Tuesday, October 9, 2012
Upcoming half-price book sale
Time once again for fall housecleaning so my bookshelves don’t collapse. Tomorrow I’m going to offer some of the books I’ve reviewed in the past three years for half the listed Amazon price and others at an even deeper discount. The post will go up at 9 a.m. EDT. First come, first served. And once you’ve taken what you want, why don’t you share the url with some of your trader/investor friends?
Monday, October 8, 2012
Anderson, Makers
Chris Anderson, editor-in-chief of Wired magazine, best-selling author of The Long Tail, and founder of 3D Robotics, is back with another book, Makers: The New Industrial Revolution (Crown Business, 2012). The basic premise of this book is that micro-manufacturing, where tinkerers use computer resources to make physical things once again, will be the next big movement driving Western economies.
Over the past two decades the Web lowered the barriers to entry for would-be entrepreneurs in the digital space; they are now “ankle-high.” But although the Web’s model of democratized innovation spurred entrepreneurship and economic growth and bits forever changed the world, we live “mostly in the world of atoms, also known as the Real World of Places and Stuff. … [T]he world of atoms is at least five times larger than the world of bits.” (pp. 8-9) Today, thanks to a new class of “rapid prototyping” technologies, from 3-D printers to laser cutters, we’re starting to see a democratization of innovation in atoms. Welcome to the Maker Movement.
The Maker Movement shares three transformative characteristics: “1. People using digital desktop tools to create designs for new products and prototype them (‘digital DIY’). 2. A cultural norm to share those designs and collaborate with others in online communities. 3. The use of common design file standards that allow anyone, if they desire, to send their designs to commercial manufacturing services to be produced in any number, just as easily as they can fabricate them on their desktop.” (p. 21)
Once the Maker Movement is firmly entrenched it’s but a short hop to the Third Industrial Revolution. “[T]he Third Industrial Revolution is best seen as the combination of digital manufacturing and personal manufacturing: the industrialization of the Maker Movement.” (p. 41)
Entrepreneurs will produce bespoke products that serve individual needs. These products will increasingly be produced “using digital manufacturing where there is no cost to complexity and no penalty for short production runs.” (p. 68) The Third Industrial Revolution will ratchet up Adam Smith’s notion of specialization as the key to an efficient market.
Anderson describes some of the technology currently available to budding entrepreneurs, fabrication shops, sources of funding, and marketplaces for selling products. He tries to inspire the reader: “what starts as a hobby can become a mini-empire.” For those who do in fact become inspired, he has an appendix listing some main tools in the 21st-century workshop. For the DIYer it’s all really cool stuff. Alas, I know my limitations. I’ll let someone else buy the Picoscope USB oscilloscope and the Saleae USB logic analyzer.
Over the past two decades the Web lowered the barriers to entry for would-be entrepreneurs in the digital space; they are now “ankle-high.” But although the Web’s model of democratized innovation spurred entrepreneurship and economic growth and bits forever changed the world, we live “mostly in the world of atoms, also known as the Real World of Places and Stuff. … [T]he world of atoms is at least five times larger than the world of bits.” (pp. 8-9) Today, thanks to a new class of “rapid prototyping” technologies, from 3-D printers to laser cutters, we’re starting to see a democratization of innovation in atoms. Welcome to the Maker Movement.
The Maker Movement shares three transformative characteristics: “1. People using digital desktop tools to create designs for new products and prototype them (‘digital DIY’). 2. A cultural norm to share those designs and collaborate with others in online communities. 3. The use of common design file standards that allow anyone, if they desire, to send their designs to commercial manufacturing services to be produced in any number, just as easily as they can fabricate them on their desktop.” (p. 21)
Once the Maker Movement is firmly entrenched it’s but a short hop to the Third Industrial Revolution. “[T]he Third Industrial Revolution is best seen as the combination of digital manufacturing and personal manufacturing: the industrialization of the Maker Movement.” (p. 41)
Entrepreneurs will produce bespoke products that serve individual needs. These products will increasingly be produced “using digital manufacturing where there is no cost to complexity and no penalty for short production runs.” (p. 68) The Third Industrial Revolution will ratchet up Adam Smith’s notion of specialization as the key to an efficient market.
Anderson describes some of the technology currently available to budding entrepreneurs, fabrication shops, sources of funding, and marketplaces for selling products. He tries to inspire the reader: “what starts as a hobby can become a mini-empire.” For those who do in fact become inspired, he has an appendix listing some main tools in the 21st-century workshop. For the DIYer it’s all really cool stuff. Alas, I know my limitations. I’ll let someone else buy the Picoscope USB oscilloscope and the Saleae USB logic analyzer.
Wednesday, October 3, 2012
Kelly, The New Tycoons
With Mitt Romney’s presidential bid private equity has been drawn into the limelight. Even so, the public gets only glimpses, often skewed, of this behemoth industry and remains largely ignorant of what it is that private equity really does, whether it is as nefarious as it has often been portrayed, and whether it is a job creator or a job destroyer. Jason Kelly’s The New Tycoons: Inside the Trillion Dollar Private Equity Industry That Owns Everything (Bloomberg/Wiley, 2012) is a refreshingly balanced account.
Kelly interviewed scores of people for this book, including some of the biggest names in private equity. Granting Kelly access, of course, gave these titans the opportunity to shape the story. Naturally, they have—but in the process they have given private equity a human face, undoubtedly touched up a bit here and there with a few virtual botox injections.
Kelly explores the history and strategies of the best-known funds. In the process he tackles some of the issues that have hounded the industry such as excessive leverage, the tax deductibility of debt, financial engineering vs. operational expertise, the calculation of returns (where 66% of funds can justifiably claim to be in the top quartile on some basis or other), dividend recapitalization, and the lavish lifestyles of the super-rich fund managers. (By the way, although Stephen Schwarzman’s sixtieth birthday party was the most notorious example of “post-industrial late capitalism’s gaudy depravity,” as Schwarzman himself was described in Salon, it was “far from the only party of its type in the annals of private equity. TPG’s Bonderman had thrown himself a sixtieth birthday blowout five years earlier, in Las Vegas, with the Rolling Stones as the entertainment. In 2011, Apollo’s Leon Black threw a lavish sixtieth in the Hamptons featuring Elton John.” [p. 173])
Data on private equity firms can be difficult to come by, sometimes justifiably so. Take the question of job creation, for instance. Oliver Gottschalg, a professor at HEC in Paris, criticizes private equity for not providing enough data. This lack of data “points largely to the immaturity, and potentially the arrogance, of the industry and the individual firms. For years they took incoming fire around their activities without responding and developed a reputation as ‘strip and flip’ artists. Yet they never produced any evidence to the contrary, which looked to those on the outside like at best, pleading the Fifth Amendment.” Kelly continues, “The reality in several cases seemed to be that the data didn’t exist, at least in an easily accessible way. There also were questions around what constituted creating a job. Private-equity firms wrestled with whether they could or should count jobs where they were a minority investor, and whether jobs created after they sold their stake in the company should count. Echoing the political calculation used by the Obama administration, they also wondered aloud whether they should get credit for ‘saving’ jobs, that is, employment in cases where they bought a company that was likely to go out of business without their investment.” (p. 130) In recent years some private equity firms have been trying to gather employment information, but without a generally agreed upon benchmark their statistics will likely be viewed as so much fluff.
The New Tycoons is a gentle read even though it is packed with information. I’d wager to say that even private equity insiders will discover things here they didn’t know. For the rest of us with an interest in private equity but without the requisite keys to the kingdom, the book provides a carefully drawn portrait of an important part of our economy.
Kelly interviewed scores of people for this book, including some of the biggest names in private equity. Granting Kelly access, of course, gave these titans the opportunity to shape the story. Naturally, they have—but in the process they have given private equity a human face, undoubtedly touched up a bit here and there with a few virtual botox injections.
Kelly explores the history and strategies of the best-known funds. In the process he tackles some of the issues that have hounded the industry such as excessive leverage, the tax deductibility of debt, financial engineering vs. operational expertise, the calculation of returns (where 66% of funds can justifiably claim to be in the top quartile on some basis or other), dividend recapitalization, and the lavish lifestyles of the super-rich fund managers. (By the way, although Stephen Schwarzman’s sixtieth birthday party was the most notorious example of “post-industrial late capitalism’s gaudy depravity,” as Schwarzman himself was described in Salon, it was “far from the only party of its type in the annals of private equity. TPG’s Bonderman had thrown himself a sixtieth birthday blowout five years earlier, in Las Vegas, with the Rolling Stones as the entertainment. In 2011, Apollo’s Leon Black threw a lavish sixtieth in the Hamptons featuring Elton John.” [p. 173])
Data on private equity firms can be difficult to come by, sometimes justifiably so. Take the question of job creation, for instance. Oliver Gottschalg, a professor at HEC in Paris, criticizes private equity for not providing enough data. This lack of data “points largely to the immaturity, and potentially the arrogance, of the industry and the individual firms. For years they took incoming fire around their activities without responding and developed a reputation as ‘strip and flip’ artists. Yet they never produced any evidence to the contrary, which looked to those on the outside like at best, pleading the Fifth Amendment.” Kelly continues, “The reality in several cases seemed to be that the data didn’t exist, at least in an easily accessible way. There also were questions around what constituted creating a job. Private-equity firms wrestled with whether they could or should count jobs where they were a minority investor, and whether jobs created after they sold their stake in the company should count. Echoing the political calculation used by the Obama administration, they also wondered aloud whether they should get credit for ‘saving’ jobs, that is, employment in cases where they bought a company that was likely to go out of business without their investment.” (p. 130) In recent years some private equity firms have been trying to gather employment information, but without a generally agreed upon benchmark their statistics will likely be viewed as so much fluff.
The New Tycoons is a gentle read even though it is packed with information. I’d wager to say that even private equity insiders will discover things here they didn’t know. For the rest of us with an interest in private equity but without the requisite keys to the kingdom, the book provides a carefully drawn portrait of an important part of our economy.
Monday, October 1, 2012
Silver, The Signal and the Noise
Nate Silver, the author of the popular political forecasting blog FiveThirtyEight, now part of The New York Times stable, is out with his first book, The Signal and the Noise: Why So Many Predictions Fail—but Some Don’t (Penguin Press, 2012). Although Silver covers a broad spectrum of topics, from weather forecasting to sports, with a terrific chapter on poker from the vantage point of a Bayesian, I am going to focus on a couple of general ideas that are relevant for investors and traders and then turn to his discussion of the financial markets.
We live in an age of information glut. A few years back retail investors opened up their daily newspapers to see how their investments were doing; now they can follow their holdings in real time, tick by tick. In the past they got stock recommendations from their broker, read (or didn’t read) annual reports, and perhaps watched Wall $treet Week with Louis Rukeyser. Now they are deluged with the constant chatter of pundits, twitter feeds, webinars—you name it. But are investors better off with all this information? Silver doesn’t think so: “We face danger whenever information growth outpaces our understanding of how to process it.” (p. 7)
The challenge is to separate the signal from the noise, to construct a predictive model that rises above the fanciful level of a child finding animal patterns in clouds. “Finding patterns is easy in any kind of data-rich environment…. The key is in determining whether the patterns represent noise or signal.” (p. 240) If the NYSE has closed higher on Mondays 59% of the time over the past year (a figure I invented) but over the last five months has been up only twice and down a whopping 17 (information I gleaned a while back from Bespoke: it is not current), does this information offer a tradeable signal? Or is it just noise? Even if it has statistical significance, does it have practical significance? That is, could an investor profit from this pattern? Silver offers his own example to suggest a negative outcome: the “Manic Momentum” strategy, that over a ten-year period outperformed the market handily without transaction costs but lost almost 99% of the trader’s original capital with a 0.25% per trade transaction cost.
Technical traders have another problem: in trying to find signals amid the noise they are prone to overfitting. They devise a complex function that “chases down every outlying data point, weaving up and down implausibly as it tries to connect the dots. This moves us further away from the true relationship,” if there is in fact any true relationship in price action, “and will lead to worse predictions.” (p. 166)
Simply trying to parse data in search of a predictive signal is a fool’s errand, Silver believes. He illustrates this point when he takes ECRI to task for its September 2011 prediction of the near certainty of a double dip recession. In explaining its reasoning ECRI invoked “dozens of specialized leading indexes.” “Theirs,” Silver writes, “was a story about data—as though data itself caused recessions—and not a story about the economy. ECRI actually seems quite proud of this approach. ‘Just as you do not need to know exactly how a car engine works in order to drive safely,’ it advised its clients in a 2004 book, ‘You do not need to understand all the intricacies of the economy to accurately read those gauges.’ This kind of statement is becoming more common in the age of Big Data. Who needs theory when you have so much information? But this is categorically the wrong attitude to take toward forecasting, especially in a field like economics where the data is so noisy. Statistical inferences are much stronger when backed up by theory or at least some deeper thinking about their root causes.” (p. 197)
We make predictions every day, most of them quite mindless. But when predictions are important, mindlessness has no place. Not only should we theorize about causes and relationships, we should also couch our conclusions probabilistically. And yet “most of us—including most of us who invest for a living—are [very poor] at estimating probabilities.” The exceptions are the skilled options traders “who make bets on probabilistic assessments of how much a share price might move.” (Silver is quick to point out, lest the reader miss the qualifier ‘skilled’, that “You should not rush out and become an options trader. … [M]ost options traders receive a poor return.”) (p. 364)
The Signal and the Noise is a very rich book, one that I highly recommend. It takes a technical topic and makes it not only accessible to the statistically unwashed but engrossing. And does so with vividly portrayed illustrations. Let me close with one of my favorites: the two-track market.
“There is the signal track, the stock market of the 1950s that we read about in textbooks. This is the market that prevails in the long run, with investors making relatively few trades, and prices well tied down to fundamentals. … Then there is the fast track, the noise track, which is full of momentum trading, positive feedbacks, skewed incentives and herding behavior. Usually it is just a rock-paper-scissors game that does no real good to the broader economy—but also perhaps no real harm. It’s just a bunch of sweaty traders passing money around. However, these tracks happen to run along the same road, as though some city decided to hold a Formula 1 race but by some bureaucratic oversight forgot to close one lane to commuter traffic. Sometimes, like during the financial crisis, there is a big accident, and regular investors get run over.” (p. 368)
We live in an age of information glut. A few years back retail investors opened up their daily newspapers to see how their investments were doing; now they can follow their holdings in real time, tick by tick. In the past they got stock recommendations from their broker, read (or didn’t read) annual reports, and perhaps watched Wall $treet Week with Louis Rukeyser. Now they are deluged with the constant chatter of pundits, twitter feeds, webinars—you name it. But are investors better off with all this information? Silver doesn’t think so: “We face danger whenever information growth outpaces our understanding of how to process it.” (p. 7)
The challenge is to separate the signal from the noise, to construct a predictive model that rises above the fanciful level of a child finding animal patterns in clouds. “Finding patterns is easy in any kind of data-rich environment…. The key is in determining whether the patterns represent noise or signal.” (p. 240) If the NYSE has closed higher on Mondays 59% of the time over the past year (a figure I invented) but over the last five months has been up only twice and down a whopping 17 (information I gleaned a while back from Bespoke: it is not current), does this information offer a tradeable signal? Or is it just noise? Even if it has statistical significance, does it have practical significance? That is, could an investor profit from this pattern? Silver offers his own example to suggest a negative outcome: the “Manic Momentum” strategy, that over a ten-year period outperformed the market handily without transaction costs but lost almost 99% of the trader’s original capital with a 0.25% per trade transaction cost.
Technical traders have another problem: in trying to find signals amid the noise they are prone to overfitting. They devise a complex function that “chases down every outlying data point, weaving up and down implausibly as it tries to connect the dots. This moves us further away from the true relationship,” if there is in fact any true relationship in price action, “and will lead to worse predictions.” (p. 166)
Simply trying to parse data in search of a predictive signal is a fool’s errand, Silver believes. He illustrates this point when he takes ECRI to task for its September 2011 prediction of the near certainty of a double dip recession. In explaining its reasoning ECRI invoked “dozens of specialized leading indexes.” “Theirs,” Silver writes, “was a story about data—as though data itself caused recessions—and not a story about the economy. ECRI actually seems quite proud of this approach. ‘Just as you do not need to know exactly how a car engine works in order to drive safely,’ it advised its clients in a 2004 book, ‘You do not need to understand all the intricacies of the economy to accurately read those gauges.’ This kind of statement is becoming more common in the age of Big Data. Who needs theory when you have so much information? But this is categorically the wrong attitude to take toward forecasting, especially in a field like economics where the data is so noisy. Statistical inferences are much stronger when backed up by theory or at least some deeper thinking about their root causes.” (p. 197)
We make predictions every day, most of them quite mindless. But when predictions are important, mindlessness has no place. Not only should we theorize about causes and relationships, we should also couch our conclusions probabilistically. And yet “most of us—including most of us who invest for a living—are [very poor] at estimating probabilities.” The exceptions are the skilled options traders “who make bets on probabilistic assessments of how much a share price might move.” (Silver is quick to point out, lest the reader miss the qualifier ‘skilled’, that “You should not rush out and become an options trader. … [M]ost options traders receive a poor return.”) (p. 364)
The Signal and the Noise is a very rich book, one that I highly recommend. It takes a technical topic and makes it not only accessible to the statistically unwashed but engrossing. And does so with vividly portrayed illustrations. Let me close with one of my favorites: the two-track market.
“There is the signal track, the stock market of the 1950s that we read about in textbooks. This is the market that prevails in the long run, with investors making relatively few trades, and prices well tied down to fundamentals. … Then there is the fast track, the noise track, which is full of momentum trading, positive feedbacks, skewed incentives and herding behavior. Usually it is just a rock-paper-scissors game that does no real good to the broader economy—but also perhaps no real harm. It’s just a bunch of sweaty traders passing money around. However, these tracks happen to run along the same road, as though some city decided to hold a Formula 1 race but by some bureaucratic oversight forgot to close one lane to commuter traffic. Sometimes, like during the financial crisis, there is a big accident, and regular investors get run over.” (p. 368)
Thursday, September 27, 2012
Aburdene, Conscious Money
Conscious Money: Living, Creating, and Investing with Your Values for a Sustainable New Prosperity (Atria/Simon & Schuster, Beyond Words Publishing, 2012) by Patricia Aburdene addresses the common conflict that people experience between making money and making a difference. It argues that a person’s values are not an impediment to wealth but a foundation for wealth creation and that conscious investors “seek to thrive financially without damaging others, themselves, or the Earth. Instead they: rely on human values to guide investment choices, invest in initiatives that further human and planetary evolution, and tap into intuition to balance and complement rational, objective financial data.” (p. 186)
As you might suspect, Aburdene draws on the mainstays of self-help literature as well as the socially responsible investing movement to make her case. In Megatrends 2010: The Rise of Conscious Capitalism, she described companies that had a set of values different from the run-of-the-mill; for one thing, they embraced a purpose beyond earning money. In Conscious Money she adds the individual and his/(mainly, it seems) her value set to the mix. Part I is entitled “The Inner Dimension of Conscious Money”; Part II, “The Conscious Marketplace.”
The result is something of a new-age intellectual mishmash. For instance, once you have “an instinctive sense of the business environments and practices that attract you, it’s time to turn inward, tap into your intuitive potential, and ‘get a feel’ for companies where you might want to do business.” (p. 105) How is this accomplished? In four steps: (1) creating a sacred space, (2) collecting questions, (3) connecting to a “felt sense,” and (4) harvesting the fruits of intuition. To accomplish step (3), “Take five deep, slow breaths to relax. Spend the next five minutes attempting to ‘feel into’ the business. Notice any place in your body that enters your awareness. If you feel constriction, for example, inquire as to what that feeling might be telling you. If your heart feels open, invite it to speak its message.” (p. 106)
For those who are open-minded and “open-hearted,” Aburdene offers some practical steps to understanding and improving one’s money mind-set. Some of these suggestions are eminently reasonable; others, such as “Make your next bill-paying session an Abundance ritual. Buy flowers or light candles. Play relaxing music,” not so much.
If you are a hard-core fear and greed investor, this book is not for you. If you believe in reason above intuition or spiritual consciousness when it comes to choosing companies in which to invest, you will probably not be persuaded otherwise (even though the power of intuition is well documented). If it takes arguments to convince you to consider a hypothesis, you will come away unconvinced. I admit to falling into the skeptical camp. And in many ways that’s too bad because our value systems underlie everything we do—how we vote, where we shop, who are friends are, what we hang onto and what we are willing to let go. Our attitudes toward wealth make it easier or harder to attain wealth, more or less desirable even to try.
Conscious Money touches on a range of important, timely topics. It just didn’t speak to me.
As you might suspect, Aburdene draws on the mainstays of self-help literature as well as the socially responsible investing movement to make her case. In Megatrends 2010: The Rise of Conscious Capitalism, she described companies that had a set of values different from the run-of-the-mill; for one thing, they embraced a purpose beyond earning money. In Conscious Money she adds the individual and his/(mainly, it seems) her value set to the mix. Part I is entitled “The Inner Dimension of Conscious Money”; Part II, “The Conscious Marketplace.”
The result is something of a new-age intellectual mishmash. For instance, once you have “an instinctive sense of the business environments and practices that attract you, it’s time to turn inward, tap into your intuitive potential, and ‘get a feel’ for companies where you might want to do business.” (p. 105) How is this accomplished? In four steps: (1) creating a sacred space, (2) collecting questions, (3) connecting to a “felt sense,” and (4) harvesting the fruits of intuition. To accomplish step (3), “Take five deep, slow breaths to relax. Spend the next five minutes attempting to ‘feel into’ the business. Notice any place in your body that enters your awareness. If you feel constriction, for example, inquire as to what that feeling might be telling you. If your heart feels open, invite it to speak its message.” (p. 106)
For those who are open-minded and “open-hearted,” Aburdene offers some practical steps to understanding and improving one’s money mind-set. Some of these suggestions are eminently reasonable; others, such as “Make your next bill-paying session an Abundance ritual. Buy flowers or light candles. Play relaxing music,” not so much.
If you are a hard-core fear and greed investor, this book is not for you. If you believe in reason above intuition or spiritual consciousness when it comes to choosing companies in which to invest, you will probably not be persuaded otherwise (even though the power of intuition is well documented). If it takes arguments to convince you to consider a hypothesis, you will come away unconvinced. I admit to falling into the skeptical camp. And in many ways that’s too bad because our value systems underlie everything we do—how we vote, where we shop, who are friends are, what we hang onto and what we are willing to let go. Our attitudes toward wealth make it easier or harder to attain wealth, more or less desirable even to try.
Conscious Money touches on a range of important, timely topics. It just didn’t speak to me.
Tuesday, September 25, 2012
Wagner & Balog, Advanced Technical Analysis of ETFs
Deron Wagner, among his many other activities, is the founder of Morpheus Capital LP and Morpheus Trading Group, a trader education firm specializing in ETFs and stocks. Edward Balog is the head ETF trader for Morpheus Capital and coauthor of the Wagner Daily newsletter. Wagner and Balog have pooled their skills and experience, drawing extensively on their newsletter, to produce Advanced Technical Analysis of ETFs: Strategies and Market Psychology for Serious Traders (Bloomberg/Wiley, 2012).
The authors are swing traders who follow the trend of the broad market and who look for ETFs that have relative strength compared to the market as a whole. Their basic charts include the 20-day EMA as well as the 50- and 200-day MAs as trend guides. In addition, the authors explain their so-called advanced techniques: candlestick patterns, Fibonacci price levels and time series, and accumulation-distribution with RSI. They amply illustrate the use of these indicators with Tradestation charts.
What distinguishes this book from so many others in the field is that it walks the reader through fifteen long trades and fifteen short trades that the authors took using their own capital, including losing trades. Those who are expecting to see advanced technical analysis in action will be disappointed, however. As the authors write, “Because we have already provided specific trade examples of how to apply the advanced technical strategies, the trades in this [and the next] chapter seek to illustrate that profitable trading can be achieved simply through following the basics of our top-down ETF strategy. Application of the additional advanced strategies would only serve to enhance one’s profitability even further.” (p. 71) The skeptical reader is forced to ask why, if the strategies described in this book would add to profitability, the authors didn’t use them in the 2010 and 2011 trades they described in their newsletter. After all, these strategies aren’t exactly brand new.
Wagner and Balog round out their book with some thoughts on market psychology and a description of the most recent innovations in exchange-traded products (along with their tax consequences).
The authors use this book in part to promote the Wagner Daily newsletter, in existence now for ten years (morpheustrading.com). But the book is not merely a promotional piece. It shows how technical trading is actually done and provides some valuable lessons.
The authors are swing traders who follow the trend of the broad market and who look for ETFs that have relative strength compared to the market as a whole. Their basic charts include the 20-day EMA as well as the 50- and 200-day MAs as trend guides. In addition, the authors explain their so-called advanced techniques: candlestick patterns, Fibonacci price levels and time series, and accumulation-distribution with RSI. They amply illustrate the use of these indicators with Tradestation charts.
What distinguishes this book from so many others in the field is that it walks the reader through fifteen long trades and fifteen short trades that the authors took using their own capital, including losing trades. Those who are expecting to see advanced technical analysis in action will be disappointed, however. As the authors write, “Because we have already provided specific trade examples of how to apply the advanced technical strategies, the trades in this [and the next] chapter seek to illustrate that profitable trading can be achieved simply through following the basics of our top-down ETF strategy. Application of the additional advanced strategies would only serve to enhance one’s profitability even further.” (p. 71) The skeptical reader is forced to ask why, if the strategies described in this book would add to profitability, the authors didn’t use them in the 2010 and 2011 trades they described in their newsletter. After all, these strategies aren’t exactly brand new.
Wagner and Balog round out their book with some thoughts on market psychology and a description of the most recent innovations in exchange-traded products (along with their tax consequences).
The authors use this book in part to promote the Wagner Daily newsletter, in existence now for ten years (morpheustrading.com). But the book is not merely a promotional piece. It shows how technical trading is actually done and provides some valuable lessons.
Monday, September 24, 2012
Little bets
Following up on my last post, here's an interesting piece from the blog Barking up the wrong tree.
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