at your stop and that’s why so many traders blame their broker for ‘stop hunting’

2. To demo or not to demo
   1. Langer only traded on demo with his mentor
   2. If you don’t have one open, do it now. Really do it. Now, now, says Langer!
   3. Use the same amount as your actual account
   4. A disadvantage of demo is you won’t be managing your emotions, but it’s crucial to start there.
   5. Demo for 4-6 months
   6. Everyone wants instant results but the markets are not a lottery
   7. He left his main account alone while demoing
   8. He started using a tiny account with just $120 in it; instead of concerning himself with gains he focused on execution of his strategy
   9. He began to move money out of his main account into this little account, gradually depleting his old account in a ‘renovation process’

3. Why Trade Forex

4. 1. 
      An obligatory chapter in a book about trading Forex
      Big
   2. Liquid
   3. No central exchange; you’ve heard this all before if you’ve read Babypips
   4. The unregulated nature of the market leaves it open to charlatans and bad actors
   5. Fewer barriers to entry, lower transaction costs, more leverage
   6. Novice traders might not know that they can reduce the leverage they’re using by simply trading smaller positions
   7. Watch out for big news, but a currency can never go to zero (hmm, never say never)

5. What You Must Know to Trade
   1. No complicated indicators
   2. No spaghetti charts

6. Trends and Ranges
   1. Markets can only trend or range
   2. Movements can seem random, but on a larger timeframe they are clearer (are they really though?)

7. Support and resistance
   1. Support is a psychological barrier for traders, a floor
   2. Resistance is a horizontal barrier, a roof
   3. When a support or resistance zone is broken this becomes the reverse, so a broken floor becomes resistance, a broken roof becomes support
      1. See my BTC posts from earlier this year. Have we finally proven this to be false yet? That was one of my goals with Evidence-based FX, but this notion is probably too ingrained in trader mythology. In any case, from this point forward I’m only interested in statistical verification or some other scientific/mathematical proof that S&R has any useful bearing on trades. So far, I have only found it to be random and detrimental to results (Naked Forex/Universal Principles of Trading).

   4. Daily and Weekly time frames are the ‘easiest’ to use for technical trading
   5. Lower time frames are useless because big banks and hedge funds don’t move money in those time frames and they are the ones who really move markets

1. Strategies
   1. Strategies were developed over ‘several months’ of coaching and testing (that long?!)
   2. Good strategies should be simple to make it easier to focus, easier to measure
   3. Keep a journal; his blog has one you can download; (maybe? I didn't check)

   
   
   
   

2. Big Bulls and Bears position trading strategy
   1. If you can’t watch screens all day or you are psychologically weak, here’s a ‘very simple strategy’
   2. There will be only 1-2 trades per month, but they will allow you to collect ‘a nice stream of income’
   3. Check the market every weekend on a weekly chart
   4. Look for this engulfing candlestick pattern on any pair that doesn’t have a giant spread

   
   

   Attached Image

   
   
   
   
   
3. The high and the low of the last candle are higher than the high and the low of the previous candle. (so basically an engulfing candle)
4. Look for important S&R ‘in case the trend is very clear’
5. Place stops at the top or bottom of the engulfing candle
6. “Depending on the distance from the entry to the stop, you will determine your risk, thus your position size. If you have a 200 pips distance to the stop loss and you are risking, let’s say, $400 per trade, your position size should be $20,000.”
7. Entry stops are placed at high or low of the engulfing candle depending on its type
8. Move to breakeven after the price has gone 50% of the size of the engulfing bar in your direction
9. “exit after a 150% move of the size of the candle in your direction, i.e., 300 pips. Another option will be to keep trailing every 100 pips to increase your Risk-to-Reward Ratio. Yet another option is to find support and resistance levels and trail according to those lines. There’s no right or wrong way to do it, just different possibilities for your personal taste and objectives” (There is a right and a wrong way to do it. The fixed exit is the right way. )
10. Trailing will be frustrating but you can hit ‘home runs’, otherwise you will win more often but with smaller profits

Examples

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1. Swing trading strategy
   1. Same as above but
   2. Enter only in the trend direction on D1 at ‘relevant S&R’
   3. If the trend isn’t clear enter in a range at one end of the range
   4. ‘Normally’ wait for a retracement of the main direction to enter in main direction OR when a ‘relevant S&R’ level is broken with an engulfing candle
   5. Pending order gets placed 4-6 pips above or below the engulfing candle with a stop at the other end
   6. Move to break even after ‘the next minor support or resistance is passed’
   7. Trail every 3 candles (like Naked Forex!) or target ‘relevant S&R’ (like Naked Forex!)
   8. This strategy will give you 1-3 trades a week.
   9. ‘Very important’ to check the market every day after NY session
   10. Look for a broker who gives you ‘NY closing charts’ so you can see what the pros are seeing (???)
   11. Avoid trading exotics

   
   

Sample trade: EUR/CAD

Attached Image (click to enlarge)

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