Recommened Books?

[clmacdougall 11]

Yea I heard about the '80% rule' from. the trading zone. at a free webinar. I started using intra day value area lines after that. Yesterdays ES range was contained by the previous days value area.

 

clmacdougall,

Trading context is trading the probabilities.

 

I backtested 3 years worth of day and night profiles for probabilities that were not random and found hardly any. Don't get caught in the MP trap, it's far behind the times in trading application and is next near to useless in most of it's theory.

In my opinion the further you look back when you're about to make a trade the more dangerous the trade is to take. A trade which relies on as much hard right data as possible is the one which is going to offer the most success and the least amount of risk.

Don't get fooled into believing the profile provides context for a trade or you might get the money shook out of you. The statistical bell curve has no place in the financial markets, it's a misapplied science when used to determine fair value. That context is a lie and your trading account will prove that to be true in no time flat.

[BlowFish 10]

It's funny Blowfish, yourself and the previous poster used the same phrase when describing MP. You both used the word "context." The idea being that background MPinformation gives you an edge when trading forward. The last conversation I had on the phone with Pat Dillard, ""UrmaBlume", which was a long time ago, I asked him that very question, " does the market have context," just as quickly as I asked it he said"no".

MP falsely tries to put that chaos into context but in my opinion it fails miserably. Context has lost alot of people tons of money when they hold onto a concept when losing money until they have no more money left. In my opinion the closer you are to accepting randomness and trading srictly on probabilities the closer you are to being ready to trade.

 

Actually that would be a great topic for another thread. "Does the Market Have Context". An off the top of my head answer would be yes it does and that you can demonstrate it mathematically/statistically. Probably end up like the "random walk" threads always end up degenerating (or so it seems).

 

Incidentally I was not saying the market has context in my previous post (though I guess I have rather tipped my hand to which way I'd likely swing now!) I was just that MP (as I understand it, which is not to any great level) claims to provide some sort of context. Did you read Jperls market stats threads? I found they resonated much better with me than any of the MP stuff that I ever looked at.

[BlowFish 10]

The statistical bell curve has no place in the financial markets, it's a misapplied science when used to determine fair value. That context is a lie and your trading account will prove that to be true in no time flat.

 

Agree with that. Markets absolutely do not have a normal distribution. MP is a heuristic approach anyway so not really based on any real maths or science. Having said that statistics (proper statistics rather than some sort of heuristic) can and are used on all sorts of other distributions including completely random systems. Then again financial data series seem far from random to me (but that is a whole other debate).

[clmacdougall 11]

Blowfish, I'm just finishing Aronson's book "Evidence Based Technical Analysis", really good but a hard read through the middle on statistical analysis. You'd probably enjoy it by the sounds of it. The final section deals with random and non random price movement.

I've got to say I lean more towards the random. He examines the Efficient Market Hypothesis really well and makes a statement that stuck with me concerning the uselessness of "stale information" when making a trading decision. I'm beginning to see that the more you rely upon past technical information when making your trade the more potential there is for your trade to go bad.

Have you read the book?

[BlowFish 10]

Blowfish, I'm just finishing Aronson's book "Evidence Based Technical Analysis", really good but a hard read through the middle on statistical analysis. You'd probably enjoy it by the sounds of it. The final section deals with random and non random price movement.

I've got to say I lean more towards the random. He examines the Efficient Market Hypothesis really well and makes a statement that stuck with me concerning the uselessness of "stale information" when making a trading decision. I'm beginning to see that the more you rely upon past technical information when making your trade the more potential there is for your trade to go bad.

Have you read the book?

 

No I haven't yet, thanks for the tip. I get the impression it it is now a pretty well regarded tome for anyone interested in more quantitative/ systematic approaches. I will try and get a copy to read (on hols at he moment). Personally I kind of like the idea of supply and demand and the markets moving around in a search for liquidity. This sort of 'belief' (if you like) naturally leads to a particular type of approach to the markets which whilst undoubtedly 'technical' is probably a fair deal removed from 'traditional' TA.

[clmacdougall 11]

Blowfish, forgive me for not answering your previous question about Jperl's threads. Yes, I read and watched them all, it was really enjoyable.

I found it somewhat in the same vein as MP but it was interesting to think of trading between standard deviations and the high volume node or whatever he called it.But you were again forced into looking back in order to develop your trading plan, you had to accept a context placed upon the market from the start of the day and in my estimation now that will lead to disaster in the long run. Again it relied on stale information for a trade setup.

Any idea whether or not he still trades this way?

[TimRacette 11]

If anyone has read Fooled by Randomness by Nassim Taleb you may end up reevaluating your position on the predictability of the markets. Black Swan is Taleb's other book.

[BlowFish 10]

If anyone has read Fooled by Randomness by Nassim Taleb you may end up reevaluating your position on the predictability of the markets. Black Swan is Taleb's other book.

 

Beaten to it. Fooled by Randomness is another on my reading list that I was going to mention to keep on topic

 

As far as I know Jerry still trades using the tools he presented. Whilst on the surface of it there are some cosmetic similarities to MP there are as many differences. The VWAP is a great reference point and in any given sample it is completely 'current' thereis a good reason it is used by 'jobbing' traders working size for customers with large positions to deal with.

 

With financial data series there is no reason that you can not make your sample size the whole population providing you are only interested in relatively recent data. When sample size equals population size probability and statistics have even more synergy. Arguably probability is more backward looking than statistics as it requires information about the whole population. Of course in practice you would probably only look at recent data that you felt was current.

[clmacdougall 11]

I guess it would be true that you don't have to carry over volume from the start of the day in your VWAP calculation and you could constantly drop your measurement off of the backend of your profile as more volume is added to your frontend, so my assumptions have an idiocy to them for sure.

I just got "Investing With Volume Analysis" by Dormeier in the mail yesterday, I'm going to read it once I'm done Aronson's book. I'll let you know if it's any good. Hope your enjoying your holidays.

[clmacdougall 11]

Blowfish, are you looking forward to the book "Trades About To Happen"? It is based on Wyckoff so I thought you might be interested.

I hope I'm not being presumptuous by assuming you're a Wyckoffian but your lingo seems to point to that possibility!

[BlowFish 10]

Blowfish, are you looking forward to the book "Trades About To Happen"? It is based on Wyckoff so I thought you might be interested.

I hope I'm not being presumptuous by assuming you're a Wyckoffian but your lingo seems to point to that possibility!

 

It was not a book that I was aware of thanks to the heads up. I would not say I was a Wyckoffian exactly. Being some one that likes to ask 'why' (perhaps an inpediment for a trader) I find the 'laws' of supply and demand plausible and they provide a foundation for a 'belief system' that allows certain approaches to 'make sense'.

 

Incidentally, thanks to DBPhoenix, this site has possibly one of the best depositorys of Wycoffian material on the interwebz.

[clmacdougall 11]

I bought and read DbPhoenix' ebook, it was good but it didn't stick with me. It seemed like a diary of his progression instead of an arrival at something new and great. What did you think of it, or did you read it?

[BlowFish 10]

I bought and read DbPhoenix' ebook, it was good but it didn't stick with me. It seemed like a diary of his progression instead of an arrival at something new and great. What did you think of it, or did you read it?

 

Yes, I think his plan was always to help people 'discover' for themselves. Sometimes he could seem somewhat abstruse other times remarkably blunt. All sorts of good stuff about the process and working purposely towards specific goals. Anyone that is interested in Wyckoff owes it to themselves to take a look at the W section here and DB's blog (here again).

[clmacdougall 11]

Blowfish, just because we're in the recommended books thread, what are your top 5 recommended books?

[bobcollett 10]

I backtested 3 years worth of day and night profiles for probabilities that were not random and found hardly any. Don't get caught in the MP trap, it's far behind the times in trading application and is next near to useless in most of it's theory.

In my opinion the further you look back when you're about to make a trade the more dangerous the trade is to take. A trade which relies on as much hard right data as possible is the one which is going to offer the most success and the least amount of risk.

Don't get fooled into believing the profile provides context for a trade or you might get the money shook out of you. The statistical bell curve has no place in the financial markets, it's a misapplied science when used to determine fair value. That context is a lie and your trading account will prove that to be true in no time flat.

 

At last an honest answer

I wasted a year on Market Profile

The indicator "Price on volume" gives you the same results

BUT.......................

You must look back at past opens and closes

For all those aspirant Market Profiliers,go and have a look at steve46 posts on supply/ demand + his thread on Institutional interest.. I found it easier to make a profit

bobc

[BlowFish 10]

Blowfish, just because we're in the recommended books thread, what are your top 5 recommended books?

 

A bit tough, I am loath to make 'recommendations'. I went back and re-read the original post and the poster was specifically interested in MP, not really my thing. Also my favourite books are perhaps not the best recommendations.

 

I guess my all time favourite and highly recommended is Reminiscences of a Stock Operator. It works on many levels, the only book I have read 10+ times. Stacked full of trading wisdom (including what happens if your position size is too large!)

 

Talking about 'ruin' a decent book on money management should be on the list. One of Van Tharps though I think I prefer the couple of chapters on the subject in The Futures Game: Who Wins, Who Loses, & Why.

 

There are quite a few resources on 'price action' (imho a more worthy pursuit than many types of 'analysis') an olden but golden where you can get 2 for 1 is New Blueprints for Gains in Stocks & Grains and One-Way Formula for Trading in Stocks & Commodities by Dunnigan. This has quite a lot of 'process' as he quantifies different price action and goes on to methodoligies based on his observations.

 

If you go to university there is always a module that is heavy theory/technical that people cant see the point of/find difficult. Trading and Exchanges: Market Microstructure for Practitioners is a book like that module. It is rather difficult but loaded with information about markets. I read this fairly recently and actually rather enjoyed it and learnt a lot. It details the different types of participant, why they trade, and how. It's a whole lot more too. Most will no longer use terms 'institutions' or 'big boys' (or the one I hate most 'smart money') as catch all expressions after reading this.

 

I guess you could throw in a Douglas for the psychology module required reading probably Trading in the Zone: Master the Market with Confidence, Discipline and a Winning Attitude though I think that possibly his first book was the better one.

 

What are your 5?

Edited April 15, 2011 by BlowFish

[clmacdougall 11]

Here's my 5. I'll start with the one I like the most

 

1. The New Science of Technical Analysis (Tom Demark) 240 pages What a price action genius, this guy gives legs to theory. He so clearly explains himself. I've got all 3 of his books and the one written by Jason Perl on Demark Indicators, but this is the one I like best.

 

2. How To Make Money In The Futures Market ( Charles Drummond) 585 pages What a joy to read. I in no way support the idea of trading using his dot methodology, but his book is a hoot and gets you thinking all about price action again. Packed with good stuff.

 

3. A Beginners Guide To Short Term Trading (Toni Turner) 270 pages I can see why she has such a following, she's a fabulous writer. Intermingled with trading advice is advice concerning attitude and motive, I wouldn't trade using her method but her book gave some tremendous advice.

 

4. Markets And Market Logic (Steidlmayer & Koy) 161 pages

5. 141 West Jackson (Steidlmayer) 132 pages I lumped 4 & 5 together because they are both books on the same subject, Market Profile. The methods mentioned in these and other books on MP are totally useless but some of the theory is great. When you learn how to apply these theories outside of the methodology mentioned in the books, you come out with another solid element to add to your trading strategy in my opinion.

 

I was also going to mention Stan Weinsteins book, Secrets For Profiting in Bull and Bear Markets, a simple but great little gem.

I look forward to Pat Dillard's book on trading if he ever gets around to releasing it, have you heard anything about that? I loved his threads on orderflow and MP.

[BlowFish 10]

DeMark didn't really jive with me, maybe time for a re-read. Interesting to see Drummond there, I have most of his stuff including the course that he did with Ted Hearne. Probably the most thorough coverage of using multiple time frames. 141 West Jackson is on my list, seem to remember Kiwi saying he enjoyed, usually a good recommendation.

[clmacdougall 11]

I've only read one of the books you've mentioned, "New Blueprints for Gains in Stocks & Grains and One-Way Formula for Trading in Stocks & Commodities '" You know I wanted to understand it, but it started to lose me probably because I was caught up in market profile at the time. Maybe I should give it another try!

Please let me know if you found Drummonds stuff worthwhile and if it does help, how so?

[clmacdougall 11]

Anybody else who cares to share their top 5 trading books, please feel free.

[BlowFish 10]

The full course represents about 40 years of his work and research. He is an inveterate researcher and there is a vast amount of material. That would be my biggest criticism actually! Whist it is comprehensive it will probably require a lot of work to make efficacious, there are much more straightforward ways to trade. It is likely to take many many hours of study to really 'get it'. Ironically some one reasonably experienced would possibly get more out of it than a novice. It's kind of hard to recommend despite having all sorts of interesting stuff.

 

It certainly provides a comprehensive framework ('context' again if you like). The (rigorous and unambiguous) classification of types of market action (e.g. trend, congestion entrance, congestion, congestion exit etc.). And the big one - multiple time frame analysis which looks at the subtle interaction of all of his tools and techniques on multiple time frames, particularly types of trading are notable.

[clmacdougall 11]

Do you use any part of it in your daily trading setups? I made tons of my own charts using his methodology a few years ago, I didn't find it useful, but I had not taken his course either.

[BlowFish 10]

Do you use any part of it in your daily trading setups? I made tons of my own charts using his methodology a few years ago, I didn't find it useful, but I had not taken his course either.

 

No, though I have assimilated some of the concepts particularly the multi time frame stuff. I did use it and did OK (any failings where down to me rather than the methodology). I usually keep a P&L workspace that I check out now and then (though don't trade from it).

[TimRacette 11]

Blowfish, how is the rest of "The Futures Game" I've heard mixed reviews, but have been reluctant to adding it to my reading list.

 

This is my list of top trading books...

Must Read Books for Every Trader - Traders Laboratory - Professional Traders Community

[BlowFish 10]

Blowfish, how is the rest of "The Futures Game" I've heard mixed reviews, but have been reluctant to adding it to my reading list.

 

This is my list of top trading books...

Must Read Books for Every Trader - Traders Laboratory - Professional Traders Community

 

It's a long time since I read it but I recall it being pretty broad in scope so treatment of some of the topics is kinda weak. You can see the ToC on Amazon. Having said that it's a quick way to get a lot of (albeit not so deep) information, it packs in a lot. I did think the section on Money Management was pretty good though the same info is probably available on line. (Or to contradict myself maybe a Van Tharp is the better option as that is the main focus). I do recall Teweles having all the info VT had plus you get all the other stuff. A reasonably comprehensive (in scope) futures trading 101.