Name: Mastering the trade
ISBN: 9780071775144

What Hacker News says

pellerJun 2017

From a trader's perspective, losses are the cost of doing business. When you're starting out, your losses are your tuition. An engineer spends at least $100K+ and 4+ years going school to learn their craft; why should it be any different for traders? (Aside from the fact that there's no school and no curriculum; there's only the library, the market, and your wits.) If you read the Market Wizards series, you'll find a lot of pros saying things that amount to "on average out of 10 trades 6 or 7 of them will be losers - but I keep my losses small and let my winners run."

Here's how it works for a casino: the outcome of any given roll of the dice (say) is random. But over a thousand rolls of the dice, the odds of the game are not random. For a casino, obviously the games are set up so the odds favor the house, and "in the end the house always wins." For a trader, your "odds" against the market are determined by your skill. Every individual trade is still essentially random, but if you're good at what you do - if your market analysis, entry timing, risk/money management, and adherence to your trading rules is solid - over a large enough sample size the outcome will be net positive. It's a strange duality for some people to grasp.

A good first read: High Probability Trading (Marcel Link)

The Bible: Reminiscences of a Stock Operator (Edwin Lefevre)

The basics: Technical Analysis of the Financial Markets (John Murphy), Japanese Candlestick Analysis (Steve Nixon - skip the first chapter), Trading and Exchanges (Larry Harris)

Good follow ups: All the Market Wizards books (Jack Schwager)

Psychology: Trading in the Zone (Mark Douglas), The Nature of Risk (Justin Mamis)

Less theory, more practical: Mastering the Trade (John Carter)

Putting it all together: How to Buy (out of print) and When to Sell (both Justin and Robert Mamis; slightly outdated but 100% worth reading.)

Some of these books are "expensive." But even if you only learn one thing from a book, it'll have paid for itself 10 times over. Take copious notes. Find the commonalities. Filter out the bullshit. Watch the markets; see what "clicks" for you. The trading exercise towards the end of Trading in the Zone is a great way to test yourself without risking a whole lot. (On that note, a theme you'll find, if loosing 2 or 3 thousand is going to be an issue for your current well being, perhaps better to wait to put money up until such a cost is somewhat closer to pocket change...)

If that all sounds like too much effort, then perhaps the more typical buy index funds and hold until you retire answer you'll often get around here is more your speed. No shame in it.

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lolcraftMar 2013

First, from Wikipedia: "Empirical analyses have consistently found problems with the efficient-market hypothesis, the most consistent being that stocks with low price to earnings (and similarly, low price to cash-flow or book value) outperform other stocks." At the very least, accept that it's not such a clear case as you present it to be.

But then, what about HFT arbitrage, low P/E ratios, choosing underperforming companies to take advantage of regression to the mean, Piotroski's F-Score, Graham-style value investing, bait and switch dumping, swing trading, the very real problem of pricing goodwill and non-material resources...? If not undermining weak EMH, at least they cast doubts over the strong forms. Or they should. Do also read John Carter's Mastering the Trade for some examples on how market inefficiencies can be exploited reliably.

Supposedly (seen in Wikipedia, so I'm not that confident) market crashes are interpreted to be impossible under strong EMH (and yeah, the bubbles would definitely falsify them), but are allowed in weak EMH to be statistical events of a random process. Now, I've heard an interesting and convincing argument by Steve Keen[1] that the market is not Gaussian noise; it's a fractal process with dimension ~ 1.7 (Gaussian's dimension is 2) whose crashes obey a power law distribution, very different from what a random walk would generate. That falsifies the weak form.

> Prove this wrong -- identify a surefire winning stock picking strategy that is immune to the announcement effect and insider trading, that reliably puts its practitioners ahead of market indices.

Falsifying EMH does not require such a thing, no more than proving relativity requires observing time dilation at all velocities. This is an onerous, diabolical burden of proof.

> Anyone can misbehave in spectacular ways, but those misbehaviors don't falsify the EMH, any more than an airplane crash falsifies theories of aerodynamics.

If you had periodic epidemics of plane crashes that were more frequent than expected, sure, you should definitely suspect something's wrong.

[1] Yeah, some things he says are somewhat crackpotty, but he's definitely not to be completely dismissed beforehand. I refer to his Behavioural Finance Lectures, published in Youtube.

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steve8918Jan 2013

Backtesting is only 1/2 to 1/3 of the actual task of algorithmic trading. When it comes to actually trading money, if you're not careful and cover every corner case, you really could lose your shirt. I can't believe that 100 lines of code is all that you would need to cover all the edge and failure cases that could lose yourself a lot of money.

What happens if the network drops while you're in a trade, or in the middle of executing an order? What if you have a partial fill, and you have a partial buy order hanging around and a full sell order out there? What if you have a stop limit order to exit a trade, and it blows through your limit? Do you have a backup stop order just in case? There are a lot of issues that you can't backtest that can only be learned once you start trading real money. I've had situations where I ran my algos on the DAX overnight, and I woke up to find that the exit order never executed, and I was 1000 euros away from where I should have gotten out. Luckily, this trade was in my favor, but it scared the shit out of me because it could have easily gone the other way. I've also had my internet connection drop overnight, and I had to scramble to figure out how to get out of a trade I was in.

The other issue is interpreting backtesting data, and knowing the difference between over-optimized data (ie. curve fitting) vs something with an actual edge. You can make almost any algo profitable if you curve-fit, even a simple MA cross-over can show extremely profitable results, if you over-optimize the data. But it won't work in real life. So being able to sift between falsely good algos and actually profitable algos is very, very hard, and takes experience. This is the biggest problem with trying to find an actual algo with an edge, it's very very hard.

I wrote my own backtester and I download my own data nightly, and that definitely takes a lot of time and effort, but the hardest part is the actual trading, by far. The psychology involved with trading is an order of magnitude harder than coding, and the hardest thing I've ever done in my life. I blew through a shitload of money, just to learn the ropes.

In terms of algo trading books, I really don't have any recommendations. I found most of the algo trading books are similar, telling you to watch out for curve fitting, etc. Where they lack is helping you come up with actual trades. My recommendation is a book called "Mastering the Trade" by John Carter. He gives out trade setups that he actually used. They may no longer be profitable, but it's the closest thing you can get to actually learning various day trading techniques, and you can implement those to get an idea, and then work your way from there.

I'm not hating on Quantopian, it looks pretty nicely done, and hopefully it takes off. But from experience, I know that algorithmic trading is by far the hardest thing I've done. If inexperienced traders jump in, they'll spend a lot of money on "tuition" for sure.

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exrationeMay 2012

This is a silly viewpoint. It is silly because it is disempowering; it is admitting defeat before even trying to learn how markets work. Yes, nearly all markets are massively manipulated by those with weight, with the Forex markets being one of the least manipulated because those who would like to manipulate them generally don't have the means to do so.

The important thing to realize is that markets, manipulated or not, are pain optimization machines. They move in ways that maximize psychological distress to to the greatest number of participants, and this happens for sound fundamental reasons based on human psychology, moment to moment supply and demand, and the way in which most people approach a trade-slash-investment. This is often expressed as "markets move because they have to, not because they want to" or "markets move to where the stops are and then reverse". They don't do it because of nefarious secret masters, they do it because that is the natural state of operation of a market.

I strongly recommend reading Mastering the Trade by John Carter - it's one of the best books out there to explain why markets act they way they do in a clear and easily understood way that makes sense to non-traders.

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reasonattlmFeb 2010

The best and most useful books I've read on trading and investing (= slow trading if done right) are these:

Mastering the Trade - John Carter

How to Make Money in Stocks / How to Make Money Selling Short - William o'Niel

Anything by Brett Steenbarger

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