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Book Review- "Trade The Trader"

Quint Tatro's "Trade The Trader" published by the Financial Times Press is a good read for a few different groups of people.  The first is a novice to technical analysis who is trying to get a base understanding of what goes into understanding a chart and why some of their investments tend to reverse course on seemingly no news.  The second group is a day trader or at least a very regular trader looking to improve their results.  The third group is the one I fall into; a more traditional investor who has a pretty good understanding of technical analysis that either wants to learn more about it, and see the red flags of when one of their holdings is susceptible to a technical bear raid, or a potential bullish breakout.

This book squeezes some very important topics into 202 pages as it is not overly technical and an easy read.  He not only sets the stage for some of the trades that he has gone through, but breaks down the chart prior to his move and after.  The idea of a trader using either an anticipatory or reactionary strategy to breakouts is an important distinction he makes.  While anticipatory moves yield stronger results for a buy and hold investor, this is not necessarily the case for traders.  A reactionary trader will wait to see a technical breakout or failure of a breakout prior to acting, and will then be able to deploy more capital as the risk of failure is lower than when anticipating the move. 

Chapter 12 titled "Setting Stops" is the safety net to his trading style as he says on page 125, "Many of our habitual learned activities are those that help us remain safe.  This is no different from trading when it comes to setting stops.  Just like when you buckle your seat belt or look both ways before crossing the street, stops become so ingrained into your daily trading routine that they are nothing more than a natural part of your investing process."  The belief is that if you go long 100 shares of XYZ at $25.00 with a trailing stop of $24.50 you are truly only risking $50.  There is also a very detailed, excellently worded description of where to set stops.  Rather than arbitrarily picking a stop price, he uses important prices that will signify his trading idea has failed.  My only complaint about the chapter is that he does not mention that a stop does not guarantee a sale at that given price.  If your stop becomes a market order during a heavy free fall and you have a large order in you may be risking more than originally planned.

After reading a decent number of investment books it becomes more and more difficult to find fresh information.  "Trade the Trader" is written in the post 2008 financial crash world and is very timely in some of its new ideas.  So many books will describe in great detail a strategy to picking stocks and when to invest.  However, they do not mention when to pull the rip cord.  Chapter 15 titled "Taking Gains" lays out both his methodology, and a way to alter this and create your own.  This book follows the old Chinese Proverb, "Give a man a fish and he will eat for a day.  Teach a man how to fish and he'll eat for a lifetime."  There are also enough warnings to make it clear that you are by no means guaranteed success just because you think you've found an edge.  However, it is similar to a professional poker player having an edge that should yield positive results over time. 

The author's voice is clear throughout the book and he is succinct enough to have written a 300 page book in 200 pages.  An advanced investor may not learn too much new information, but it is short enough that it is worth the 3 hours to get through it.  While I am very far from a day trader I found it very helpful.  As a long-term investor I still need to be able to avoid the land mines that will erode my capital. 

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.