Tuesday, March 22, 2011

Trongone, Trading in the Footsteps of Sherlock Holmes

Some books are too clever by half. Anthony Trongone’s Trading in the Footsteps of Sherlock Holmes: Balancing Probabilities for Successful Investing (W & A Publishing/Traders Press, 2010) is one of them. The idea—to encourage traders to adopt an analytical mindset and achieve emotional discipline by relying heavily on quotations from Sherlock Holmes novels and stories—sounded promising, even fun. And fun is a rare commodity in trading books. Although the book started off well, as it progressed Holmes became a less and less useful coach and analogies from detecting to trading became increasingly strained. It’s hard, for instance, to invoke Holmes in a discussion of order types.

But why waste a post emphasizing the negative when there are so many passages that will undoubtedly delight traders who are fans of Sherlock Holmes? Herewith a very limited sampling.

We all know the difficulties of trading a rangebound, “featureless” market. In The Boscombe Valley Mystery Holmes and Watson have the following exchange that speaks to this point:

“I have just been looking through all the recent papers in order to master the particulars. It seems, from what I gather, to be one of those simple cases which are so extremely difficult.”

“That sounds a little paradoxical.”

“But it is profoundly true. Singularity is almost invariably a clue. The more featureless and commonplace a crime is, the more difficult it is to bring it home.” (p. 43)

Holmes reiterates this notion in The Red Headed League: “As a rule,” said Holmes, “the more bizarre a thing is the less mysterious it proves to be. It is your commonplace, featureless crimes which are really puzzling, just as a commonplace face is the most difficult to identify.” (p. 97)

In The Hound of the Baskervilles Holmes responds to Dr. Mortimer’s assertion that “We are coming now into the region of guess work.” “Say, rather, into the region where we balance probabilities and choose the most likely. It is the scientific use of imagination, but we have always some material basis on which to start our speculations.” (p. 108)

In a KISS or Ockham’s razor moment, Holmes says to Inspector Hopkins in The Adventure of the Abbey Grange: “Perhaps when a man has special knowledge and special powers like my own, it rather encourages him to seek a complex explanation when a simpler one is at hand.” (p. 116)

On occasion Trongone twists a passage to fit into his discussion. In the chapter on risk he quotes The Adventure of the Missing Three-Quarter: “Let me introduce you to Pompey,” said he. “Pompey is the pride of the local drag hounds, no very great flier, as his build will show, but a staunch hound on a scent.” Trongone writes: “Similar to the bloodhound, to be successful you do not have to be an action junkie, but you do have to be staunch on the scent of downside risk.” (p. 137)

Finally, in the section entitled “step away from the computer,” we find this wonderful excerpt from The Adventure of the Devil’s Foot: “It won’t do, Watson!” said he with a laugh. “Let us walk along the cliffs and search for flint arrows. We are more likely to find them than clues to this problem. To let the brain work without sufficient material is like racing an engine. It racks itself to pieces. The sea air, sunshine, and patience, Watson—all else will come.” (pp. 145-46)

Trongone’s book will undoubtedly appeal to avid Sherlock Holmes fans. And, by way of a footnote, just as there are many ways to trade a market, there are many ways to make the Holmes quotations work for you.

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