High Probability trading
by Marcel Link
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Book Reviews of High Probability trading
Book Review: Don't just read this book - study it
Summary: 5 Stars
I have a small collection of books on stock trading. For the most part they tell me what other people did to be on the payday side of the market. Some are specific to a set of methods (How To Make Money In Stocks: A Winning System in Good Times or Bad, 3rd Edition), others are good read on what a trader should know, practice, do or not do (Invest Like a Shark: How a Deaf Guy with No Job and Limited Capital Made a Fortune Investing in the Stock Market).
Marcel Link takes a practical approach to high probability trades. The basic idea:
You are a good ping pong player who beats all the neighbors in your basement. Do you think you would do well at the US Open?
Last weekend you managed not to drown while crossing the 25 yards of your local pool. Do you think you can beat Michael Phelps?
What is the probability of a positive outcome of one of the above? Yet that's exactly what we do when we jump into the stock market and lay our hard earned cash on the line in a bid against professionals with Harvard degrees, years of experience and deep pockets. With such a lineup, what is the probability of us winning?
This book explains in a good level of detail that actually yes, there is a probability of winning. However, one needs to do a bit of learning, training and planning beforehand. It remains unlikely that you'll beat the seasoned table tennis pro (my opinion), but with knowledge, training, patience and discipline, you'll be able to pocket a few points instead of getting blown off the table.
The book goes to great lengths to explain that trading the market is a serious business decision that requires knowledge, preparation, planning and above all, discipline.
Marcel Link explains how several technical indicators work, how traders use them, when to use them and when to stay away from them. He tells you "look, here is a pattern that seems to have worked in the past" but he also points out that a single pattern alone doesn't make for a good trade and it is up to you to find, interpret and evaluate such pattern and get it confirmed (or not) by other indicators.
This book is an eye opener. One of the very first things I did after cracking it open was to look back and evaluate my past trades. It is horrifying to realize how easily I could have lost a lot of money due to my "buying strategies". I would have never made those trades if I knew then what I know today.
Summary:
- very well written book, concise style with a touch of humor, very well organized
- very readable, written in simple and effectively used plain English, no typos
- sticks to the point of making trades that have higher probability of payoff
- describes the toolbox needed to find, evaluate and execute great trades
- leans a bit towards short term trading and has commodity trading examples sprinkled through quite frequently. However, both the short term and commodity trading strategies are applicable to long term trades as well
- spends quite a few pages on trader psychology, establishing a trading plan, writing a money management plan and coming up with a game strategy
- emphasizes that a well designed and thought through entry point is just the beginning of a good trade and it needs an equally well designed and thought through exit point. Otherwise a good entry point may turn into a very expensive lesson
- discipline, discipline, discipline
Conclusion:
This is not one evening read. You need to study it, consult the market, study your past trades, play with charts, learn various analysis techniques.
Above all, you need to come up with your plan, test it and come up with your trading identity before you lay a single red cent on the line.
Other (my opinion) useful, complementary books:
How To Make Money In Stocks: A Winning System in Good Times or Bad, 3rd Edition
Invest Like a Shark: How a Deaf Guy with No Job and Limited Capital Made a Fortune Investing in the Stock Market
Classics:
Reminiscences of a Stock Operator (Wiley Investment Classics)
How I Made $2,000,000 In The Stock Market
How to Trade In Stocks
Technical analysis formulas:
Technical Analysis from A to Z, 2nd Edition
Book Review: A RE-Reexamination of the text - One Year Later
Summary: 5 Stars
It's been more than a year since I started trading in the equities market. I started with a thousand dollars. I lost some, I added more to it, I made a good deal in the first few months of March through July when everything was coming up through it's bottom. I added more money and had a 30,000 dollar account. I have, in the last year and one month turned that into a hundred and fifty thousand dollars. I'm no master trader. In two weeks, after a huge trade, I lost thirty thousand dollars acting like a moron. I trade option contracts, if I'm not careful I can watch 75 percent of my investment melt away in an hour. When I'm right, I can watch a 5,000 dollar investment, turn into a 60,000 dollar investment. When I think back to the early petulant reviews I wrote of this book, they came from a place of confusion, of cockiness, of lack of understanding of what he was saying, even though I did completely understand what he said.
It was the pessimism I think that initially turned me off of his book. I didn't like the idea of paying a massive tuition of 40 or 50 thousand dollars. I'm an Aries, I'm impatient :), but now looking back at this book, I realize that not only is much of my success contributed to it, all of his information was very right on, except for Technology and Funds. Look, if you want to be a day trader, trading stocks, or futures, then yes you need to have the technology to keep up. If you are buying stocks, or options, or piling on futures for weeks or months in the future, an Intermeidate Trader (a speculator as Victor Sperandeo points out), then no, you don't need massive amounts of technology, because, your competition comes with being right about the general market for short term trends. But that's all beside the point.
Marcel Link nails the most important thing. Capital Preservation and Money Management. When I started, I made money on every twelve trades, however, I didn't treat options like stocks, I treated them like stock losses, putting only the money I would be willing to let the stock cost me before selling it, this allowed me a great amount of freedom to have small losses, with huge upside. Some people say Marcel Link is repetitive, but I think he's reptitive because the point he makes is so important. You must, you must, you must preserve your capital if you want to survive. I disagree with the busting out. Richard Dennis, nor most of the turtles never busted out. There are plenty of great investors and traders that never went bust. Going bust isn't a matter of bad luck, or being wrong, it's a matter of acting foolish, and though yes it can balance the mind, I disagree it's a necessary step, or even a probable one, especially if you read this book.
His advice on technical analysis and fundamentals and the sort were basic at bes, much better books like Stan Weinstein's Secrets for Profitting in Bull and Bear markets, Trend Following by Michael Covel, Trader Vic, How To Trade Stocks by Jesse Livermore, and How To Make Money in Stocks are all better books in basic stock information. But in emotional balance, in fixing mistakes, in learning from your errors, and in developing a system, High Probability Trading stands on its own as a brilliant work. Marcel Link's magnum opus.
I do believe that every trader should consider adding this to their library. Though you must understand that he is more geared to the day trader, he "exits a trade forty five minutes after it's losing money." For swing traders, for momentum traders, for trend followers, this book will add something to your knowledge I'm sure, but you have to understand two things, Marcel Link is a day trader for all intents and purposes and Marcel Link does not take into much consideration the ability to take odd lot sizes (under a hundred shares of stock) and hold them for growth. (When things like that are taken into consideration, you can double your money even when it is only a thousand dollars). When I got started with a thousand dollars, I bought twenty five shares of a fifty dollar stock, and made a 250 dollar profit when it went to sixty. that's a 25 percent return in one trade. When I got a handle on trading stocks, before I went to options, my one win would make up for 5 to 8 to even 12 losses, I bought two hundred shares of ford for 450 dollars in April and watched it grow to 9 dollars before taking my profit. In the options market, my one win can make up for 10 to even 20 losses. Why, because of money management, risk/reward ratios, and a well balanced thought out system. With money management and position sizing thought out and a system built around it you can have any amount of money and still make money in the market.
But besides his focus on the need for a lot of capital and his idea that you need a lot of technology to stay in the competition, this is one of the best books i've read on the market.
Book Review: The best I've read
Summary: 5 Stars
For starters, I do not want to pick a fight, and I am not saying this book is by any means perfect, but I hope no one is influenced by Larry Livingstone's review dated May 18, 2006. In case you don't know, Larry Livingstone is the character in Lefevre's classic, "Reminiscences of a Stock Operator", which is itself a slightly fictionalized biography of the very real Jesse Livermore. Just so you'll know. Read his review and then come back.
Again, without spending my entire review responding to the "Larry's" criticism, let me just say that if you actually read the book, these criticisms will vanish. Link is not advising traders to be loose and wild and not worry about blowing your account, as "Larry" seems to imply, rather he is stating an undeniable, plain fact....many successful traders have at one point blown their accounts.....period! Cold, hard reality. Yes, me included. Had I read this book, however, I might have prevented that. "Larry's" other cherry-picked criticisms will fade away when you read the book and understand the context of some of the quotes "Larry" provided.
Moving on....as I said this is probably the best trading book I have ever read. As opposed to books like "The Master Swing Trader", this book is very well written (like it or not, this is important), very easy and interesting to read, very practical, and very informative. Nor is he a big Wall Street fund manager (at least the book is not written from that perspective) that operates in a completely different world than the average trader. It is a very practical and realistic book that you will be able to relate to. I have read many trading books including Market Wizards and Reminiscences, and I highly recommend them, but in reality how many of us actually operate at that level? These are good books and you should read them, but Link's "High Probability Trading" is aimed at the small trader and it will have an immediate impact on your trading.
Yes, most of what he teaches can be found elsewhere, but my response is that it can be found here too; and as I said, he brings it to you in a way that you can relate to and it will help you really understand the why and the how. Just having a list of rules is not as good as having someone give you a very good example of how to implement the rule and what can happen if you don't. This is why, in my opinion, High Probability Trading, for the average trader, is even superior to books as acclaimed as Market Wizards and Reminiscences.
Link's discussion of technical indicators is very brief, but I have to say it was in some ways far superior to other, much longer, items I have read about them. What he does better than others is that he shows you how to apply them. He gives you the proper uses, and limitations, of these indicators. Not many writers do that.... some make them out to be a crystal ball, while others tell you that they have no place whatsoever. I would disagree with both.
Link does not try to build himself up in this book like some writers do, rather he is very honest about his growth as a trader, which I find very refreshing. He tells some stories about his experiences, good and bad, his mistakes, his successes, his emotions, that you can immediately relate to. You will find yourself saying, "Yep, been there... done that."
Although the book is very well written and easy to read and understand, the main reason I found it to be the best book on trading I had ever read is very simple...... it was the most realistic book on trading I had ever read.
Unless you are already at the top of the trading world and can condescend to the rest of us, I suspect you will disagree with "Larry" and find this book very helpful. I wish I had read it about 5 years before it was written..
One other book I highly recommend is Stanley Kroll's "The Professional Commodity Trader". This book is a sleeper. Again, it is very well written and is very interesting to read.
Book Review: A rich man, not because of his trading skills though
Summary: 3 Stars
I always wanted to get this book as in a lot of the forums i used to browse, it would repeatedly come up as how it was such a classic and had saved them so much moeny. Little did I realise these reviews were written by beginners themselves.
Firstly I should say that most of my critism stems from having read a lot of the good books already and having experience trading. I will admit here that if this is one of the first books i read as a beginner, then i might have considered it great, but most experienced traders or good traders should i say, will be able to pick holes in a lot of the things that he mentions.
I will not go into it too much, but from a lot of what he says you get the feeling that this guy himself is not all too good of a trader. Sure he might be at a reasonable level now, but it seems it took him the best part of 10 years to learn some basics and even now, you get the feeling that he will blow his account at any time.
As sson as i started reading it i felt that some of his advice would be dangerous to a new trader as he keeps reinstating that most of the great traders blew their account at some period so you shouldnt feel bad about doing this in the future. He also goes on the say that when your account does eventually blow up, you should treat it like being initiated into becoming a trader and from then on you will be fine, suppossedly only making profits form this point.
I shouldnt go on too long here, but i came across so many mistakes in the money management section whcih fails to take into account distance from stop loss to entry to decide on position size. He merely suggests selecting a number u are comfortable with and then stating 'this is the mz number i will trade.' he says a beginner shouldnt trade more than 100 shares (or something like that) but what the hell happens when one stock costs $1 and another costs $100?!? you are taking on a position 100 times bigger, does he not understand this concept yet after 10 years of trading!!?
Also he says that at any one time a trader shouldnt have more than 50% at risk....what the f&%*!!!???? This is so wrong on so many levels but the most obvious is that how can u even get your portfolio to be at 50% risk in the first place??? this is saying his stops are 50% away from their current price. He is saying he will let the stock half in value before he is wrong!!?? Otherwise he has got his concepts mixed up and needs to learn some more before writing a book that potenially could destroy someone.
Ok there are so many other problems but one more that should be helpful to any one new is that this book is written from his perspective and he assumes you understand that it is a book essentially based on day trading with short holdign periods. This is never stated but only worked it out when he was saying you should take profits as soon as the stock has moved 75% of daily ATR....ummm what happens if your time frame is longer than a day sir idiot??!!
anyway there is one plus and that is his information on trading using news. A few good insights there
Ill leave u wiht one thing i read after figuring out this guy isnt too smart. He states that he lives by the priniciple of keeping it simple.."The indicators that i tend to use more than others are trendlines and channels, stochastics, moving averages, MACD, RSI, ADX, volume, volatility and elliot wave analysis..since i like to keep things simple i just stick to a few.." WHAT!!@?#?#?!!! he believes to keep it simple, use different indicators in each different time frame. yes, seems so simple to me.
in conclusion maybe a good read for beginners but nothing of interest to anyone who hasnt read all the other classics and doesnt want to get frustrated by his almost suicidal advice towards trading
Book Review: Terrific daytrading book
Summary: 5 Stars
Probably the best practical how-to book on the subject of daytrading stocks, indices, and futures contracts.
It's all technical - that is, chart-reading - but you get a much clearer idea of how to actually trade using a chart than you do out of all the classic technical analysis books. There is nothing in this book about chart patterns (triangles, cups, flags, etc.) or about candlestick formations. Perhaps the author doesn't consider those things worthwhile, but personally I find that knowing about them is at least helpful.
His mantra is trading with the trend of a higher time-frame than the one you are trading in and basically trying to capture the meat of the next wave after a correction in the direction of that trend in your trading time-frame. He uses trendlines and channels to find the best entries and exits. If there is no trend then you are in a range-bound market and should play the range reversals at the extremes - when this fails be prepared to play the break of the range without chasing it, which usually means waiting for a pullback (in which case you have now switched back to trend-following tactics). Breaks of channels in the higher time frame create a reversal in trend and are played in a similar manner.
There is alot of material on using oscilators correctly, especially Stochastics - not just looking for reversals when it crosses and turns from overbought and oversold like most people use it. He shows how it can be helpful in both trends and range-trading.
Interestingly enough, he includes some examples of "high probability trades" that are against the trend as well - although he always goes back to saying you are better off sticking to trades with the trend. (There are a few seemingly contradictions like that but this is still a great trading book.)
Link stresses over and over that top traders will have 50% losing trades. So what trading boils down to is a probability game like poker or backgammon. Your average winner has to be significantly higher than your average loser - and that's where picking the good setups comes into play. So you want to be stepping in where different types of traders and investors in different time frames all get signals in the same direction and will act as a collective force to move the market because of it. Even with that, still expect 50% losers so these spots must have reasonably tight stops that still give the market wiggle room but when the move happens it will usually be sustained enough to make up for all the losers plus some.
Link also acknowledges that it doesn't matter how large or small your profits are when you take them as long as you are systematically taking even smaller losses. This opens one's mind to different approaches that can all be successful.
The book lacks a clearly defined trading plan - it is up to the reader to develop one of his own from these concepts. But the building blocks of a successful plan are certainly contained herein.
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