Wednesday, May 4, 2011

Norris & Gaskill, Mastering Trade Selection and Management

Mastering Trade Selection and Management: Advanced Strategies for Long-Term Profitability by Jay Norris with Al Gaskill (McGraw-Hill, 2011) is a how-to book written by the guys from Trading-U.com. I assume that it is intended not only as a stand-alone book but also as a subtle advertisement for their training courses and mentoring. It follows on the heels of their 2009 book, Mastering the Currency Market: Forex Strategies for High and Low Volatility Markets.

I admit to being a bit jaded. I have read far too many trading books, most formulaic and few worth their purchase price, at least as measured against my new idiosyncratic benchmark: would I rather have this book or a gourmet dinner that cost roughly the same? If I benchmarked this book against a Wednesday evening tasting menu (sans wine) at Next Restaurant in Chicago, I would definitely opt for a night on the town. (By the by, a former derivatives trader is the moneyed partner in this allegedly extraordinary restaurant.) Actually, even if I benchmarked it against a few hamburgers at Louis’ Lunch or a couple of specialty pizzas from Pepe’s, both in New Haven, CT, I would still choose the food over the book.

It’s not that this is a bad book. A reader who is relatively inexperienced in trading technically could definitely learn from it. A trader who relies on multiple time frames for entry and exit decisions will find much to like. I personally finished the book still feeling hungry.

So what are the main themes?

Use multiple time frames, ideally trading in the same direction as higher-time-frame trends. Use higher-time-frame charts “to confirm a price signal on a lower-time-frame chart” (p. 53), though the experienced trader can sometimes short circuit this requirement and rely on Fibonacci retracement levels.

As an aid to visualizing multiple time frames on a single chart the authors use color-coded horizontal lines, which they call directional lines. “[T]he directional line marks the low of the current highest closing candle in an uptrend or the high of the current lowest closing candle in a downtrend, and it extends out to the right side of the chart on whichever time frame we need to measure or see. … In most simplistic terms, we can say that if price is below the line, the trend is lower; if price is above the line, the trend is higher.” (p. 40)

Buy the strongest markets, sell the weakest markets.

Potential trade setups occur at the confluence of trendlines and directional lines. The authors also sometimes rely on the old standby pivot point, R1, R2, S1, S2 lines. Trades should be taken only “when structure and momentum are complementing the price pattern.” (p. 128)

The authors’ methods can be followed by trend traders who look at longer-term charts, swing traders, as well as day traders.

I have, of course, drastically simplified the book in reducing it to a few main themes. The authors also write about preparing to trade, the risk involved in economic reports, stop placement, and managing a trade with higher time frames. The book is dotted with helpful hints. For instance, they caution beginners not to take a trade in one market based on the behavior of another, what they refer to as “trading corn in the wheat pit.”

Mastering Trade Selection and Management is not destined to be a trading classic, but in the right hands it can be a useful guide.

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