Dancing with Lions: One Man's Odyssey Through the Chicago Markets, Trading and Self-Discovery [Paperback]

How can I say this, without ever having met the guy or seen his account statements? Mainly because of what he says about winning percentages in his book, which illustrates an ignorance of reality so glaring that it puts everything else in doubt. Trader X says that his winning percentage is somewhere above 70% (I forget the exact number), and that he has colleagues who have achieved 100% winning trades. Let's put aside the fact that this is laughable from a probability standpoint for upstairs traders (and 90% of profits for floor traders and market makers, by the way, come from exploiting the bid/ask spread, which makes them more 'slippage extractors' than anything else). And we can even put aside the fact that a skilled trader wants and expects a number of small losses over time, because points of true opportunity are defined by uncertainty, and the best trades are often defined by the reward to risk rather than the probability of occurring.

But the main point I skewer trader X with is this one: focusing on winning percentage is one of the tells that helps you spot a pigeon- like splitting a pair of fives at the blackjack table. It demonstrates a clear lack of understanding of what is important and why. If you have ever flipped through a trading magazine and browsed the many trading course and system ads that are designed to siphon dollars out of pigeons' pockets, you will notice that they commonly emphasize high winning percentages. Hmmm, why is that? Because flies are drawn to BS, that's why (it's no big surprise that Trader X sells a trading course). Winning percentage is the big draw for the neophyte, when in reality it is irrelevant.

Who will be more profitable, trader A who only wins 40% of the time but makes three times as much when he is right, or trader B, who wins 80% of the time but with an average loss that is twice his average win? The answer is trader A, who wins much less often but takes more dollars out of the market overall (assuming they trade with the same size and frequency). Or to make the example extreme, consider the venture capitalist, who might lose on nine out of ten deals but then hit a grand slam on the tenth one and clean up. Simple math shows that winning percentage as a measure of success is useless, because it does not take into account how much you gain when you are right versus how much you lose when you are wrong! This point is so glaringly obvious there is no excuse for Trader X missing it completely.

This is not the only thing Trader X said that made me doubt his credibility, it was just the icing on the cake. His image of the brokerage industry was accurate in spirit but way over the top, like a comic book caricature. His advice on the markets being a reflection of yourself had truth in it, but was off base enough and overly zealous enough to show that he missed the true point of self reflection. His vehement statement that volume and open interest are the only valid indicators held a kernel of truth also, but was ridiculously unattached to anything else in the text, dangling out there unexplained with no elaboration or support. His supposedly remorseful bragging about how he has destroyed other traders was an ego trip in disguise, showing childish vanity and further ignorance in its telling.

Over and over again, I got the feeling that Trader X was repeating things he has read or heard elsewhere, but that he doesn't understand the concepts quite well enough to get them right. This whole book had a Wizard of Oz showmanship feel to it. Trader X displays a combination of knowledge and ignorance that makes me think he is one of the permanent suckers Jesse Livermore talked about- knowing just enough to be a danger to himself and those who listen to him, making the same mistakes over and over ad nauseam. Because he is an imposter, Trader X's image of what trading success looks like, and his advice on how to attain it, falls short of reality.

There are so many other good books on trading out there, written by guys with actual credibility who give their real names, that this one is unnecessary.

The author looks at market action in a way I've never seen described anywhere else, and to me is very original though it is most applicable to futures markets than equity markets (though I'm starting to pay closer attention to open interest in options now).

I am nothing; yet I am everything.
I see nothing; yet I see everything.
I win with what is inside me; I lose with what is inside me.
I am the market; I always win.

This book contains kernels of truth. Ask yourself if you want to see the kernels of truth. Are you prepared to be a mirror?