Becoming a successful market trader is no easy task. While it may seem it is based more on luck than on science or methodologies, there are some methods involved in traditional technical analysis that are helpful to an individual or institutional trader.
A new book, The Art and Science of Technical Analysis, (John Wiley and Sons, 2012) by Adam Grimes, the CIO of Waverly Advisors, offers a detailed system for seasoned or “aspiring” traders.
The book, with 442 pages, is divided into four parts offering insights into the foundations of technical analysis, market structure, strategies and traders themselves.
Grimes writes, “There is something fascinating and mesmerizing about price movements in actively traded markets; academics, researchers, traders and analysts are drawn to study markets, perhaps captivated as much by patterns in the market as by the promise of financial gains.”
He goes on to write that few traders make their decisions in a vacuum. Most find their success by using a hybrid approach using “elements from many disciplines, and there are very few purely technical or fundamental decision makers.”
Grimes offers four elements of a good trading plan when defining a trading edge:
• Excellent execution
• Risk management
• Proper psychology
He goes on to write about topics related to laying a solid foundation for a verifiable edge in the market including:
• First principles such as markets are random; making money requires an edge, mean reversion and range expansion.
• Four trades and viewing markets through charts. The four trades detailed are trend continuation, trend termination, support and resistance holding and support and resistance failing.
• Market structure and price action
Grimes offers eight trading patterns that can be used as guidelines by defining each through concept, setup, trigger, stop, profit target and comments. Other topics of include:
• Understanding all of the tools available for traders
• What to do after you get into a trade or trade management
• The vital need to manage risks in trades
• Detailed trade examples based on author’s trading style
Grimes writes, “At one point or another, everyone who has interactions with the market asks oneself, “Why is trading so hard?””
Grimes writes that part of the answer lies within the nature of the market itself. He ends the book with details of the process of becoming a trader including stages for pre-trader, novice trader, early competent trader, competent trader, proficient trader and experienced trader.
Pre-traders need to realize there are many technical terms and definitions involved with starting the process of becoming an experienced trader. This book is filled with many definitions, charts, graphs and, as the title implies, a whole lot of art and science.
The writing style does make it easier to read than it might be. Nonetheless, this book is not for the casual reader with a bit of an interest in trading. It’s really for those readers who want to learn how to become a trader or become a better trader.