How To Make A Living Trading Foreign Exchange. A Guaranteed Income For Life
Review of a book by Courtney D. Smith (2010)
This is an exceptional and absolutely must-read book. The following few facts should be enough to prove that statement. First of all, the author is a professional trader with 20+ years’ experience and he made profit ALL of these years. He teaches the techniques and approaches that has been proven to be profitable by him or other great traders. The techniques are described in enough details so that repeating them is no problem.
In addition, the book is a pleasure to read. It only concentrates on essential. Moreover, each chapter can be used as a recipe for implementing a strategy or making concrete trading decisions.
Smith never trades more than 15 minute a day. Mostly he is in favor of position trading. But he also teaches 3 proven techniques of day trading. And his methods can be suited for automated trader.
The book starts from the main idea how to trade successfully: “be long when market is bullish, and short when market is bearish. Stand aside when it is neutral”. This sounds obvious, but the methods he teaches give the reader all needed for the practical implementations of this principle, starting from unambiguous trend signal.
He describes in detail his modification to his favorite classic Channel Breakout method. He discloses his own powerful methods he calls Conqueror, which uses 3 entry critera that each represents a different time frame. Another his method called Slingshot is based on the author’s modification of maximun excursion analysis. In the chapter on Stochastics, he included 6 pages of his own interview with inventor of Stochastics George Lane.
He goes in details why people trade and why they lose, selecting 3 main reasons. The first of them being lack of self-discipline. He notes that in his experience people with such backgrounds as e.g. marines or athletes has more chances to become successful traders as these people have high level of self-discipline. This was also pointed out by another great trader and market analyst Robert Prechter (Jr).
Risk analysis chapter discusses an approach to placing stops based on paradox Zeno. The author combines this method with Kelly formula for optimizing resk/rewards ratio.
The methods he is teaching might not be that exciting as e.g. nailing down the beginning of the trend or bottom of the 2nd Elliot Wave, but they are working.
Some other interesting points that caught our eye:
Entering the market with stop orders, not limit orders
Using loose stops. He only wants to be closed if the market tells him he was not right, but not due to whipsawing.
Immediate gratification principle. Exit the market as soon as you see you are wrong
Discussing beyond buy/sell signals. “Lemonade” trades – how to turn losing trades into winning. “Nobody tells you what to do when the trade fails”.
Risk management by diversification over various time frames.
Be the casino! A trader should feel like the caseno owner, not like a gambler.
Don’t paper trade.
His problem is boredom in trading. He addresses it by split-testing and tracking his strategies.
“most stupid trading system” – very simple but still winning. Example of how consistent following the method brings success.