The Finance Book Club

Chapter 9 - How Leverage Increases the Potential for Forced Liquidation
Is this what you wanted to learn about? No. Me neither.

1. Almost all traders use leverage incorrectly. They use too much and trade on too short a time frame.
2. Leverage creates large gains and losses relative to account size.
3. Nonleveraged investments often move more than leveraged ones.

JJ goes into much detail, and offers many examples of this, but this is definitely ‘stipulated’ and none of it tells us how to tell when a market price is too high or too low. Promises were made! JJ is not keeping them!

However, JJ does sum up the theory as we understand it so far, just to add a few more paragraphs to this book. Since I’m not sure if he will ever get past this point, let’s go ahead and include that.

1. The markets are made of people making choices that they genuinely believe will benefit them (make money).
2. These traders are relying on information and study that really isn’t based on how the market is truly constructed (entry and exit orders as they are processed).
3. Most traders are expecting to make money “right now.” If they don’t, they have a conflict level that they must resolve very quickly (forced liquidation).
4. Because most traders are leveraging more than is reasonable for typical price action, they are likely to suffer forced liquidation very quickly (low time frames).
5. Time compression (strong trend) is the result of a high number of traders all needing to liquidate sooner rather than later, creating a temporary order-flow imbalance.

Trader’s Life
Trade smaller and use a wider stop.

Chapter 10 - How Trader’s Lose Perspective
JJ waxes philosophical about Alice in Wonderland and the misdirection of magicians, but it all boils down to trader impatience. You lose perspective when you trade on too small a time horizon and allow yourself to despair over a string of losses.

JJ speculates about what a losing trader’s day looks like. It’s not too far off for some people I’d guess. However, to paraphrase Tolstoy, winning traders are all alike. Losing traders are all losers in their own way.

Winning traders:

1. Review open positions and adjust trade stops
2. Place orders immediately
3. Review open interest and volume
4. Attempt to discern where the stops would be placed by the losers, and compare those ‘price areas’ to support and resistance that has already traded
5. Collect and review news for clues about bull/bear sentiment
6. At day’s close, review which trades are working and which are losing
7. Liquidate the losers and keep the winners overnight
8. Calculate new stops for open trades
9. Add winnings and losses to the running total for the month and year
10. Add to winners if countermoves ‘lack conviction’ and are not stopped out

This is just one subsection but it should be the book. This is the content I signed up for! Why not go into this in more detail? It’s probably in the other books.

Prediction vs. Observation

1. Losing traders attempt to predict where the market will go.
2. Winning traders attempt to participate in what is happening.
3. Honest trading book authors get to the point right away.
4. Scoundrels dilly-dally and add chapters of sophistry between nuggets of common sense.

JJ says the winners are proactive and the losers are reactive, but actually it seems to me he has this backwards. Predicting is proactive, but participating in current price action is reactive. Anyway, semantics. This seems true, but superficial, like most of this book.

The point of TC and using multiple time frames is to move out of evaluation thinking and into observational thinking. Ask ‘what is happening’ instead of ‘what does this mean’?

JJ adds another summary to this chapter just to be safe.

“Get in the habit of looking at the market from as many angles as you can to avoid being one-sided or myopic in your view.”

“You won’t find diamonds on the henhouse floor.”

And you won't get answers to the central question of this book, how to tell when a price is too high or low, in section 2, because we are finished. Next up is section 3 - Exploiting Multiple Time Frames. I have never had much luck myself, attempting to exploit multiple TF, and so I enter this final section with low morale.

I am seeing a recurring theme with your responses and input here, chapter after chapter. You do not understand the necessity of and proper use of context. And it's something I see in most people these days. Looking for answers is not the solution. There are many excellent hints to another level in the reads but you're forgetting that real knowledge is earned. How to tell the high or low? Answer - Learn what a market is and why it is. And it's NOT there for "traders". THAT is the answer there. Once you understand this, and people stop misconceptualizing reality from ideas, then it's rather simple to determine its high or low. BUT try and tell "the people" on these sites and they have all sorts of BS coming out of their mouth. Prediction is not something people understand, this is why they mock and spit. But a real person wouldn't listen to them anyway.

Take it or leave it. But if someone is looking for a one sentence "answer" then you have been grossly misinformed. Traders who do well, do not predict, they work with what is actually needed to THEN have everything happen. Time compressions etc are useless without an understanding of context. I see it all over the notes and yours too. BUT .... If you, clemmo, are serious about this, you're going to have to learn about context more deeply. Otherwise you will find yourself throwing the baby out with the bath water. Just my input.

Peter

Write that book, Peter. You're wasting your time parcelling out these little pearls of wisdom amongst us swine. Once I have a book I can read I'll have the context too, ya?

Peter I am seeing a recurring theme too with your comments.

It seems that you did not grasp that clemmo17s, in the context of this thread , just summarizes some books he considers as useful for us the guys in the swamp like me Obviously his list is debatable, but it is HIS summaries that Clemmo17posts on HIS threads. I respect and appreciate all the legwork he has done. From what I understand Clemmo17 does not intend to make us happy, rich, billionaires when summarizing some books. Clemmo17 just put additional comments on the summaries, comments we can put aside if we think they are not in context, lack of context etc . This was my contextual comments

Summarizing and paraphrasing books you've read Sir is very helpful.
Appreciating, you are doing it, since we can read many books from 1 thread and in a very short time.

"A reader lives a thousands lives before he dies. The man who never reads lives only one" - G Martin

Even in a book no matter how good the context the author used, by the time we are applying knowledge in real time, the 'good context' from the book becomes irrelevant, and it is the trader's brain which needs to be flexible and adapt to the current prevailing forces behind market moves.

Just like a sailer reading books on how to become the greatest sailor isnt enough. He needs to be on board of the ship and sailed to his destination while going through rough sea- that will make him a skilled sailor.


Just wanted to leave a note here Sir, for your great contribution to FF.

Your thoughts and conclusion not mine. I am not condemning anything here. Context in its fullness is rather simple = Stop now. And look up at the room you're in. Look at everything in that room. Every single item/thing in that room has a "story" to tell about YOU and about what you do and who you are. Now you may think they're just inanimate objects but you need to practice seeing you and your activity through their "eyes". Why? They can be objective and truthful. Am I suggesting to have a conversation with them? Uuum no. But what most people don't do is just sit and consider the other possibilities. It's always want want want !! So a person's context from the beginning is rotten or tainted. Understand? People these days miss what can be learned because they assume ......... period the end. You said you wanted to gather knowledge from reading these books so you could trade better than everyone else. Well, here and now is some knowledge that will do that. When a person merely wants without sacrificing anything we call that "selfish". But the damage is far deeper. To stay the same but expect something to be better is neurotic and so the outcome can never happen. To learn is to improve and to change. Context helps this to happen in every single situation. Understand now? When we look for something that has always been right in front of us, and then we actually acknowledge it, then we are open to something new. This requires more than books or websites or other people .... it requires a way to observe without bias or prejudice. (Mental and emotional) Observations + context. So if a person reading this is not willing to take a step back and look, then all you'll do is go in circles. The end.

Get a pen pencil paper and start practicing making notes on all your observations every day to practice this until you can do it freehand. End of line.

Peter

Your playfulness is commendable but I see you're missing the most important ingredient ........ Life.

I'm not concerned about all the other stuff re: the swamp or you guys etc etc. Any/every thread on this site and every other FF associated site, is interconnected despite people's rigid view points and thinking. It's not a matter of being under the one umbrella heading of "trading", because for me, none of it IS about trading, merely the minor parts that are involved in the activity of trading. You people will get from this thread whatever you choose, but between me and clemmo17, this persona has opened up a doozy of a can-o-worms. But I don't expect many around will see this. Most will be too busy with self fulfillment. I'll let you in on a little secret ....... "there's just books....you dig me?!". Books usually give you 4 choices - 1. read them and try to learn 2. Caress them and sing to them and tell people you've read them 3. Use it as a blunt object hihihihihi and smack someone over the head with them or 4. Use it to stock up the bad leg under your table. Understand?

So it's ok if you want to be a groupie, but I am addressing the issue of "What can/have I learned by reading this book? .... and how to translate it into real life". Ok. Are we good now? I hope so.

Peter

First line = justifying cheat notes. There's no real learning there. A book possesses all sorts of nuances and subtleties and it is up to the reader to observe them.

What you've just done, is justified disconnecting learning from writings with learning through "life in action". They are both the same thing AND different......... = context. If a "trader" forgets all they've learned "in the heat of the moment" then they've learned little or nothing real.

You know what mate, life is a lot simpler if you dont over complicated things.

Is that the new fad thing to say instead of just being honest and say "I'm too lazy to see the point in learning" ?

I don't think you understand that Life will make everything as complicated as it all needs to be. NOTICE I said need not want. And so trying to avoid learning something doesn't mean it all just magically goes away.

Besides, there's "over-complicated" and then there's just plain common sense.

The funny things is, it's not my opinion. So there's no point in anyone smearing what I'm saying.

Sometimes "simple" is not your choice.

Peter

Otherwise, "here's the list of books everyone, my job is done, now you go read them for yourself". Wouldn't THAT be the other option?

Peter

I'll let you know when Harvard make a vacancy notice for their English or literature educator.

That's it?! That's the best you got? WOW. Ok. I can see you've learned a lot. Well happy trails then. Don't let Life hit you on the ass on your way out. Good luck.

Peter

Learn to dig deep and get to know a subject instead of know of it among other things = let's not be shallow.

Life is simple. Wake up, eat, drink, root then sleep. It's now complicated because of the many things in between, such as "oh what new phone do I need so I can be distracted with cute stuff and interruptions etc." Do you live your own narrative or one crafted for you? No need to answer but think.

Eating bugs doesn't stop the weather.

It certainly seems that this book will not overturn Peter Caleb's thesis that we need more than books to learn how to trade. In any case I suspect he is right, but Parisboy is also right. I do this to see what's out there, and offer it in the hopes some of it may be useful, even though it's clear most of it will not be. I don't even pick the books that are most likely to be helpful, just what has been recommended by others. Until we read them, how can we know for sure, anyway? Don't forget at least a few Market Wizards have recommended reading and learning everything that's available about the profession, and to never stop. That's the main goal.

Part 3 - Exploiting Multiple Time Frames
All time frames are important to get a complete picture of the market. However, the longest time frame is the most important, and I think that’s all you really need to know? After all, if the smaller time frames mattered, wouldn’t that be an argument in favour of TA?

Chapter 11 - Basics of Multiple TF
JJ starts this chapter by saying we need to clarify our personal point of view, but I thought the whole point of this book was to not have a personal point of view? Find the losers! That’s what we’re meant to be doing here JJ, finding losers, not finding my personal point of view! Stay focused, lad.

Even worse, he’s repeating himself again, talking about urges to action, and redefining time compression. Now we’re back to ‘what does this mean and how do I profit’. Oh this isn’t a book, it’s Hotel California.


Finally after much faffing about, JJ shows us a chart! This is a loser chart, he says.

 

1. Five minute chart
   Attached Image (click to enlarge)

   
   
   
   
2. OHLC candlesticks
3. 7 and 21 moving averages
4. RSI And MACD oscillators
5. Very typical of losers

This is what the experts teach the net losers.

Now the typical winner’s chart.

 

1. H1 timeframe
2. 50 and 100 period MA
3. No oscillators
4. Fib retracement study larger than daily range
5. Volumes
6. Not random price action, assures JJ!

So basically the winner’s chart is longer-term. In the loser’s case, ‘right now’ is 20-30 minutes, for winners, at least 5-6 hours.

Winners:

1. Are willing to wait longer for a win
2. Are looking to see how important a price area is to the market (volume) (but what does this mean???)
3. An area that is ‘not important’ is an opportunity because it will be important to a short-sighted group of traders

JJ uses this chart to explain what he means.

And figure 11.4 is what you’d see on a larger time frame
But this is sending me some mixed signals because why is the longer-term trader using oscillators and the MACD? Is this the pro or the novice?

Ok, so the point is the market temporarily rose, and then declined rapidly. The oscillators are included to show that they were misleading?

The winners saw a potential range top and were positioning short. The losers were focused on making money ‘right now’.

Losers are focusing on a potential price change.
Winners want to know where the other participants are.

Losers are trading random noise.
Winners are trading order flow.

“Winning traders must do something different from losing traders in order to profit consistently. That means winning traders have come to understand that the longer the time frame they operate under, the better potential to uncover losing traders’ liquidation orders. Winning traders naturally are going to operate on a longer time frame.”

Chapter 13 - The 12 choices in Executing Trades
12?! Auugh.

“We need to know what the total number of choices is so we can see the best choice in the context of the other choices and of the underlying market structure.”

“You need to narrow your focus down to the most likely one or two scenarios available once you have used multiple time frames to find a trade.” That’s good to know, JJ but have we learned how to use multiple time frames to find a trade yet?!


Beyond Long and Short
Most people think you can go long or short. Or stay flat (out of the market).

Wrong! There are 12 choices, says JJ.

Suppose the market is in a downtrend.
You can:

1. Go with the trend
2. Fade it

And you have to decide:

1. Where to enter
2. Where to exit

The same four choices apply to the market in an uptrend. So that’s 8 choices.

The range has 4 choices also.

1. Go ‘with’ the range (sell at the top or buy at the bottom of the range)
2. Go ‘against’ the range (buy for an upside breakout or sell for a downside breakdown)

And you still have two choices about where to enter and exit.

That’s 12.

The Benefit of More Choices
Confusion! Great for gurus, book and course sales.

Finding places where lower time frame trends conflict with higher time frame trends reveals places where TC might be developing.

Also known as fluctuations in the larger trend, places where buying the dip might be worthwhile. This is an elaborate ‘buy the dip’ strategy and it’s the same basis that my EA Upstairs/Downstairs uses. It’s the same idea behind every trend-following system.

“My point is that by understanding that each of the 12 choices is present to every trader on every time frame, your goal with using multiple time frames is to see clearly which time frame is in control of the Market.”
None of them are 'in control', except maybe the highest one. Or the ones that agree with the highest one. And that one’s only ‘in control’ until it reverses, then if the top TF is ranging, the lower timeframe ones will alternate ‘control’ as price oscillates between the top and bottom of the range. I wrote a bit about the maddening difficulty of making sense of a multi-TF system in my journal. I call it the ‘curse of dimensionality’ not to be confused with the mathematical concept. Multi-TF analysis is a dead-end! We are getting off-track.

Finding the losing traders held much promise. Why aren’t we doing that, JJ? Where are you taking me?! Stop this car and let me out right now!! I said pull over! No JJ! No! Stay away from my wallet! I won’t buy your latest book (about trading psychology)! I’m not that kind of girl!!

Oh thank goodness. Now that we’re out of that horrible ride to nowhere it’s time to do what I should have done in the first place. A background check.

Let’s Google ‘Jason Alan Jankovsky’



He’s written more than one book. That’s a red flag. As you know. Let’s visit his website.



This is about as bad as it gets. No reputable trader has a website with stock photos of people holding money.

But it gets worse. The man is posing with a (low denomination no less!) bill in his profile picture. He might as well have some gold chains and have his arms folded in front of a jet, a fancy car and a bikini model. I suspect he would have but he can’t afford to rent any of those things and doesn’t know how to use Photoshop or have enough money to hire anyone who does. Not after that 2008 crash. That’s when he became an ‘author’.

Well, record-keeping sounds like something at least. Let’s check his track records, keeping in mind how easy they are to fake.



Oh shit! They’re not HIS trading records, they’re fill-in-the-blank templates that YOU can PRINT and fill out yourself! Talk about high-tech!

And that’s about it! The most interesting part, and amazingly honest, are the excerpts from his trading journal. He documents, for some reason, a particularly bad period where he loses about 8 trades in a sequence. I wonder if he has any good days? my-personal-thinking-journal.pdf (wordpress.com) Don’t miss the part at the end where he recommends you work with a coach. Does JJ offer coaching?



Why, yes he does. And lots of room in his schedule. I wonder how he manages that with his busy trading day?

I’m so sorry TimeTells. At the risk of destroying our burgeoning friendship I have to tell you that you didn’t bump into a great introduction to how to make sense of markets. This book is a cunning shaggy-dog story. Only $44.99 at Amazon! Thank goodness the truly worthwhile Parisboy gave it to us gratuit.

Here’s how I think this book probably got made.

Ring Ring!
Hello, Wiley Publishing? Yes, it’s me, Jason Alan Jankovsky, fair-selling author of ‘The Art of the Trade’!
What? No, the other ‘Art of the Trade’.
What???
No, no, the OTHER one. Yes! Yes, that one. 2008! A bad year for me personally but you know how it goes…
Yes, what’s that, it broke even after Amazon took their cut? Great! Are you ready for my next pitch?
Ok, so it’s a book about trading the… wait for it… the MARKET TREND
What’s that? You’ve already written a WHOLE SHITLOAD of books about trend-following?!
Ok, hold on, we can fix this. Let’s call it …Oh, I dunno, ‘TIME-COMPRESSION’ trading and wherever I put the word ‘trend’ in the text, we’ll substitute the words ‘time-compression’.
Not sold?
Well, let’s also add some fairly straight talk about microstructure and add in some promising classics like ‘thinking in probabilities’ and throw in a LOT of psychology chapters, not just a single one.
Well, for example, the psychology of trading a range. The psychology of trading an uptrend. The psychology of trading a downtrend! The psychology of a bottoming and topping market! So much psychology. Traders eat that shit up!
What’s that… you love it?! Great! I’ll fax you the MSS.
What’s that?!! You don’t use fax machines anymore even in 2010?!
Well, that’s a shame, I guess I’ll just have to print off the whole thing and send it by courier falcon?
INTER-NET?? What the hell are you talking about, Wiley?!

To be fair, I haven’t commented on a book this much, like ever, so clearly there is something to this. Writing a trading book that doesn’t talk about TA (except it does! Quite a bit actually!) is itself revolutionary, and I do think he’s basically right about order flow moving the market.

What was already outdated in 2010 is the notion that markets are primarily moved by people doing analysis. That’s old hat, my boy. What happens now is a whole network of spying algos listen to every order that’s coming in, measure it against the trader that’s doing the ordering, the size of his account and where his broker fits in on the food chain, then depending on whether it’s a credible threat or not, it’s either ignored or it’s attacked, more or less immediately. If it’s attacked it’s done for. There’s no saving that trade. Now, there are ways to cunningly deal with that, but that’s what I’ve been working on for the past five or so years, so you’ll have to wait for MY trading book, which won’t even contain the words ‘technical analysis’!

Why do I dislike this book so much, (boy do I hate it) after being intrigued by the initial premise of the first four chapters or so?

Because promises were made, namely how to tell if a price is too high or too low, how to find the losers and their levels, basically all the unfair info advantage that your broker and their backup liquidity partners hold against you and at this point we’re no closer to figuring that out. Also at this point I have no desire to find out if the answer is in a later chapter, because it’s not.

I’ve been down this road before. Still, you have the floor if any of you want to change my mind. It’s been done before, just ask my wife.

ps. I actually skipped a chapter in my haste to wrap this up. Well, I skipped all the remaining chapters after chapter 13, but I skipped the notes for chapter 12, which you can find here, along with my footnotes. This will at least show that I was a little more patient than it seems if you just read this thread.

Ok, so it's clear that the 'Finance Book Club' is at a crossroads, because, I have to admit the critiques of what's being offered here are completely valid.

1. I may not be reviewing the most interesting books. I don't know how to improve the quality of the offerings, because I don't know anything about you. I just go with my gut and what's thrown out to me. I also have added books that were recommended by other traders; I just assume they know what they're talking about.
2. One problem is books go out of date rather fast, and the market changes fast. It used to be some ground-breaking new paradigm emerged about every generation or so, but now it's more like every decade or so, or even faster.
3. Most people on this forum are looking for a bit of fun, not a real brain-stretch so books like Chan's 'Machine Trading' are only for the very code-literate, and books like Chance's 'Intro to Derivatives' are only for people who are looking for a job in the industry. Either way, they are probably the most useful books in the list (and notice, the least-voted, affirming Clemmo's Conjecture! If you want I will go over them, but it will be tedious for us both, 'not gonna lie', as my kids say.

The remaining books are Farleigh's 'Taming the Lion' which I've already skimmed, and it's basically just another trading book. His strategies are hardly ground-breaking, slightly out of date, but there's no attempt to mislead or introduce neo-philosophy. So that's still possibly on the menu.

There's also 'Liars Poker' which I haven't yet looked at. I think it's a career retrospective of the trader Michael Lewis. It was written in the 80s. It's probably the most fun to read, and likely has nothing of any use to us that you couldn't get from watching 'Wall Street', 'The Wolf of Wall Street', or 'Margin Call' or any similar film.

Finally there's 'The Intuitive Trader' by Robert Koppel, also very low-voted, and it's entirely neo-philosophy, psychology and even a bit of mysticism thrown in. You'd think I'd hate it, but after getting about 1/4 of the way through it I find it a fairly compelling and light read. Quite interesting actually. The whole premise is how to enter a 'state of flow', and 'get in the zone' to do your best thinking and manual trading. It might even have some benefits outside of trading. It's definitely better than Douglass' book which was supposed to be the same sort of idea. Go figure, the much less famous and worse-selling book was the more worthwhile read.

So, if you're still into this whole book summary thing, I might finish with that one and then leave the floor open to anyone else who wants to try their hand at this. I know Kefada has said he was interested in doing a review and I'd welcome anyone else to do some heavy wood hauling while I work out my own thoughts about the best ways to trade.

Else, you can simply argue amongst yourselves in time-honoured ForexFactory fashion. I don't mind at all. Good hunting!