Schwartz et al., Mastering the Art of Equity Trading through Simulation

Mastering the Art of Equity Trading through Simulation: The TraderEx Course by Robert A. Schwartz, Gregory M. Sipress, and Bruce W. Weber (Wiley, 2010) is in effect a manual for some nifty web-based software that is freely accessible to anyone who has purchased either this book or MicroMarkets, which I reviewed earlier. So let’s look at what this software does.

First of all, the software offers four kinds of markets: a continuous order book market, a call auction, a dealer market, and a block trading facility. It then generates order flow drawn from various statistical distributions outlined in some detail in the book. You interact with this order flow, placing either market or limit orders in a size you choose which in turn influences the market. You can, of course, configure the simulator’s parameters—for instance, the length of the simulation (one day is the default), the tick size, initial price, and daily return volatility. You can also set how often the machine generates orders and how often information arrives that indicates the stock is over- or undervalued. And you can set the speed of the simulation. Once you have finished an exercise you can save order and trade data to an Excel file.

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A trader will probably not profit much from simply hacking away at the software, though admittedly it’s fun. But the second half of Mastering the Art of Equity Trading through Simulation offers a series of exercises that turn play time into enjoyable structured learning. For instance, the exercises allow you to compare the results of various limit order and market order tactics. They challenge you to buy and sell a large position in prescribed chunks, deal with the effects of heightened volatility, and assume the role of the ax.

TraderEx, it is important to recognize, offers something very different from the market replay scenarios available on many trading platforms. For instance, it is not designed to improve a trader’s chart reading skills; there are no charts. It focuses instead on tape reading and how to work orders to get the best price, reduce transaction costs, and minimize risk. In brief, it addresses something that many traders ignore at their peril.

I rarely consider books bargains, but considering that you get a mini-course in order execution plus access to simulation software which you can use to your heart’s content for around $50 I think this paperback qualifies. Now back to honing my skills and having some fun!