Book of the Month – “Technical Analysis of the Financial Markets” by John J. Murphy

Book of the Month - “Technical Analysis of the Financial Markets” by John J. Murphy

Book of the Month - “Technical Analysis of the Financial Markets” by John J. Murphy

Our review of what many consider the “Bible” of technical analysis

Although there are books with more statistical analysis on how indicators are built and how they perform, this particular one remains a favourite among all readers who are looking for a understandable description of what technical analysis in trading is.

In this expanded edition (although it can seem a bit dated at times) we truly have all the bases covered for what technical analysis, what the thinking behind it is and it’s packed with examples.

It has a well laid out content and arrangement and for many it doubles up as a reference book long after they’ve read it for the first time.

The chapters cover charting, identifying trends, key patterns and behaviours of different instruments, moving averages, oscillators, cycles, etc. These act as the building blocks of the technical analysis, but the mortar that makes it all click is the way the author serves the information to the reader. There is no bias towards a specific indicator or style based on one of them. The language is clear and although it doesn’t lack its fair share of terminology things don’t get too deep into particularities that are hard to understand and make the more inexperienced switch off.

Explanations about how markets interact between each other, as well as the distinction between which indicators are suitable for markets that are trending and markets that are in a range, would be of great help to traders that have limited time. Money management and other aspects of trading that aren’t directly related with technical analysis are also touched upon, adding even more credibility to the overall message.

We can’t find many faults with the book, but keep in mind that it employs examples that suit its purposes and wouldn’t show cases that wouldn’t add value to the content itself. Intuition and experience still have a role to play for those that have studied the book and mixed with the excellent foundation provided here, that is what leads to building a solid trading style.

Leave a comment with your opinion about the Trading 212 PRO platform and your email and you could win the book as a gift from us.

Book of the Month – “Trading in the Zone” by Mark Douglas

Book of the Month - “Trading in the Zone” by Mark Douglas

Book of the Month - “Trading in the Zone” by Mark Douglas

Mind over matter, or how mental analysis is as important as technical

Our selection for March is another book we consider among the must-haves for any trader. Mark Douglas’ “Trading in the Zone” is a work rooted in the inner structure of the brain when it comes to trading. Well written and constructed, it is one of our favourite reads and aside from the overall even spread of valuable content, it also has those bits that manage to stick in the reader’s head, hopefully for when they need them.

This isn’t a book with strategies to take on the market, or with advice on situations that prompt specific actions. It’s an exploration of the mental side of the trading experience. Many traders initially get caught up in the action and excitement of the actual buying and selling, following how the prices change, how news events stir them up. They start to learn about the specifics of these factors, start to put their finger on what makes the market tick, but even down the road of experience some tend to forget one crucial ingredient – themselves.

Having said that, the book doesn’t make the same mistake in reverse – it doesn’t forget that the psychological aspect to trading exists within a framework made up of many different things – fundamental and technical analyses, the strength of the market and the folly of going against it, as well as some mathematics and probabilities.

One of the more pleasant features of the book is it’s rhythm and arrangement. Starting with a clear-cut comparison between the widely popular technical plus fundamental analyses and the mental analysis, the text sets off on a journey of the different aspects of trading. Chapters on responsibility, consistency, perception and beliefs slowly but surely deliver the two main things we feel are the book’s aims. The first is that in all of these “areas,” if we can call them that, there is the possibility of error and flaws. The second is that any trader should consider these areas and build them from the ground up, along with his knowledge and trading style.

Apart from the slight missteps in the beginning of the book, that have to do with some poorer examples and perhaps too strong an emphasis on the psychological without explaining it to the necessary extent, this remains an excellent piece of writing and it’s teachings will remain relevant in the changing world of online trading. Some parts may need re-reading, perhaps too laden with terminology, but we don’t see it as a negative, on the contrary – if the book was too simple it wouldn’t add anything of value to traders.

Drop us a line in the comments with any questions and suggestions about the platform, the blog or any general trading issue that concerns you. One of the commenters will get the book as a gift from us in return.

Book of the Month – “The Big Short: Inside the Doomsday Machine” by Michael Lewis

Book of the Month – “The Big Short Inside the Doomsday Machine” by Michael Lewis

Book of the Month – “The Big Short Inside the Doomsday Machine” by Michael Lewis

Hollywood to make a film about traders who made a fortune from the 2008 financial crisis

When news broke out last week that a single movie has attracted not one, but three A-list stars from Hollywood it immediately generated interest. But when we saw the author of the book was the one who wrote Moneyball, as well as the names of the actors involved – Brad Pitt, Christian Bale and Ryan Gosling – we were definitely hooked. Nothing to do with the actual cover of the book.

“The Big Short” is indeed an excellent read, providing insights into how and what triggered the crisis in 2008 that affected not only the financial world. Written in a way that doesn’t require complex financial or economic knowledge, it still manages to depict and explain the technicalities, while keeping the focus on how a quiet group of traders saw what was coming.

The story follows four people and their companies and teams that managed to see that subprime mortgages in the U.S. – the loans given to people with low credit ratings – became so widespread that they undermined the whole banking and credit system in the world’s largest economy and by proxy the global one.

The models evaluating these mortgages, the protagonists found out, were based on blindly optimistic models of the credit worth of individuals and ever rising house prices. This vision that banks wanted to see was furthered by credit rating agencies that were supposed to be private and independent, outside of the state and hence governed by free markets to provide accurate assessments. This wasn’t the case and by adding an increasing complication of the financial instruments that were connected to the subprime loans, the picture was obscured even more.

The guys that managed to see through all this and even profit from it, were described before the crash as odd outsiders, because their views and opinions were in stark contrast with the overall opinion of market participants – from retail traders and brokers to hedge fund managers and central bankers.

The first is Steve Eisman, whose attention to detail allowed him to break down all the elements of the mortgages that were given at the time and who realised that there was an opportunity to profit from this, as regulators and rating agencies were so misguided.

Michael Bury is our personal favourite. An ex-neurologist who turned his attention to the markets, while unknowingly suffering from Asperger’s syndrome. His dedication and complete immersion in researching the bond market (that also provide a vast array of information, just like indexes) led him to the same conclusions.

The final contrarians were Jamie Mai and Charlie Ledley who started “a garage band hedge fund” in a shed with an account that had around $110 000. Their current net worth is $120 million.

One thing that shouldn’t be forgotten when reading the book and nodding our head in hindsight agreement is that these guys actually took a big risk. A huge risk to be precise. There was a possibility that they could have lost all and then some. It is their trading process and mental fortitude that has to be admired, as being a contrarian and actually backing it with money is harder than it looks.

What anyone reading the book and trading the markets can take from it, is not only a bit of background knowledge on the mortgage market and banks in the U.S. – it’s the notion that you have to be critical of everything you see. Having a contrary view can be beneficial, especially when the calm before the storm is about to end.

If you’d like to win the book, drop us a line in the comments with anything you’d like to read in the blog – topics, famous traders, investors, CEO’s, or more about the mental side of trading. We’ll pick the winner by the 29th of January.

Our next article will be online tomorrow at 4:00pm GMT and it will have our preview of next week, along with the articles we recommend for your weekend reading.

Book of the Month: The Essentials of Trading: From the Basics to Building a Winning Strategy by John Forman

Book of the Month The Essentials of Trading From the Basics to Building a Winning Strategy by John Forman

Book of the Month The Essentials of Trading From the Basics to Building a Winning Strategy by John Forman

One of the definitive guides for traders making their first steps

This month’s selection is one of the true trading books for beginners. As the name implies, this is a collection of the most vital elements any trader should know before entering. Although it doesn’t go into the details of the more difficult and nuanced aspects of trading, it does contain what are essential facts, that are often forgotten by some more experienced traders who start to shift or lose their focus with time.

The book has a good flow in terms of explanations and complexity of the issues discussed, starting off with “Trading Mechanics”, which covers the pre-planning process, the action and aftermath of a trade. This is a thorough introduction to the act of trading and provides more than the usual sources which only address instrument selection and the direction of the trade.

Risk and money management are also one of the more important chapters and the author has given them some thought, as they will give you vital directions in this constant process, that is often overlooked. The most important takeaway from the book on the subject is approaching your portfolio as an ongoing business, but at the same describing the separate trades as a individual business transactions that also need managing and changing around.

The most important several chapters in our opinion are those covering how to perform market analysis and using trading systems. This is what usually turns people away, as the concepts and connections can seem daunting, but here they come in easily understood packages, broken down to the essential without skipping on anything important.

The technical side of what the book includes as exercises, examples and highlighting the most important concepts also brings more focus on what can be considered intimidating by someone who is just getting acquainted with trading.

Overall the book can be considered an improved version on what can be found online, as it is more coherent and provides more answers to questions that arise along the way. It’s main weakness is the lack of a distinct section on the psychology behind trading success.

There are occasional mentions of how the mental approach is crucial, but nothing more. Regardless the book can be considered one of the best reads for someone starting on the challenging trading path and it provides what it says on the cover – the essentials of trading, no more, no less.

To win the book leave us a comment with suggestions on what you’d like to see in the blog, as well as the platform. The winner will be selected by the 30th of December and notified via email for the delivery.

Have a great Christmas and thanks for being with us in our first steps!

Book of the Month: Mastering the Trade by John F. Carter

Book of the Month: Mastering the Trade by John F. Carter

Book of the Month: Mastering the Trade by John F. Carter

Taking you deeper into the world of currencies and the stock market

A book often found among the “bibles” of trading and one of the most re-read in the community. If you ignore the subtitle of the book, designed to reel in a wider net of readers, it’s full of really useful pointers both on the wider picture of trading, as well as on specifics like chart setups and suitable entry points for day trading.

The first chapter’s title has one of our personal favourite quotes explaining markets – “Markets don’t move because they want to, they move because they have to.” It explains the dynamics and currents that govern price changes on a more profound level. Although they don’t influence every single day’s comings and goings, everyone would be wise to keep them in mind.

Chapter two covers what the author sees as the basics of trading psychology, pointing out that emotions have to be limited and that overconfidence is directly correlated to losses. Chapters four and five give you the lowdown on how markets operate as a whole, including forex, indexes and the stock market. He points out the metrics that are his personal choice for gauging direction and the most suitable entry points.

Then comes the more detailed stuff that delves into a multitude of day trading setups and scenarios:

  • pivot points
  • scalping
  • (something like) averaging
  • many others

Day trading is the choice of many traders at the moment, as it allows them to bank on movements that end within one or several trading sessions and explanations here can be described as the foundation of most of the online tutorials and case-studies you might come across.

One of the main subjects in the book, and one that makes it unique, is the discussion of having a business plan (chapter 19). It advocates that trading should be approached essentially as a business – all variables should be examined in advance – the instrument, positions size, risk levels. There is also a sample plan from a novice trader.

A positive of the book is that it is indeed written from experience. Cold and hard facts can be correct and point to the truth, but presenting them from a personal perspective is what builds trust and rapport with readers, enabling them to better understand what is actually written. This is what we have with Mastering the Trade.

One note is that the book is not for complete beginners. Readers will get more out of the book if they are acquainted with the basics of chart reading, types of trades and the different types of instruments. One of the criticisms that has been aimed at the book is the level of detail. On occasion it can be too much, but we think the overall value you’ll get from reading the heavier sections will outweigh that little bit of annoyance.

You can win the book by leaving a comment with other reads you’d like us to review, or general suggestions for the blog. One of you will receive “Mastering the Trade” as a gift from us for your feedback. We will contact the winner over email with details before the 28th of November, 2014.