- Books are a great source of useful information
- They are often too long (blame the publisher).
- Some books are not even worth the time it takes to read.
- Knowing what we can learn from the most important books, and avoiding the ones that are mostly charlatanry, is valuable.
So what have we learned so far?
Clemmo's Canon of Trading
1. Clemmo's First Lemma
- Simple patterns like candlesticks, MA crosses, double tops/bottoms exist in market data but anticipate nothing; they are 'fool's gold'
- The market is a pattern-erasing machine; by the time we see something it's no longer useful
- Smart people want to 'figure things out' and find order in chaos; they get stuck down rabbit holes
- Pragmatic traders just want chaos and a method of dealing with it; one method is enough
- Mark Tier: Learn from the Greats. Forecasting doesn't work and diversification is neutering.
- Robert Shiller: Finance is a technology. Being very clever and good at maths are not by themselves enough to avoid making basic trading errors like staying out of a long-running bull market. Another way to say the same thing: there's more to trading than fundamental analysis.
- David Aronson: Common technical analysis methods, and simple strategies based on TA don't work.
- Nicholas Nassim Taleb: Randomness is tricksy. People are pattern-detecting machines even where none exist. The vast majority of traders and money managers are self-delusional. The rare event is where real profit lies.
- Al Brooks: When you see everything, you focus on nothing. You can make a living selling trading books as long as they are confusing enough and you repeat yourself often.
2. Clemmo's Second Lemma
- Momentum is real
- Markets have inertia; this cannot be obfuscated, distorted or manipulated beyond observation
- Trending markets tend to continue trending
- The trend is your (fair-weather) friend; use it but don't depend on it
- Avoid biases and trade what you see
- Jesse Lauriston Livermore: Wait for the market to react. Set some money aside. Buy rising instruments, and sell falling ones. A stock is never too expensive to rise or too cheap to fall. Complex charts and systems are suspect. Keep your own records and data.
- Nekritin&Walters: Patterns generally fail but the ones that don't fail make use of 'big' candles, in other words momentum is the real signal.
- Omer&Lizotte: if price can move n pips it's more likely (than not) to move another n pips where n is limited to a reasonable daily range; that's because trends exist
- Laurent Bernut: rising floors and falling ceilings (not examined in this thread yet)
The next big questions: What about complex patterns like cycles or Fibonacci ratios? What about regression analysis, and its tools like envelopes, channels and bands? Is there anything useful in Elder or Ehlers many methods? If there is anything useful in technical analysis what is it and what should be our focus? What about fundamental analysis? What about investing? Is trading even worthwhile compared to investment profits?