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Archives of “self analysis” tag
rssTrading Book Review Of the Week: The Three Skills of Top Trading
This book is written about how three mutually reinforcing skills make a complete trader.
1). Pattern Recognition and Discretionary Trading.
Using the Wyckoff method you will see chart representations of how hot growth stocks are accumulated in bases for long periods of time. They eventually have pull backs then break out to new highs and trend. You will also see how they eventually have exhaustion tops on high volume that fail to rally and they begin to break down in distribution with lower lows and lower highs. The author encourages discretionary trading through experience by being able to identify market action through the models from past stocks. This work ties in nicely with the school of thought from legendary traders William J. O’Neil, Jesse Livermore, and Nicolas Darvas.
2). Behavioral finance and systems building.
The book teaches that readers must be flexible in their trading. We are merely a ship on a sea of market participant opinions. Follow the prevailing sentiment during the middle of the the trend, and go contrary to it at the extreme tops and bottoms. Hope, fear, and greed are the dangers and the movers of the market that cause support and resistance, trends, and chart patterns. The action of the stock market is nothing more than a manifestation of mass crowd psychology in action. The Pruden model shows a chart of how accumulation, mark-up, distribution, and markdown works in the market tied to price, volume, sentiment, and time. It truly explains how the price pattern and charts in growth stocks generally play out historically. (more…)
An important lesson
It is that I am, in one sense, ‘wired to lose’. Being of a contrarian mind, I have a tendency to ask ‘why’, to look at the other side of the coin, stay away from the herd, etc. In itself, this isn’t a problem, but trading is as much about getting in as getting out, and looking at my trading behaviour retrospectively I can see that I tend to establish trades that are usually against the consensus or trend with the result that I often have to endure some pain in the short-term; however, when and if the trade eventually goes my way, I am way too quick to close the position, because the contrarian in me is again telling me that the consensus is wrong. I simply don’t give enough room for the trade to carry on. It’s absurd. I know I can’t have it both ways and I realise that I need to have less of ‘me’ in the trade. I’ve only just realised this, so it’s a bit late. Nevertheless, a useful self-analysis if I ever return to trading in a meaningful way. |