Alpha Trader: The Mindset, Methodology and Mathematics of Professional Trading

I have been following the models as introduced in  Forecasting and Timing Markets: A Quantitative Approach  for my investing/trading and achieved moderate success. Now after studying this book, I felt that I should be able to achieve even better performance with all good points I have learnt and carefully marked as shared below. This review should help not only other potential readers but also myself as I can easily come back here and warm myself up by going over those good points for more successful investing and trading decisions.I am really grateful for the author's generosity of sharing his thoughts and here we go:======#1 General formula for trading success#2 Nothing beats experience#3 Solving for how to generate alpha in highly-efficient markets is one of the toughest puzzles on earth.#4 System 1 executes quickly without much thought. System 2 requires conscious effort and thought and is less biased.#5 Alpha Trader = rational + intelligent + skilled + conscientious + calibrated confidence#6 There is no single x-factor in trading.#7 PLAY THE LONG GAME#8 Changing bet size is the way card counters beat the dealer in blackjack. They look for opportunities with abnormally good odds and then make large bets on those events.#9 There are specific bad habits, mistakes, unhealthy mindsets and persistent errors that lead traders to fail, ..., including over-reliance on simple indicators.#10 "I got absolutely crushed, losing 1/2 of my prior year's P&L in the first four weeks."#11 If you want to gamble, go to a casino.#12 Flat is good. A trader with no position has no bias.#13 Make fewer, higher quality decisions.#14 "One thing you learn after five years or so of working on Wall Street is that most "forecasts" you read are simply extrapolations of current trend" (or stretching of current trend - my own word).#15 Watch for changes in supply and demand in your market after large price changes.#16 "... generally you will see that when something is going up, it is forecast to go up more and when something is going down, forecasters expect it to keep going down."#17 "technically they are not forecasting, they are just nowcasting."#18 Trading mean reversion all the time can be like trying to catch falling piano.#19 Different styles work at different times.#20 No matter how unlikely an event might be, it's not worth taking the other side so that it can blow you up.$21 Humans are built to see patterns, even when none exist.#22 Most patterns in finance are random. You need to find evidence and use logic before accepting a pattern as meaningful.#23 "Turnaround Tuesday"#24 "Apple's gapping lower! Somebody must know something." Nope. No. No.#25 Alpha Traders have a strong basic understanding of numbers and statistics. You should constantly be working to improve your numeracy.#26 Where are we in the interest rate and economic cycles?#27 Bonds don't predict stocks.#28 Regularly predicting a crash is for people that want clicks and followers, not for people that want to make money.#29 You can't dabble in 14 products and expect to have an edge. Occasionally, traders can be experts in a particular strategy and apply that strategy across products, but in general most traders that succeed have knowledge that is narrow and deep, not shallow and wide.#30 When gap risk is extreme or hard to estimate, avoid it. The risk is not worth the reward. Avoid gap risk. Avoid gap risk. Avoid gap risk.#31 Excellent traders understand the importance of the story the market is telling and can see, hear and feel when that story is changing. They know what is common knowledge, and what is not.#32 Study the central banks. If you are a macro trader, this is obviously key.#33 Drivers and catalysts. Growth, inflation and global monetary policy are the main drivers you need to worry about.#34 You must be properly prepared, have an expert level knowledge, and understand the narrative. Then when important news comes out, you can react quickly and take massive, determined action.#35 September is historically the worst month for risk assets (weak seasonality).#36 Strategy means coming up with trade ideas and tactics means how you execute and implement those ideas.#37 "I have seen enough evidence to conclude that technical analysis is not a source of alpha or edge."#38 "I use technical analysis in my trading every day. I just don't use it to predict markets."#39 Good traders are quick to admit when they are wrong. They make leveraged, asymmetric bets. Technical analysis can help you do these things better and provide strong and clear signals of when it's time to give up on a bad idea or take profit on a good one."#40 Remember: alpha traders do not use technical analysis to predict the market, they use it to optimize execution and risk management.#41 Your success or failure in trading will not be determined by the technical indicators you choose, and it will most certainly not be determined by which parameters you choose for those indicators.#42 SENTIMENT AND POSITIONING. 80-90% of the time, sentiment and positioning just follow price so if you trade against sentiment and positioning you are often just fighting the trend.#43 If you can identify a palpable turn in sentiment via observation of behavior or via data analysis, you can position ahead of the crowd.#44 Some hedge funds make all their trading decisions using macro analysis but then simply filter every idea with one or two simple technical indicators. ....... This approach of trading macro with a technical filter is an excellent model.#45 You can do everything else right but if fail at risk management, you automatically fail at trading.#46 Risk management is the most important skill in trading.#47 Remember the Rule #1 of trading is: don't blow up.#48 Luck is a short-term thing. In the long run, skill prevails.#49 Type I: Run of the mill trade you would do on any given day. Type II: High conviction. This is a trade where something unique is going on, but not a watershed moment or extremely rare event. Type III: Outlier opportunity.#50 "Bulls make money, bears make money, and pigs get slaughtered."#51 "I think diversification and all the stuff they're teaching at business school today is probably the most misguided concept everywhere."#52 Fewer trades = better trading = lower transaction costs = easier risk management.#53 It feels SO GOOD when you sell the ding dong highs or buy the ding dong lows but it's not something that can be done on a regular basis.#54 In other words: be nimble. Good traders are flexible and are not biased toward a particular direction in any market.#55 Cut your losses, run your winners.#56 New narrative identified or existing narrative is stale or nearing exhaustion.#57 Perfect is the enemy of good.#58 It is easier to react to events than predict them.#59 The run-up trade is a phenomenon where prices move in a logical and predictable direction in the days leading up to a major event. These run-up trades are often easier to predict and monetize than the events that follow.#60 obvious trade versus lotto ticket trade.#61 The final major source of trading ideas (after narratives, news, and dislocations from fair value) is pattern recognition and indicator scanning.#62 Professionals who self-evaluate, set specific goals, and create clear action plans outperform those who don't.#63 Healthy body leads to healthy mindset.#64 Rely as little as possible on willpower and as much as possible on the power of habit.#65 A true professional works hard and does their best each day, even if they don't feel like it.#66 Everyone has a money vs. happiness curve.#67 Watch less TV. Or no TV.#68 If you have heartburn, don't take a pill to fix it, figure out what foods are causing it and stop eating them.#69 There is no single trading methodology that will work always and forever.#70 The idea is to know something before everyone else, and then get out once everyone knows it.#71 "My final P&L that day is +$48,500, the best day anyone had ever realized in that office to that point."#72 Indexes don't tell the full story.#73 "... but sometimes a good decision leads to a bad outcome ... or a bad decision is rescued by good luck." Forecasting and Timing Markets: A Quantitative Approach

This was the most practical book on trading I've ever read. Brent provides first-hand knowledge on developing personal trading systems, routines, and the best ways to approach the markets. He does a thorough job of addressing profit-generating fundamentals (ie. risk management, mindset, managing trades), while also providing theory, historical context, and even short exercises that help you recognize personal strengths and shortfalls. Brent also shares a ton of suggested reading as they apply to concepts.I read this book with a highlighter (and notepad nearby). Each chapter had TLDRs, summaries, and bite-size takeaways. To me, this is my new trading 'handbook' (thanks to his killer glossary too)!Overall, this book is a must-read for any trader. I contend it's on the reading list between Market Wizards (which teaches trader style / mindset) and Reminiscences of a Stock Operator (teaches about markets), while Alpha Trader is your battlechest for war. Highly recommend!

Miglior libro sul trading che io abbia mai letto,Svariati spunti per il miglioramento personale, numerose spiegazioni sulle principali bias comportamentali e come affrontarle, per niente noioso, l'ho divorato

Um livro que abre com uma boa dose de realidade, que o trading não é para todos, só para alguns e poucos.

With a ton of trading & finance books in your library one can maybe be excused for becoming a bit jaded about additions to the field. Do we really need more? Yes, we do.For those who do not know Brent Donnelly's work yet, check out his also excellent "The Art of Currency Trading". Neither a boring intl. finance textbook nor a simple through-some-indicators-on-a-chart type of trading book this teaches you to really think deeply about trading currencies and how to tie fundamentals, news, sentiment, narrative etc. into a coherent whole in order to trade FX.So why another book I was wondering.While Brent's trading focus is FX this new work is applicable to any type of trading. Actually, it is indirectly applicable to many other performance disciplines both inside and outside of financial markets. There is so much to it that it would break the boundaries of an amazon review; suffice it to say - were I to run a trading desk at a bank, fund or prop firm I would put this on the required reading list. And any individual / retail traders should have a go at it too because there is a lot in it that no one else will tell you, anywhere.Let's just pick one example. "Trading psychology". How beaten to death is that topic? We have those who say trading psychology is nonsense because most individuals' inability to trade profitably, consistently, is simply down to a lack of edge. No amount of psych training can cure this. On the other end of the spectrum sit the people who make it sound like you only have to find out what works "for you", that it's all about attitude. While the latter position is utter nonsense and the former has a lot of truth to it, neither captures it all. Brent puts it in perspective and teaches how we need to take an inventory of ourselves, psychologically speaking (not in a touchy feely but in a very pragmatic and systematic way). Then, to analyze where we sit on the continuum with a view to various important traits and what needs to be done in order to level up and be able to do this job successfully. No two persons are alike and, hence, there can be no one-size-fits-all advice on trading psychology. The solution needs to be tailored. Everything is presented in a very concrete and structured way and citing the academic literature and studies where relevant for readers who would like to dig deeper. We have all the greats of trading psychology like Douglas or Steenbarger (for whom I have great respect) and still - you will find stuff here that you have not yet seen elsewhere.That is the part on trading psychology and it is only one small part of the book.If you trade, you owe it yourself to read it (because otherwise you will be at a disadvantage to others who did). If you have a spouse who would like to know how it is to trade and why it is fascinating - give them the book. Maybe only the first chapter (which - together with the related web link) will give them an impression what it is that drives trade(r)s.Oh and one thing I forgot: Forword's by Ben Hunt. That alone tells you: You won't agree with everything in it but it also won't be dull :)