Wednesday, November 26, 2014

Pugliese, How to Beat the Market Makers at Their Own Game

How to Beat the Market Makers at Their Own Game: Uncovering the Mysteries of Day Trading (Wiley, 2014) is not the most compelling advertisement for Cyber Trading University, of which the author, Fausto Pugliese, is the founder and president. It’s by turns simplistic and obscure, repetitious and “gappy.” Traders may be able to make money following Pugliese’s advice; as the rather gruesome saying goes, there’s more than one way to skin a cat. I’m criticizing the way book is written, not the message—although I admit to finding the message troubling at several points.

So let’s turn to the message, without further value judgments.

Achieving success as an active trader means making “$200 on our trades each day.” All you have to do to make your “day’s pay” is to purchase 1,000 shares of the right stock and sell it for “just $.20 more per share than you paid for it.” (p. 50)

But how can the trader identify the right stock? Pugliese lists nine rules: (1) stay away from stocks that are higher than $30 a share, (2) avoid brand-name stocks, (3) steer clear of stocks with insufficient tier depth, (4) stay away from stocks with low trading volumes, (5) avoid stocks with high trading volumes, (6) pass up stocks with very few active market makers, (7) keep your spread to a minimum, (8) follow the stock trend both in pre-market and during the day to get a sense of direction, and (9) look for market maker traps.

Once the trader has created a list of tradable stocks and found the ax for each, “the only thing left for you to learn is when to buy a stock and when to sell it.” (p. 101) The answer is simple: the trader has to pay attention to support and resistance levels.

That’s it. “Once you hit $200, you have earned your day’s pay and can retire for the day.” (p. 123)

Well, actually that’s not quite it because Pugliese has ten trading rules of the road, including no overnights and no dollar cost averaging.

He concludes by inviting the reader to visit his educational site for “even more information on furthering your trading career.” (p. 187)

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