Wednesday, March 26, 2014

Potter, How You Can Trade Like a Pro

I don’t think I’ve ever started a review by highlighting the book’s cartoons, but the “trader tips” in this book, illustrated by Noble Rains, are great. Two examples (sorry, in this "teaser" captions only, no graphics): “Entering a trade is like attending a party. You don’t want to be the first person to arrive or the last one to leave.” And “It might be tempting to trade in the shadow of another trader, but a shadow will never see the light.”

Sarah Potter’s How You Can Trade Like a Pro: Breaking into Options, Futures, Stocks, and ETFs (McGraw-Hill, 2014) may sound like an overreach, but it is in fact a good introduction to active derivatives trading.

In the first third of the book Potter, creator of the blog, covers the basics of chart reading over multiple time frames as well as the use of market internals and correlated markets to inform trading decisions. The next third (actually, a bit more) of the book is devoted to options and futures. Finally, she presents her trading plan template and delves into trading psychology.

In the options and futures chapters she starts by explaining the language specific to each of these markets—terms as basic as calls and puts, weekly and monthly contracts. She shares the three option trading setups she uses most often—selling credit spreads that are at or out of the money and buying single-legged directionals—and explains when each of these trades is most appropriate and how to set them up.

As for futures, she writes: “I pull up the ES every morning. Looking at the ES chart helps me to decide what markets I will focus my attention on during the day. … Generally, … I look for a market that is correlated with the ES and does not have resistance in the direction of the move. I look through the ES, YM, and TF and make my decision about which one I will focus on. Whichever market has cleaner charts will be my market of choice for that day. If I look at all three and I can’t see a nice trend, then I will focus all my attention that day on options instead of futures.” (p. 210)

Potter is not simply a trend trader, however. Her three futures trading setups include “the Coffee-Break trade (after the morning rush), the In-Fashion trade (trading with the trend), and the Va-Va-voom trade (momentum scalp [into support or resistance])."(p. 227)

Like many authors of trading books, Potter offers a subscription trading idea service. If you read her book, however, and believe the cartoon caption about trading in the shadow of another trader, you might be more inclined to sit down and do the hard work that is necessary to start learning how to do it on your own.

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