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Mercenary Trader "Jack Sparrow" (Las Vegas, NV)

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Fuzzy Thinking: The New Science of Fuzzy Logic
Fuzzy Thinking: The New Science of Fuzzy Logic
by Bart Kosko
Edition: Paperback
38 used & new from CDN$ 0.01

4.0 out of 5 stars fuzzy vs concrete, May 24 2002
Before going out on my own, I worked in an office where the music was always too loud or too soft. The problem was the volume control mechanism embedded in the wall. At setting 1, the music was audible but too low to hear. At setting 2, the music was loud enough to disrupt concentration and made you jam the phone against your ear. I longed for a round knob control that offered a continuum, but had to be satisfied with 1 or 2. This throwaway analogy illustrates Kosko's frustration with "bivalence." We do not live in a black and white world. Many things are in between, and science is silly to pretend otherwise. It is not just the engineers and physicists- economists also suffer greatly from this delusion (largely because economics is little more than sociology dressed up with fancy math). Reality is messy, complex, and does not fit into a box. A simple statement at heart, but one with profound implications that Kosko does a wonderful job of exploring.
With the statement "precision up, fuzz up" Kosko reiterates a truth known since biblical times. I like T.S. Eliot's version, "All our knowledge only brings us closer to our ignorance." Excess information obscures as much as it reveals. Relevant facts are lost in the wash of noise, like needles in the proverbial haystack. And even the relevant facts are subject to interpretation, counterweighting, and levels of degree.
I felt that the systems Kosko described were not "fuzzy" as much as "flexible." They still make black and white decisions, they just make a higher number of decisions and thus have a more averaged or "fuzzy" result. A machine that utilizes fifteen data points will be much more versatile and flexible than one that only uses two, but it is still a binary system at heart. Maybe our brains are binary as well, except with gazillions of data points to access. But that is a subject for another book (one by Penrose perhaps).
The ultimate application of a fuzzy system would be to design a trading application that siphons billions from the world financial markets, allowing the scientist to conduct further research from his deck chair in the Cayman Islands. But it will never happen. No computer program, fuzzy or not, flexible or not, will ever outperform a logically grounded set of trading rules.
Can computers optimize a set of rules, like those that apply to washing machines or traffic lights? Yes. Can they predict the future outcome of the stock market? No. The actions of a chaotic/reflexive system can never be predicted with true accuracy, because the stream of variables is too fast and furious to follow. Even for a supercomputer, it would be like drinking from a firehose. Thousands of opinions converge and diverge every second. Unforeseen events jar the market like random electrical shocks. Feedback amplifies itself, the way a sound looped from speaker back to microphone becomes an ear splitting shriek. Feedback diffuses itself, like soft spring rain on a pond. The market measures itself and reacts to itself a thousand times a day, a living embodiment of the Heisenburg principle. The puzzle has a trillion pieces that spontaneously rearrange at will. You can stump a computer with the turbulence in a glass of water, and yet it's supposed to decipher mass interaction? I'm not holding my breath.
As the book progresses, Kosko gets more and more wildly optimistic in his predictions of what fuzzy logic might be capable of, what fuzzy machines could do. He goes out on a limb and overshoots his premise by a country mile by the time you reach the last page, filling the last half of the book with rabbit trails, but that is okay by me. Fuzzy logic is his baby, his contribution to the world. So it is completely natural that he would bubble over with possibilities and offshoots of his original thesis. Excitement gets your brain going. Separate the wheat from the chaff and enjoy.

Confessions of a Street Addict
Confessions of a Street Addict
by James J. Cramer
Edition: Hardcover
Price: CDN$ 19.83
67 used & new from CDN$ 0.87

4.0 out of 5 stars an objective defense, May 12 2002
Jim Cramer's love/hate relationship with the public illustrates the problem of fame. It also illustrates why most top traders avoid the limelight like the plague. Being well known as a trader is a losing game.
On the one hand, you have a bunch of know nothings who worship the ground you walk on because they think you are some kind of magician. All this does is puff up your ego and tempts you into developing a superman complex, an extremely dangerous thing for a trader (I'm not aware of any studies, but I'd be willing to bet my last dollar there is a positive correlation between fame and flameout).
On the other side of the coin, you have an equal number of people who mindlessly hate you or resent you, who believe in their emotion driven hearts that you must be a criminal or a fraud, simply because you have vast sums of money and they do not. I mean, it's laughable to see how many people call Cramer a fraud who should go to jail. Their resentment practically leaps off the page, most likely because they got their heads handed to them when the market collapsed and they want someone to blame. For anyone who is in this camp, do you really have so little self respect and responsibility that you are willing to blame your greed and your naivete and your stupid decisions on some guy's magazine article or website commentary? Please.
I think Cramer wound up in the limelight not because of his trader side, but his writer/journalist side. Writers are the opposite of traders: while traders crave anonymity, writers want the whole world to read their words. Hence the position where Cramer finds himself: trying to tame the monster he has created, using publicity to turn the public back in his favor and overcome the cry of scapegoat resentment against him. And it is a tough, tough thing to overcome, because the main stream media are ruthless carnivores. They will take you down in a heartbeat if it makes good press, but when they owe you an apology? It rarely even makes the fine print.
I started reading back in 1999, strictly for entertainment purposes (my style is too short term to make much room for fundamentals). I don't really follow it, though I check in from time to time. My initial impression of Cramer then, and one that still holds now, is that he is basically a brash, amusing loudmouth, BUT a loudmouth who has walked his talk and knows what he is talking about. I mean good grief, the guy has made a personal fortune of something like a hundred million from the markets- not as a broker, not as a salesman, but as a trader. Going toe to toe with the market day in and day out. Whatever you think of his personality, love it or hate it, you have to give him respect for that. He could be doing awful now, his advice could be lame, and it would not take away from that accomplishment. I'm not saying his commentary IS bad by the way- I'm only saying if it is, so what, don't pay for it.
And I don't understand the complaints that there were not many trading insights either. This is a biography, folks. Usually when someone's picture is on the cover of a book, it's a hint.
I believe that it is possible to have respect for someone's ability and accomplishments whether you like that person or not (we do it all the time in professional sports). Like him or hate him, Cramer has moxie and he's walked his talk. I give him respect for that.

Money Game
Money Game
by Adam Smith
Edition: Paperback
Price: CDN$ 16.07
53 used & new from CDN$ 1.20

5.0 out of 5 stars equal parts humor and wisdom, April 8 2002
This review is from: Money Game (Paperback)
Much to my surprise, I find myself in agreement with a prize winning economist (Paul Samuelson has dubbed the book a "modern classic," and it is). A brief but insanely great read, Adam Smith made me laugh out loud at least half a dozen times with his dry sarcasm and sardonic wit. If 'Reminiscences of a Stock Operator' is the all time ultimate classic for traders, then 'The Money Game' is the all time ultimate classic for investors.
Written almost a decade before I was born, the book is just as relevant today as it was in the latter half of the sixties. The high flyers Smith writes about are so similar to those of the 1990's bubble, it is literally as if nothing but the symbols have changed (and perhaps the clothing styles). Sixties screamers like Brunswick and Solectron were bid up to hundreds of times earnings, then flamed out and fell through the floor with spectacular declines of 90% or more- just like the JNPR's and CMGI's and JDSU's of our more enlightened age. The Great Winfield, master tape reader of his day, is the perfect 1960's equivalent to the modern daytrader banging bids on Island or Selectnet. The technical analysts of the sixties, with their punch cards and their vacuum tube computers, are in perfect harmony with the high powered number crunchers and stochastics trackers of today. And when Smith discusses the complete and utter wackiness of corporate accounting methods, complete with a hundred and one ways to massage earnings statements six ways to Sunday while technically remaining within the law, you would swear he is foreshadowing the fall of Enron. And of course there is good old John Jerk, proud representative of the general public, buying high, selling low and getting taken behind the woodshed by the smarter players, just as he still is today (but don't worry John, you'll come out okay in the "long term," really truly you will, snicker).
Smith also takes some time near the end of the book to roast the gold bugs, who were the same bunch of pessimistic doom mongers back then as they are today (surprise!). The uber-pessimists had their brief moment in the sun in the early 80's, but of course 99% of them gave it all back too. What self respecting bug would have cashed in with gold at $800 an ounce when it was surely going to infinity? ...
The old hands are always saying that the game is the same. Young gunslingers and wet behind the ears traders nod and smile, because they know the old timers are wise- yet the youngsters are still naïve enough to harbor doubts in the back of their minds as to whether it is true. Is the game always the same? Couldn't it be different this time? Couldn't it? 'The Money Game' really, seriously puts the issue to rest. There is no way a book written in 1966 could sound perfectly suited to 2001, no way that bowling stocks and fiber optic packet switching stocks could give the exact same performances under mania circumstances, unless the game is always indefinitely, immutably the same. And why shouldn't it be? We can put a man on the moon, but we certainly aren't any more humble or mature than we were yesterday. Our knowledge may increase but our greed and our fear stay the same.
Bravo Adam Smith (or should I say George Goodman). I don't know if you are even still alive to read this praise, but your book is as fresh today as it was on the day you wrote it.

Trading with the Enemy: Seduction and Betrayal on Jim Cramer's Wall Street
Trading with the Enemy: Seduction and Betrayal on Jim Cramer's Wall Street
by Nicholas W. Maier
Edition: Hardcover
28 used & new from CDN$ 0.01

1.0 out of 5 stars a waste of my time, March 15 2002
To put it bluntly, this book [is bad]. I was all set to like this book, I really was. I anticipated its delivery by UPS in time for the weekend, looking forward to kicking back and reading it on a lazy Saturday. What I thought I would get from this book was a gritty, hardnosed assessment of Cramer's operation, with plenty of style and substance backing up the harsh indictment of the title. What I got instead was a blah piece of fluff written for a fast buck. I had a sinking feeling from the moment I opened the book- big elementary school font with plenty of space between the lines, never a good sign.
Maier has little storytelling skill, and he doesn't even pick the right anecdotes to tell. His writing persona is grating, his scenes are flat and one dimensional, and he doesn't bother portraying people accurately. Instead he picks one polaroid snapshot of the person he is describing and then keeps referring to it ad nauseum until it is beaten into the ground. 'Jim' is always screaming and smashing things and trading and that's it. 'Jeff' is always talking about his car, his apartment or the women he is dating and that's it. 'Sal' is always parroting Cramer's obscenities and that's it. I've seen more character depth in cardboard cutouts at the movie theatre.
I was also annoyed with the way Maier constantly refers to Cramer as 'Jim'- Jim this, Jim that, Jim likes to yell and smash things blah blah blah. You would think that if you were going to air a guy's dirty laundry for money, you could at least give the courtesy of referring to him by last name, instead of acting as if he were a drinking buddy.
The writing is also disjointed. Consider this switch: on pages 104-105 Maier talks about how he is giddy with glee at getting a raise and a surprise bonus, and has just finished talking about how he loves New York and looks up to Cramer. Then, on the very same page (105), with no transition whatsoever, he starts talking about how he feels sick every day and passes out on a subway train from stress. He writes: "I found myself absolutely terrified to get up....there were so many reasons to get home....I was treading on dangerous ground...." WHAT reasons, Maier? Cramer's shrill voice was hurting your ears? Your bonus was too dangerously large?
And referring to the title, exactly who is the enemy? If your boss is a jerk who throws temper tantrums, does that make him an enemy? Maier quit because he burned out from getting screamed at, not because he was sinking into some sinister scheme from a John Grisham novel. There was a buzz around this book based upon Cramer's alleged use of CNBC reporters to pump and dump stocks- but really, truly, who cares? What's the difference between Cramer pumping a stock or an overpaid Goldman Sachs/Merrill Lynch analyst pumping a stock? Oh, right, the investment banks have chinese walls to prevent their traders from knowing the analyst's calls ahead of time. Right. And Britney Spears is going to be President of the United States someday.
Perhaps I am harsher than I normally would be with this review because I had high expectations for this book. I was hoping it would be tightly written, informative and funny in the tradition of 'Liar's Poker' or 'Fiasco.' Instead, I get weak writing and idiotic observations like the fact that Cramer once bought fifty thousand shares of Starbucks because Candace Bergen likes frappucinos, and hear multiple stories of how computers are constantly smashed. Give me a break. Maier does his best to make Cramer & Co. sound like the Keystone Cops on [drugs], which is a little ridiculous considering their track record.
I have no torch to carry for Jim Cramer. From what I know of him I don't think we would be friends. He is a fundamentalist to the bone, I am 90% technical. He is arrogant and loudmouthed, I am reserved and uninterested in recognition. He likes to shout his market opinion from the rooftops, I prefer having as little opinion as possible. So Cramer is clearly a jerk, okay, point made. Is that worthy of a book? All the other stuff that goes on is standard Wall Street, and mickey mouse in comparison to the way brokers screw their clients daily.
All in all, a boring and irritating letdown. At least it was short. Maybe Maier can use this experience to get a job writing smears for the tabloids.

Liar's Poker
Liar's Poker
by Michael Lewis
Edition: Paperback
76 used & new from CDN$ 0.01

5.0 out of 5 stars down with wall street, up with milken, March 5 2002
This review is from: Liar's Poker (Paperback)
A refreshing look at the investment banking world of the early 80's, when the masters of the universe lorded over all they surveyed (in their own minds anyway). This book was one of the earliest to roll back the canopy of secrecy and respectability, revealing Wall Street at its heart: a bunch of thuggish suits with ivy league degrees, endlessly looking for new and creative ways to legally mug their clients. Though the book is old, the flavor and rhythms are timeless- it's the same old street.
Because Lewis writes dispassionately and objectively, his words hit home all the more. He comes across as a very good storyteller, not much more or less. In my earlier days of getting acquainted with the markets I often wondered how investment banks could hire rooms full of "traders" and have most of those traders be profitable. If trading requires a special talent or mindset, which it definitely does, how is it that all these ivy league guys can be good at trading en masse, especially when they have zero patience and huge egos? The answer is that 95% of the "traders" in the employ of a large investment bank are not trading in the real sense at all. They are either siphoning money from unwitting customers with the help of product pushing salesmen (no different than run of the mill retail brokers, except higher class) or else they are taking a bite out of the bid/ask spread, which is what most floor traders do- they act as slippage extractors, so that the skid you see between your order price and your fill price is what goes in their pocket. This is trading only in a nominal sense, because you are not actually competing with other traders when you do this - you are taking advantage of an engineered market that is geared in your favor. No different than if I sold you high priced potato chips and made sure to grab a big handful myself before handing over the bag.
Surprisingly, Michael Milken was one of the few who came out of this book looking like a winner. The rest of the world wrote Milken off as a crook without actually looking into what he did or how he made a fortune. Lewis gives a clear and lucid explanation of Milken's idea- that the investment world as a whole had its credit rating system upside down due to a skewed perspective of corporate credit risk- and tracks in detail how Milken was able to leverage this single idea with a sheer force of will into billions of dollars in junk bond profits. As a side note, even after reading "Den of Thieves" (an excellent book that chronicles Milken's ultimate fall), I still think that Mike got the short end of the stick- painted as a crook because he was greedy and made a lot of money, rather than any truly harmful wrongdoing. The massive contribution Milken made to the capital markets was to reshape the assessment of credit overall, increasing the efficiency of capital deployment across the globe- worth hundreds of times more than his payout in the long run. This surely gives him claim to a better reputation than the one he's gotten from the press. But he's still a billionaire living in Lake Tahoe, so you can't shed too many tears.
If you read this book and enjoy it, you might want to note that the 1990's successor to Liar's Poker is "Fiasco: Blood in the water on Wall Street," also written by a bond insider whose moral qualms eventually force him to give up his Wall Street ways.

Zen and the Art of Poker: Timeless Secrets to Transform Your Game
Zen and the Art of Poker: Timeless Secrets to Transform Your Game
by Larry Phillips
Edition: Paperback
Price: CDN$ 15.58
54 used & new from CDN$ 0.01

5.0 out of 5 stars different game, same discipline, Jan. 2 2002
I am not a poker player (the last time I played was a nickel-ante game for laundry money in my third year of college). Being a reformed protestant, I have zero interest in zen buddhism. So why did I even read this book at all?
Because from the perspective of a trader, I loved this book. I find it ironic but strangely fitting that one of the best books on trading psychology I have ever come across, turns out to be a flimsy little throwaway paperback that was not written about trading at all.
Poker and trading are strikingly similar disciplines. They are both one man endeavors; they are both zero sum games played for financial gain at the expense of opponents; they are both oriented towards luck in the short run but skill in the long run; they both require proficiency in the realm of probability and statistics; they both require a taste for risk and an aversion to risk in equal amounts; they both require an ability to read the emotions of others while controlling the emotions within yourself; and they both see profits consistently flow from the losing many to the winning few over time. Because of these similarities, the skill sets of the poker player and the trader are in many ways interchangeable.
Of the 100 "rules" for poker presented in this book, I would say at least 80 of them have a direct and valuable application to trading (just mentally substitute "losing" for folding, "markets" for cards, and so forth). Many of the rules overlap, or repeat a principle that was highlighted only a few pages back, but unless you are a nitpicker this does not take away from the book. Some of the unique observations truly shine: for example, I was immediately struck by the concept of viewing inaction as a weapon, and intrigued by the nonstraining nature of patience (hint: if you are struggling, you are not doing it right).
I can't claim that this book taught me a lot of new things. Instead it clarified my vision of old things, which is truly far more valuable. I cannot stress enough how valuable it is to deepen your understanding of the principles that you think you already know, but in reality do not. Focusing on depth rather than breadth of knowledge is so central that it has been a constant underlying theme in my growth as a trader, a christian and a student of life in general.
A pet peeve I have with books on trading psychology, even the very best of them, is that the author usually cannot seem to resist giving his opinion on markets, methods or indicators somewhere, and this opinion usually turns out to be a mediocre distraction at best, or useless and bad advice at worst (Mark Douglas comes to mind here- his excellent books are slightly marred by this). Thus one of the reasons I rate this book so highly is because of, and not in spite of, the fact that it's about a different game than the one I play. The truth in the observations is given a fresh perspective automatically- the trader is forced to creatively extract the principle, and thus think about its implications and application, rather than have it spoon fed to him along with a dose of pap.
Certain sections of this book, not to mention the full book itself, could literally make it worth 100 times the price to the beginning trader. If the lessons sink into your psyche, they could easily help shave a few thousand dollars off the cost of your "tuition" (the losses incurred from the time you begin to the time you achieve profitability, if ever). A few powerful sections that spring to mind immediately are the ones on folding and inaction, the nature of patience, the interplay of skill and chance, the long run aspects of the game, and potential hidden motives for playing.
A final note to poker players reading this review: if you embrace the principles of this book and are competent in your craft, consider trying your hand at trading. You might find yourself at a whole new mental and financial level.

Fooled by Randomness: The Hidden Role of Chance in the Markets and in Life, First Edition
Fooled by Randomness: The Hidden Role of Chance in the Markets and in Life, First Edition
by Nassim Nicholas Taleb
Edition: Hardcover
18 used & new from CDN$ 5.15

5.0 out of 5 stars this black swan is a ten star event, Dec 27 2001
If you are a dyed in the wool fundamental analyst, a puffed up CEO, a financial journalist, or a swaggering institutional trader, then odds are extremely high that you will hate this book with a passion, and feel equal parts loathing and resentment for its author. I am surprised that there are not more condescending or vicious one star reviews than the few I saw, seeing as this book is bound to offend just about every traditional Wall Street type there is(and they are not the most forgiving type).
Being thousands of miles away from Wall Street in both mentality and location, I found this book to be effortlessly brilliant- one of the most insightful I have read in years. It comes across in the style of a casual coffee shop chat with an intelligent friend. Taleb does not stretch your brain with new math or doctorate level concepts- instead he points things out with such casual ease that you wind up wondering how you could have missed the clarity before. It is a classic case of adding valuable depth, rather than breadth, to knowledge of probability.
I bought the book assuming Taleb would spend a lot of time arguing for the random walk theory of markets, when in fact the practical result appears to be the opposite. His thesis, as I see it, is that trading opportunities exist largely because man is genetically and societally programmed to be fooled by randomness, yet remains willfully oblivious to this fact- and thus the crowd creates exploitable market distortions through an ongoing series of irrational acts.
The elements of humor and insight in this book are numerous, and I can't resist highlighting a few favorites. Taleb's observation of the "lucky fool" made me chuckle because I have come across or heard of so many lucky fools already over the course of my young career (like the friend of a client who turned 400K into 12 million pyramiding gains on a single tech stock in '99, but then went bankrupt on the ride back down because he was too naive to distinguish between skill and luck).
Taleb's use of the dentist's certainty of income as a statistical average in comparing potential outcomes over numerous sample paths was very instructive, as were the final outcome examples of myopically aggressive traders John and Carlos in comparison to the cautious Nero Tulip. The powerful point is that it is easier not to be jealous of a mega-successful peer when it is known that the bulk of that peer's accomplishment was to be in the right place at the right time, suggesting the nature of their success- fortuitous gain from a random cycle or event- is of such ephemeral nature that it can disappear at any point (insert flashback to Nasdaq bubble here).
Taleb's observation on the correlation between market observation and emotion was also excellent and original (to me at least). The lesson that even a high probability strategy will likely have negative emotional expectation over the short run, due to the exaggerated impact of negative emotions over positive ones, has many implications for those obsessed with watching every tick of their portfolios. In his thorough and methodical destruction of probability blind journalists, flavor of the month gurus and retrofitted market theorists, Taleb also highlights how the explosion of commentary and data in the information age arguably makes for worse trading decisions overall- and confers an advantage to the trader who can restrain himself from drowning in data. The way he watches CNBC also made me laugh out loud (read the book to find out why).
He does not spare fund managers either, popping their balloonlike egos with a sharp argument based on the talented coin syndrome. Morningstar will not like his undeniable point that the majority of good track records taken from a large sample pool are based more on luck than skill- and that sudden and heavy advertising of such a track record only increases the likelihood that it is a statistical variance.
Finally, I appreciated the way Taleb stresses firmly and repeatedly that one of his greatest strengths is knowing that he is weak. Humility is a sign of wisdom, and the proud generally have a shorter life expectancy, especially in markets. That, too, could be considered a central theme of this book.

Mastery: The Keys to Success and Long-Term Fulfillment
Mastery: The Keys to Success and Long-Term Fulfillment
by George Leonard
Edition: Paperback
Price: CDN$ 14.89
40 used & new from CDN$ 7.54

5.0 out of 5 stars simple, concise, powerful, Dec 24 2001
When you are fortunate enough to stumble across true wisdom, you may find it usually has a few recognizable characteristics:
1) it is presented with exceptional clarity, usually with sparing use of words.
2) the concepts or ideas presented are simple at first glance, but have profound implications hidden below the surface.
3) only a minority will truly appreciate it and benefit from it. The majority will either shrug it off, ridicule it, misapply it, or flat out miss the point entirely.
George Leonard's book contains valuable wisdom. Forget about the zen / new age hype in the promo material. You don't have to be a fan of eastern religion, aikido, or west coast liberalism to appreciate Leonard's observations. (Back covers and chapter headings are designed by sales hungry marketers at publishing houses- they almost always inflate claims and try to draw the attention of a dumbed down target audience.) This book won't change your life, only you can change your life- if you expect to walk away with some new power or magical understanding that you didn't have to earn, you'll be sorely disappointed (see wisdom characteristic #3 above). But the main concept that Leonard presents here, and the advice he gives regarding it, is worth taking a serious look at and pondering in depth. Like most books that center around a powerful concept, the book is weak in the areas where he strays away from the main focus. But the main focus remains extremely valuable.
This is not really a self help book, and it is not really a motivational book. Leonard's goal is more to explain and to guide than to motivate. To stay on the path of mastery he describes, the passion must already be in place. This book will not help you do better at your job if you are only working to bring home a paycheck, and it will not help you improve in the sport of your choice if it is just something to do on the weekends. Books like this only show you where to direct your efforts, they don't do the work for you. Without the passion, it does not work. If you don't have at least one area, any area, where your motivation is in some part excellence for the sake of excellence itself, then pass this one by as it will have no application for you.
As a trader, I would recommend this book to all who take their craft seriously. If you are already on the path, 'Mastery' will clarify an understanding that has been in the back of your mind all along.

Dancing with Lions: One Man's Odyssey Through the Chicago Markets, Trading and Self-Discovery
Dancing with Lions: One Man's Odyssey Through the Chicago Markets, Trading and Self-Discovery
by Trader X
Edition: Paperback
18 used & new from CDN$ 26.99

1.0 out of 5 stars dancing with liars, Dec 16 2001
'Dancing with Lions' just doesn't pass the smell test. 'Trader X' knows enough about the brokerage industy and the psychological trauma of trading to show that he has been involved with the game on an intimate level- maybe an ex broker, pit local, or financial reporter assigned to the Chicago markets, who knows. But is he the real deal, a consistently successful trader? I seriously doubt it.
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.

Futures: Fundamental Analysis
Futures: Fundamental Analysis
by Jack D. Schwager
Edition: Hardcover
Price: CDN$ 100.88
26 used & new from CDN$ 85.72

3.0 out of 5 stars caveat emptor, Nov. 23 2001
There is no question that when it comes to informational books on trading, Schwager is the best around. This book meets his high caliber of quality and informativeness. I can recommend this book to anyone looking to broaden their knowledge of fundamental analysis and the guts of what affects supply and demand. But I can't recommend the book wholeheartedly because basing trading decisions on fundamental analysis in itself is such a flawed approach in my opinion.
I used to pay a lot of attention to fundamentals. I would spend hours each day looking at news and research to get a feel for the reasoning behind the movement. After doing this for a while, I realized the inherent futility in the approach- if a trade sets up technically I will take it, unless there is some compelling reason not to, and if there is no technical confirmation, I won't take it, period- and so fundamental analysis just doesn't play much of a role in either case. Nowadays, I still keep tabs on fundamentals somewhat, but mainly only to avoid getting hit by a train- not taking action in front of a significant report or going short coffee in the freeze season, stuff like that. Below are a few reasons why my trading has become solidly technical:

1) Most daily news is worthless, and here is why: at any given time, there are half a dozen arguments for being bearish on a market, and half a dozen reasons to be bullish. When a market has a big move up and the reason isn't clear, the news services pick a couple of the bullish reasons and talk about those. If the market has a move down, they highlight some of the bearish reasons. It's total retrofitting, and thus usally a waste of time to read because there's usually not really a way to turn that knowledge into profit. The "traders" that the newsies interview are often just run of the mill clerks or brokers who don't really know anything special- or if they do, they don't tell. The classic filler explanations on the aftermarket newswires are "profit taking," "fund buying" and "fund selling." When you read about one of those three, the general translation is that the reporter dragged out one of the old standards because "who the heck knows" just doesn't make good copy.

2) Many of the best trades are the ones where the move starts before anyone knows why. Bruce Kovner talked about this concept in the first Market Wizards. (Incidentally, Kovner was making 300 million a year in profits at one point, so he might be worth listening to). If a breakout occurs when everyone is expecting it, then everyone is in already, and the odds are not as good because a lot of the buying (or selling) is already done. But if a breakout occurs and no one knows why, then there are (1) potentially powerful hidden reasons for the move, and (2) a whole group of traders who are not in the market yet and may want or need to get in (or out if the move is against them) once the reason comes to light. So, by deduction, if some of the best trades are the ones where the fundamentals reasons are not yet clear, then by paying attention to fundamentals too much, you run the risk of keeping yourself out of the best trades. You have to be willing to say, "I don't know why this setup is occurring, but the technicals are tellling me something that the news might confirm later." Because the news often comes after the window of opportunity has already closed, you often have to be willing to act before the fundamental reasons are clear.

3) Analysts are often biased and have a hesitancy to change views. When an analyst writes down his opinion on a piece of paper and then sends it out for everyone to see, part of his pride and reputation is staked on that opinion. It is a psychological fact that writing something down, and confirming something to other people, makes a person more committed to that belief because humans have a very strong desire to be consistent. That makes him very hesitant to change his mind, even when the facts change. If an analyst is bullish one week and then the facts turn bearish the next week, the analyst should change his mind- but the odds are that he will not, because he will be thinking "well, if i was bullish last week and do a 180 to bearish this week, then I will look stupid." But often that is the right thing to do! Especially for fundamental analysis, being flexible is very important. But most analysts are too worried about their reputations to have that flexibility. This is one reason trends occur, because the masses are hesitant to change their minds even when it is rapidly becoming clear that they should.

4) Much of fundamental analysis is either incomplete or just plain wrong. Even if you have 90% of the puzzle pieces, the 10% that you are missing could be important enough to turn the whole picture upside down. Or if you somehow miraculously have all the pieces, you still have to figure out how to weight them properly and determine what the market is going to pay the most attention to. It is almost impossible to get all the facts correctly uncovered and assembled without overlooking anything. And then there is always the possibility that something could come up by surprise that you were not prepared for. Different analysts with access to the same information will often have directly contradicting opinions on a market. What does that tell you? Generally the only time that the analysts are all on the same page is when the writing on the wall is obvious- and by that time, the move is usually almost done if not over. There is simply no free lunch.

5) Price- the ultimate value judgment of all underlying fundamentals- reveals itself in the technicals. The technicals don't lie and the technicals don't have an emotional bias. They represent the opinions of the entire market, with a heavier weighting towards the bigger and smarter players, and are thus more reliable than individual opinions subject to bias and error. For a fast mover such as myself, this is what needs to be known. I'm interested in the next three days, not the next three months or years.

For the above reasons, fundamental traders caveat emptor.

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