Who has time to read books these days?
At least with audiobooks, we can multi-task and do our laundry while learning about trading.
Be sure that your audiobook seller provides you with a PDF of the book’s images because you are going to need to look at the charts to study the diagrams of higher highs and higher lows that define an uptrend and the lower highs and lower lows that define a downtrend.
Contents
Let’s highlight some interesting things learned from the book AbleTrend: Identifying and Analyzing Market Trends for Trading Success, written by John Wang and Grace Wang.
John Wang had been a scientist all his life.
Throughout the book, you will find references to:
- Albert Einstein
- Newton’s law, where force is proportional to mass and acceleration
- Heisenberg’s Uncertainty Principle
- And others references
With 20 years of trading system development, he somehow relates these scientific principles to trading concepts.
He emphasizes that we must find the universal natural law of the market just like these scientists found natural laws related to the universe.
Once you understand this natural law, you can apply it to any market – stocks, futures, Forex, etc.
Incidentally, he thinks Forex is the best market to trade since it has the largest volume.
80/20 Rule
Another principle that John references is the 80/20 rule or the Pareto Principle.
Italian economist Vilfredo Pareto observed that 80% of England was owned by 20% of the people and that 20% of his plants produced 80% of the fruit.
The principle also can be interpreted as saying that 80% of the result comes from 20% of the effort spent.
To achieve that last 20% of the result would require 80% of your effort.
Others have extrapolated that principle to other subject matters that obey the same 80/20 rule.
John extrapolated that principle to say that 80% of the gains are achieved by only 20% of the traders.
He believes that trading is a zero-sum game where one person’s winnings must come from other people’s losses.
This is why most traders lose, which statistics have borne out.
Who are the 20% that are taking 80% of the winnings?
Are they the big institutions and fund managers?
If that is the case, then the small retail trader barely got a chance.
John does not think that is the case.
Of the “big money,” only 20% of them are making 80% of the profits.
This is borne out by the statistic that many fund managers are underperforming benchmarks.
Similarly, of the retail traders, 20% of them are winning – winning 80% of the profits.
Four Elements Needed For Successful Trading
A very interesting chapter in the book talks about what the authors think is needed for successful trading.
- Profitable Trading System – discretionary or systematic trading.
- Sufficient Capitalization
- Money Management is not just about managing risk but also proper trade sizing (not too big and not too small).
- Psychology and discipline – risk only the capital that you can lose; otherwise, psychology will start affecting your trading decisions
First and foremost, he thinks you need a profitable trading system.
This system can be used by discretionary or systematic traders or traders whose style is a hybrid in between.
This is where the book explains how AbleTrend software can be a part of the profitable trading system.
Author John Wang is the co-creator of AbleTrend.
The book highlights the benefits of AbleTrend and how it can help a trader become profitable.
However, the book is not overly promotional.
AbleTrend software paints the candlesticks blue, green, and red.
Blue means uptrend. Red means downtrend, and green means neutral.
In addition, it will show either “support dots” (which are colored blue) underneath the candles and “resistance dots” (colored red) above the candles.
Therefore, the system can be used to “buy” when there is a blue candle with a blue support dot.
This is a confirmed uptrend.
Sell when there is a red candle and a red resistance dot.
If the two signals do not agree, such as when you have a blue candle and a red resistance dot, then there is no clear trend at that time.
John is a trend trader.
The problem that trend traders have is how long to stay in the trend and when to exit.
Many traders can not become profitable because they exit a winning trend too soon and stay in a losing trend too long.
This is where the support and resistance dots become helpful.
The dots are dynamically calculated from market-generated data.
It is not a fixed point or percentage away from the candle.
The system takes the emotion out of trading.
The system tells you when to enter and when to exit.
Go long when there is a confirmed uptrend (blue candle with blue support dot).
Once in a long trade, exit if a candle closes below its support dot.
Go short when there is a confirmed downtrend (red candle with red resistance dot).
Once in a short trade, exit if a candle closes above its resistance dot.
That’s it. The trader just needs to have the confidence to follow the system.
To build this confidence, the author recommends backtesting to see for themselves how accurate the signals are.
The book states that paper trading is a good strategy test.
One should treat paper trading like real money.
And treat real money like paper trading.
What Is Trading
John’s world-view of trading is that trading is primarily a business.
As such, one needs to have a business plan/trading plan.
And you need to stick to it.
You can modify it as you learn new things.
But not during mid-trade, as that is most likely an emotional change.
He can see that trading has some qualities similar to warfare and makes reference to the book The Art of War by Sun Tzu.
He believes that trading is a zero-sum game because when one person wins, another has to lose.
He believes that trading is one of the hardest things and that it took him years to understand the market.
The Tao
After reading the book (I mean, hearing the audiobook), one can not help but realize that John Wang has a fascination with the Tao.
John references the passages from the Tao multiple times in most (if not all) of the chapters of his book.
Tao Te Ching is a book by Lao-Tzu around the 4th to 6th century BCE that is to become the foundation of Taoism.
One concept that John frequently refers to is the idea that the market is like a river.
It has its natural ways.
We traders must be flexible like water and ride its currents.
Do not try to go upstream.
Options Trading
While this book primarily focuses on detecting a trend and its direction, it has a section about options trading.
Here is some of what it has to say:
– Several factors affect option pricing, but the underlying asset’s price is king. Therefore, if you know the direction in which this underlying asset price is going, you can be profitable.
– The most efficient use of options is to buy a “close-to-the-money” call option when there is a definite uptrend. And buy a “close-to-the-money put option when there is a downtrend.
– People use more complex strategies because they want to hedge their bets if they get the direction wrong.
– The use of spreads is a good idea, especially in a smaller account. Spread also reduces the market noise of single options because the noise of one option tends to cancel out the noise of the other option.
No Trade Zone
John mentions the interesting concept of applying the AbleTrend indicators to your account balance equity curve.
If this equity curve is in an uptrend, it is good.
You are profiting and should continue trading.
However, if the equity curve starts to go into a downtrend, you need to decrease your trading and decrease your size.
Just like you would have a stop loss on a candlestick chart when you have a long position in a stock, you need to have a “no trade zone” where you stop trading if your account equity curve drops below a certain point.
Summary
AbleTrend is a “must read” for any trend trader – or “must hear” in the case of audiobooks.
The author makes many arguments that confirm your initial reason for becoming a trend trader.
If you are not a trend trader, then at least you might get some nuggets of general trading wisdom out of it.
Read the section on “Four Elements of Trading Success”.
I will conclude with a quote from the book that made me laugh:
“Trading is like dancing with a monster.”
So, trade safe.
We hope you enjoyed this article reviewing the book AbleTrend: Identifying and Analyzing Market Trends for Trading Success.
If you have any questions, please send an email or leave a comment below.
Trade safe!
Disclaimer: The information above is for educational purposes only and should not be treated as investment advice. The strategy presented would not be suitable for investors who are not familiar with exchange traded options. Any readers interested in this strategy should do their own research and seek advice from a licensed financial adviser.
