Better Stock Trading: Money and Risk Management Review

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(More customer reviews)The book really starts out examining how risk management can affect a system with positive expectations. The main point he is making is that your average profit should be greater than average loss, which is true enough. Unfortunately, there is an implied assumption in this section that suggests you can change the stop without impacting the probabilities of success -- i've found this not to be true in my own trading. I would certainly liked to have seen some mention of this in the book, but that's a bit of a nitpick to be quite honest.
In the book, Mr. Guppy uses the 2% risk model Elder uses. However, there are bits missing. For example, he has no real way of limiting risk. He has a model whereby through diversification and position limits, he will limit outstanding risk to 20%. However, from my brief reading of the book (I plan to go over it more thoroughly later), there is nothing stopping you from entering another 20% worth of positions, and another 20%. Stopping your entire portfolio out several times. Sure, I hear you say, this could never happen to a top trader -- however, if it happened to Steve Walton , I suspect it can happen to you.
Overall, I think this is an excellent book, and I learned quite a bit from it. Mr. Guppy's writing style may not be quite as polished as some writers, but I think it's still quite good. If you are a position trader, i'd highly recommend this book -- if you opt for the swing or daytrading timeframes, I think you might be better off with Elder or Tharp -- although it certainly does no harm to study all of these authors, as they each have a lot of really good things to say about this topic. I think this book may indeed be destined to be in fine company, alongside Elder and Tharp. This work is much stronger and generally more useful than his earlier work, Market Trading Tactics.

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An in-depth examination of money management methods for consistent trading successIn Better Stock Trading, Daryl Guppy shows readers how to improve returns by using good money management technique???not by increasing risk in trying to win more trades. Readers will learn how to level the market playing field by using the best money management strategies for their particular account size. From the straightforward two percent rule, to pyramiding methods, and overall portfolio management, Guppy presents a selection of strategies, which will allow any independent trader to capitalize on a rising market and protect funds when the bear takes over. He also shows readers how to study their own trading history and use this information to improve their trading future. Trading skill counts, but money management gives independent traders the edge. Daryl Guppy (Australia) is an experienced and highly successful private trader. A member of IFTA and the Australian Technical Analyst's Association, he is a popular speaker at international trading seminars in Australia and the Asia Pacific region. He is the author of five highly successful trading titles, including Market Trading Tactics (0-471-84663-5), and is the Editorial Director of The Investors' International Bookshelf.

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Beyond Technical Analysis: How to Develop and Implement a Winning Trading System, 2nd Edition Review

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(More customer reviews)I'm a bit surprised by some of the negative reviews of this book. I've got most of the popular books on building mechanical trading systems - eg. Kaufman, Katz, Faith, Pardo, Pring, and a few others I can't remember off the top of my head. And I would say this is one of the more useful books on the subject.
Another reviewer suggested that some of the systems were weak - I guess he means they're not incredibly profitable in their generic form. Well, I read books like this simply for some new ideas that I can take away to work on myself.
After all, where's the fun of having all the work done for you by someone else? If in my dotage I ever find the energy to write a book on system design, you can bet I won't give away my most profitable systems in their finished form. I've spent far too many years and tens of thousands of dollars perfecting them. Why would I give that away to some lazy so and so for a few bucks?
The value of this book is that it has a few fairly original ideas (and more than a few conventional ones) that can form the basis for further research. Some of the material may be beyond the novice trader, but intermediate to advanced mechanical traders will probably find something of value here. And Chande's discussion of equity curves and data scrambling is significantly better than many other books on the subject.

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The Universal Principles of Successful Trading: Essential Knowledge for All Traders in All Markets (Wiley Trading) Review

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(More customer reviews)This book is excellent for traders that are ready for it. You need a foundation in trading to understand its importance and take the principles seriously. Once you are through the rainbow and butterfly phase of trading and realize that you will not be a millionaire in a year this book will help you get focused and get serious about your trading and what really works.
Here are the six universal principles of successful traders:
1). Preparation
Author Brent Penfold is in the minority believing risk management is the #1 priority in trading. He believes that once you get your trading system and position size in place you must use the amount you will risk on each trade to figure out your risk of ruin. The book shows specifically how to figure this out using an excel spreadsheet. His point is that if your risk of ruin is not zero then you will eventually blow out your account. Risking 1% to 2% of your capital in any one trade usually gives you a zero percent risk of ruin but it also depends on your systems win/loss ratio. But the point is to test any system with 30 trades first then determine your risk of ruin.
2). Enlightenment
Your #1 goal is to lower your risk ruin to zero. In trading the trader with the best ability to cut losses short wins. Simple trading strategies work the best based on support and resistance. The simplest way to win in trading is to trade with the trend on either retracements of break outs. The 10% of winners in the market win by treading where others fear, buying on break outs when they first occur and going short when a new low is made. Or buying into the abyss when a security finds support or resistance and reverses at the end of a monster trend.
3). Developing a trading style
You must choose your own personal style of trading, swing trading or trend trading. You must also trade based on your chosen time frame: intraday, short term, medium term, or long term.
4). Selecting Markets
Ideal markets to trade have volume and price transparency, liquidity, 24 hour coverage, zero counter party risk, have low transaction costs, and are honest and efficient. They also need to have the good trading attributes of volatility, research, simplicity, ease of short selling, specialization, opportunities, growth, and leverage. These are the markets you can make money trading.
5). The Three pillars of trading.
Money Management: You must make your trades as fixed as possible. Trade with the same risk, capital, units, percentage, and in the same type markets to manage risk most effectively.
Method: Choose a method that works for you and your personality from the ones available. (Dow Theory, technical indicators, patterns, price and volume, etc,. etc.) Once you have a methodology to your trading test it 30 times by e-mailing a trading partner for accountability to verify it works in the real world.
Psychology: Manage your hope, greed, fear, and pain to stay in the game.
6). Putting it all together
Monitor performance. Positive reinforcement. Equity momentum.
I have been actively and successfully trading the market for a decade and agree 100% with the authors principles.I have also learned a lot from this book even though I have read over 100 books on trading at this point.
The author finishes up his book by asking many legendary traders and some that are successful private traders what one advice they would give to aspiring traders. This advice alone is worth the price of the book. Here is a summary:
Money Management:
Trade small
Focus on risk.
Methodology:
Pick a method that suits your personality.
Develop a simple methodology.
Avoid the majority, learn to anticipate reversals.
Look for alignment in set ups.
Good defense wins games.
Identify low risk set ups.
Know your methodology using software.
Psychology:
Deep practice before trading
Expect to lose. Trade to win.
Be disciplined. Be patient.
Be humble.
Be in control.
This book is the real deal. The author warns of the pain of trading. If you trade you will experience those ten losing trades in a row in any system. You will experience the 10% draw down in your account the only question is when. 90% of people who enter the markets to trade will lose. The majority of even successful traders who win in the markets usually start out by losing most of the money in their first trading account. So be warned the market uses maximum adversity at all times so the majority of traders lose long term. This book is in the top five I have ever read on trading and is a must for any serious trader's library. Even with the long review I have not even scratched the surface of this excellent book full of trading wisdom. It is like combining all the best trading books into one. I would give this book six stars if Amazon would let me.

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The Universal Principles of Successful Trading clearly and unambiguously articulates trading principles that distinguish the winners from the losers. Though trading can be performed in different markets, across different timeframes, and with different instruments based upon different techniques, there is one common thread that ties all winning traders together: the universal principles of successful trading. All consistently profitable traders adhere to them regardless of the markets, timeframes, and techniques.
In this ground-breaking book from top trader, Brent Penfold, the reader will:
Learn how to develop a trading plan
Learn how to identify and create an effective methodology
Discover successful money management strategies
Understand trader psychology
And many more exciting trading and strategies secrets.

Supporting the universal principles are rare interviews from a diverse group of successful traders. Some are the new young guns of trading and others are market legends who are trading just as actively today as they were over 50 years ago. They represent a diverse group of traders from the United Kingdom, America, Singapore, Hong Kong, Italy, and Australia. All of them have generously agreed to offer the reader one singularly powerful piece of advice to help them towards their trading goals. Each piece of advice emphasizes an essential element of the universal principles.
This timely and exciting book from Brent Penfold has already garnered many accolades and looks set to become a modern-day classic.

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Money Management Strategies for Futures Traders (Wiley Finance) Review

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(More customer reviews)This book was released in 1992 -- and is still as essential today to traders as it was 16 years ago. It seems like it is a secret gem of a book since there are only 2 Amazon.com reviews posted (both of which are five and four stars) in all these years.
Maybe it's time for this classic to be re-discovered by a new generation of traders and investors. Surprising to me that the book "The Trading Game - Playing by the Numbers to Make Millions" sells so many books. The gimmick title "...Make Millions..." should make you wonder if it is authentic -- get Professor Balsara's book instead and learn the true principles of managing and understanding your risk.
There is a reason Balsara's book is cited by 34 other books (most of which are written by the master traders of our time) and it is because this is the textbook that the master traders refer to in creating their money management strategies. This book has the formulas and the theory you need to manage your risk and avoid the risk-of-ruin.
I found out about Balsara's book from Bennett McDowell, he recommends Balsara's book in his book "A Trader's Money Management System":
A Trader's Money Management System: How to Ensure Profit and Avoid the Risk of Ruin (Wiley Trading)
McDowell encourages his students to use Balsara's risk-of-ruin tables when designing their own personal money management system. It improves your bottom line when you calculate your current payoff ratio and win ratio and accurately determine the risk you should be taking on each trade by referring to the risk-of-ruin tables. Balsara also covers Optimal F in detail, which is another way to determine the amount to risk on any one trade based on your current payoff ratio and win ratio.
Of course, another great author on this topic is Ralph Vince and his latest book is probably the most thorough account of using Optimal F effectivly:
The Handbook of Portfolio Mathematics: Formulas for Optimal Allocation & Leverage (Wiley Trading)
For some traders they should risk 2% of their trading capital on each trade. For other more experienced traders they can benefit by risking 10%. The key is to do the calculations and know where you stand at any given moment.
Do yourself a favor, buy Balsara's book, Vince's book and/or McDowell's book instead of "The Trading Game".

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A Trader's Money Management System: How to Ensure Profit and Avoid the Risk of Ruin (Wiley Trading) Review

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(More customer reviews)Thank you to John T. Morris for buying "A Trader's Money Management System" book and for reading it. And, though his review was less than glowing, I appreciate his comments here on Amazon.com because it opens up a valuable dialogue for traders about "effective" money management.
In response to his comments, let's just say I'm the first to admire the work of Douglas, Elder and Tharp -- and encourage anyone not familiar with their work to study them. My concern for Morris is that he makes no mention of Nauzer Balsara or Ralph Vince -- arguably the two greatest mathematicians in the field of trading. These men are mentioned in my book because their timeless concepts (both wrote books over 15 years ago) are the basis for truly "effective" money management.
With that said, many will agree that Balsara and Vince, while they are pure genius, can be at times difficult to comprehend for the new trader -- and even for some very seasoned traders. What "A Trader's Money Management System" does for the reader, is to make some of these complex concepts -- like using the risk-of-ruin tables and optimal f formulas -- easy to understand and instantly implement.
Apparently my simplicity in the book has worked since Morris says in his review that "...I do give this book two stars rather than one because it does contain some ideas that I have never run across before in my study of trading: The Risk of Ruin concept plus optimal percentage formula to determine the amount of equity capital to be risked on any one trade...".
If he has gained that insight from the book, then he is one step closer to developing more "effective" money management. The next big step for him would be to realize that there is no "magic percent" to risk on each trade. The 2% figure is purely an example and a frame of reference for the reader and that is why there is an "Important Note" stated when ever the 2% figure is mentioned. The important note directs the reader to Chapter 9 so that they can use the risk of ruin tables and optimal f formulas to calculate the exact amount that should be risked on each trade.
When Morris states that "...except in very exceptional cases, 2% is way too much to risk on a trade and that it should be more like half at most..." he is not basing his analysis on any mathematical probabilities. Instead, it's more of a hunch, since he's taking numbers out of a hat from interviews in the Market Wizards book. He doesn't know what the pay off ratios or win ratios for the traders interviewed were.
By looking at page number 79 in "A Trader's Money Management System" you'll see that my recommendation for a trader producing a win ratio of 35% (meaning you are winning only 35% of your trades) and a payoff ratio of 2 to 1 (meaning for every dollar you lose you earn 2 dollars) -- they should be risking only 1% . Where as on the same page of the book you'll see that if you have a win ratio of 50% and a payoff ratio of 3 to 1 you would in fact be able to risk 10%.
Why can one trader risk only 1% and another risk as much as 10%? It is simple, from a mathematical probability, their historical performance warrants -- less risk -- OR -- more risk -- depending on how well they trade.
I've been working with traders for over ten years and have to say that my passion is trading and education. Hopefully this response to John T. Morris will give other traders, if not Morris himself, some insight into effective ways to structure their risk -- depending on what their current trading results are telling them through their win ratio and payoff ratio.


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