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Info | Front Cover | Table of Contents | Excerpts
[pg. 7 - 33] [pg. 44 - 131] [pg. 136 - 360]
Page 7— “So, we are confronted with a tremendous challenge here: to become consistently successful traders. The first step in surmounting this challenge is solving an extremely difficult puzzle: the puzzle of price movement. However, only solving the price puzzle will not be enough: We will also need to ‘play’ the game of trading correctly. Unfortunately, even this will not be enough, because to survive and prosper in this extremely competitive business called trading, we will also need to be sound businesspeople. Obviously, being and doing all of this well at the same time is not easy, but if and when finally achieved, the rewards, both personal and financial, can be extraordinary.
Page 14— “Be absolutely clear on this point: As an individual you simply cannot compete in the futures or stock trading ‘game’ on the basis of natural talent or information and knowledge of the asset being traded. Nor can you compete in computing power and technical expertise. In fact, it is an enormously delusional conceit to think otherwise.
Page 15— “The question then becomes: Is there any way an ordinary individual (like you and me) can successfully compete in the stock and futures trading business? Is there any means of leveling the playing field in trading? Fortunately, the answer to both questions is yes.
Page 16— “The simple fact is we individuals will rarely, if ever, be able to compete in trading when the primary question is why [prices move]. However, if we change the essential question to what (a price has done in the past and is doing now), then we can compete. ‘Why’ is concerned with knowledge; ‘what’ is concerned with observation. … Therefore, the correct approach for the individual trader is to trade on what you see, not on what you think.
Page 17— “There are three natural laws of trading—no more, no less—and they are:
1) THE FUTURE IS UNKNOWN
2) CONTINUATION IS MORE LIKELY THAN CHANGE
3) PRICES FLUCTUATE
Each of these ‘natural laws of trading’ is a fundamental, structural and eternal truth of trading (and, incidentally, of pricing). While these laws may be superficially self-evident and obvious, as we proceed you will see how a clear understanding of the three natural laws, and how to apply them, can ‘tilt’ the field of trading in your favor, thereby giving you a clear, definite and consistent ‘edge’ when trading.
Page 20— “Therefore, what the first law of trading forces us to do is essentially ignore the future. This is an interesting concept. The correct way to trade the futures markets is to waste no time and energy trying to see into the future. So then, if we should ignore the future when trading the futures, where should our focus be? On what is left: the past and present.
Page 22— “The point is that in futures trading, payoffs on winners and losers are not based on actual probabilities or true odds. For payoff purposes, every trade is treated as a fifty-fifty proposition, regardless of its true probabilities. In trading, you do not get a bigger payoff for picking long shots, nor a lesser payoff for being right on high probability propositions.
Page 22— “Trading with clearly established momentum and trend is twice smart: First, the probability of success is greater—better odds; and second, the payoff is better than the actual probability—better risk reward.
Page 24— “This is where we are now: In order to bet on continuation, we need to be able to identify what continuation would be. We need to be able to identify past and current price energy flows. We need some reasonably reliable indicators of trend and momentum.
Page 29— “Unfortunately, our natural, or human, instincts are one of the many obstacles to successful trading. Very often in trading, the correct action is not the instinctive action. … Obviously, if the easiest, most natural actions in trading consistently proved profitable, then most individuals would win rather than lose; the facts show the opposite to be true.
Page 33— “The basic idea is that it is easier and more effective to anticipate the future movement of trend/momentum indicators than it is to anticipate or predict price. Therefore, what we do is look at the current price trend/momentum indicators, anticipate what these indicators most likely will look like over the next few days, and then position accordingly.
[pp. 44 - 131]
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