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lenzen 's review for:
Since the vast majority of trading books are either 1 or 2 stars this book does standout as well ahead of the pack by being 3 stars. Although there are definitely some good parts and it seems like it would be a worthwhile read for anyone who trades the markets, a good deal of the information is rather basic or there is not enough depth of discussion to understand how it is all supposed to work in practice.
First the good
Hougaard's central thesis is that to make money in trading you must act differently from the vast majority of everyone out there. He believes that nearly all traders, about 99%, are governed primarily through fear of pain which is something he thinks evolution has basically hard wired into us, but which can be overcome with great effort. One consequence is that traders will act fearfully when they should be hopeful by taking profits too early. This is out of the fear of seeing the market reverse course and take away all of their unrealized gains with it. Similarly they will be hopeful when they should be fearful: hopeful that trades that are clearly working against them will turn around and they will be able to avoid the pain of having to book a loss. This fundamental problem nearly all traders have is well known but Hougaard's discussion of it is particularly powerful, he presents statistics to back up his claims and he gets somewhat into the game theoretical aspects of why taking profits quickly while being slow to take losses does not work.
Another strength of the book is Hougaard's calling out how so many of the self styled experts in the trading world are charlatans who likely do not even do any trading themselves. I also learned alot from Hougaard's description of his routines to prepare for trading. This includes things like imagining the day turning from a winning day into a big loss, perhaps on a headline that works against your position, and how you would react. This is so that you are prepared ahead of time. Hougaard also emphasizes that mistakes will be inevitable and that they must be learned from. Hougaard also recommends having a visual deck ready to review your best and worst trades before each day.
The Not So Good
The book is slow getting started and covers rather basic ideas until about 40% of the way in. In general the writing style is very "popular": The sections are generally very short: maybe two pages each with many of them in each chapter. Some rather basic points are belabored: for example that you can be a winning trader even if you lose a majority of the time since the size of wins just has be sufficiently great to cover your losses. The diagrams in the book are very hard to read because they are not crisp images to the point of not really adding any value. Blissfully, even if you cannot make out any of them it likely does not detract from the book since the geist of what was going on is described adequately well.
I also had problems with how many of the statements just did not have great logic. For example since the market is basically a coin flip on any given trade how could 90% or so of traders consistently loss money? It is obviously possible if they are ultimately getting eaten up by commissions, fees and spreads. Is that necessarily the explanation? No, but it is a possibility that Hougaard should take time to discuss. In the same discussion, Hougaard also makes the illogical claim that since most traders win about 60% of their trades the problem is not that they are not able to identify winning setups but they just take profits too early and do not cut their losses early enough. The problem with the logic here is that maybe they are already squeezing all they can out of their trades and that finding ones able to gain more profits or with smaller potential losses would reduce how many opportunities they were able to identify in the first place.
Although I do agree with the notion that psychology plays a big role in trading, and his book does provide good, specific ways to improve it, the case for the central thesis is not well made. That is not to say that it is wrong: just not well made. For instance, if it was true that it is mainly the desire to avoid pain that causes most traders to lose money the solution would be very simple: have a computer that is immune from these things do the trading for you. Indeed, it seems that anyone who was then even decently competent at encoding their trading system would become a highly profitable trader. I think this is a big element that Hougaard is sort of on the right track with, hints at some of deeper theory regarding, but does not make completely explicit in this book.
As a practical matter, Hougaard says that traders should move in the direction of the pain. Practically, however, the decision associated with the direction of pain is often hard to identify. Am I fearful of losing my gains by taking profits now or would the fear be in keeping the position open because I want to avoid the pain of missing out on future gains?
First the good
Hougaard's central thesis is that to make money in trading you must act differently from the vast majority of everyone out there. He believes that nearly all traders, about 99%, are governed primarily through fear of pain which is something he thinks evolution has basically hard wired into us, but which can be overcome with great effort. One consequence is that traders will act fearfully when they should be hopeful by taking profits too early. This is out of the fear of seeing the market reverse course and take away all of their unrealized gains with it. Similarly they will be hopeful when they should be fearful: hopeful that trades that are clearly working against them will turn around and they will be able to avoid the pain of having to book a loss. This fundamental problem nearly all traders have is well known but Hougaard's discussion of it is particularly powerful, he presents statistics to back up his claims and he gets somewhat into the game theoretical aspects of why taking profits quickly while being slow to take losses does not work.
Another strength of the book is Hougaard's calling out how so many of the self styled experts in the trading world are charlatans who likely do not even do any trading themselves. I also learned alot from Hougaard's description of his routines to prepare for trading. This includes things like imagining the day turning from a winning day into a big loss, perhaps on a headline that works against your position, and how you would react. This is so that you are prepared ahead of time. Hougaard also emphasizes that mistakes will be inevitable and that they must be learned from. Hougaard also recommends having a visual deck ready to review your best and worst trades before each day.
The Not So Good
The book is slow getting started and covers rather basic ideas until about 40% of the way in. In general the writing style is very "popular": The sections are generally very short: maybe two pages each with many of them in each chapter. Some rather basic points are belabored: for example that you can be a winning trader even if you lose a majority of the time since the size of wins just has be sufficiently great to cover your losses. The diagrams in the book are very hard to read because they are not crisp images to the point of not really adding any value. Blissfully, even if you cannot make out any of them it likely does not detract from the book since the geist of what was going on is described adequately well.
I also had problems with how many of the statements just did not have great logic. For example since the market is basically a coin flip on any given trade how could 90% or so of traders consistently loss money? It is obviously possible if they are ultimately getting eaten up by commissions, fees and spreads. Is that necessarily the explanation? No, but it is a possibility that Hougaard should take time to discuss. In the same discussion, Hougaard also makes the illogical claim that since most traders win about 60% of their trades the problem is not that they are not able to identify winning setups but they just take profits too early and do not cut their losses early enough. The problem with the logic here is that maybe they are already squeezing all they can out of their trades and that finding ones able to gain more profits or with smaller potential losses would reduce how many opportunities they were able to identify in the first place.
Although I do agree with the notion that psychology plays a big role in trading, and his book does provide good, specific ways to improve it, the case for the central thesis is not well made. That is not to say that it is wrong: just not well made. For instance, if it was true that it is mainly the desire to avoid pain that causes most traders to lose money the solution would be very simple: have a computer that is immune from these things do the trading for you. Indeed, it seems that anyone who was then even decently competent at encoding their trading system would become a highly profitable trader. I think this is a big element that Hougaard is sort of on the right track with, hints at some of deeper theory regarding, but does not make completely explicit in this book.
As a practical matter, Hougaard says that traders should move in the direction of the pain. Practically, however, the decision associated with the direction of pain is often hard to identify. Am I fearful of losing my gains by taking profits now or would the fear be in keeping the position open because I want to avoid the pain of missing out on future gains?