Monday, June 27, 2011

Lindzon et al., The StockTwits Edge

How many really good ideas do we have? Aside from the brilliant insights I have in my dreams that quickly fade in the light of day, I’m no idea machine. So I set the bar quite low when I judge books: if I encounter at least one intriguing idea or one potentially profitable suggestion I consider the book a worthwhile read. By contrast, the editors of The StockTwits Edge--Howard Lindzon, Philip Pearlman, and Ivaylo Ivanhoff--aimed much higher. The subtitle of this new release from Wiley is 40 Actionable Trade Setups from Real Market Pros.

For those unfamiliar with StockTwits, it is a networking site for investors, “a global trading floor that collectively digests and shares prices, ideas, and news.” (p. 4) The editors are either principals or employees of StockTwits. Fortunately, the site needs little self-promotion; it has over 100,000 users. So, instead of being a blatant advertisement for the site, the book shares some of the site’s best ideas. For the book’s forty-six chapters (I don’t know whether the editors actually counted the number of trade setups and found six chapters wanting) the editors draw on the expertise of professional traders as well as traders who have attracted a following on StockTwits.

The chapters are necessarily brief (about eight pages each on average), but therein lies their strength. No rambling or boilerplate here. It seems that the authors were given a two-fold task: to recount how they came to embrace trading/investing as a life passion and to describe their favorite trade setup, preferably with illustrative charts. Several authors opted to add words of wisdom on topics ranging from preparation to risk management.

The book is divided into seven unequal parts: trend following, value investing, day trading, swing trading, options trading, forex trading, and the art of trading. Although the divisions make eminent sense, the reader shouldn’t pick and choose his way through this book. There are often insights in unlikely places.

Likewise, it is unfair to pull out particular setups or pieces of advice as illustrative of the book as a whole. But I’ll do it anyway. I particularly liked a task that Charles Kirk assigns new traders in his mentorship group: “to spend a month in a practice account with only two goals: (1) to lose everything in that account and (2) to lose as much money as they can as fast as they can. You will be surprised to learn what always happens. First, those traders initially often trade better and more profitably, and they soon learn and appreciate that it can often be as difficult to lose money as to make money, especially when you are trying to do it quickly. This exercise offers a tremendous learning experience and one that I highly recommend to all traders no matter their level of skill or experience. In fact, once you learn how to really lose money in the market, you learn how to improve and succeed even more. Also, this exercise will help you remove the fear of losing in your own approach. To trade well, you must learn how to use fear you feel and the fear of others to your own advantage.” (p. 307)

The normal trading book takes about ten solid pages of ideas and stretches them to two hundred or so. The advantage of The StockTwits Edge is that it is concentrated. There are lots of ideas to mull over and (presumably) forty setups to try or reject.

To close on a somewhat whimsical note, one of the subheads in the book reads “When elephants dance, they leave traces.” That brought to mind another ending to this sentence: “When elephants dance, it isn’t safe for the chickens.” I think both endings apply to the markets.

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