1️⃣ (Living by Trading)
(Living by Trading) The content of the book includes trading common sense, trading psychology, trading discipline, trading tools and systems, risk control, and trading management, with a significant focus on trading psychology.
The author, Alexander Elder, began his career as a psychiatrist, and his perspective on trading psychology is entirely different, which is a very interesting point. He has treated many alcoholics and helped them quit drinking, discovering that the psychology of alcoholics is very similar to the psychology of traders dealing with losses. In the process of helping alcoholics quit, he found that these methods also apply to traders, and there is much content to explore for those interested.
Today, I intend to focus on one of its technical methods: the triple filter trading system. This system is very simple, practical, and effective, which is why I want to highlight this technique.
The triple filter refers to three time periods.
Step 1: Choose the main trading period as the medium term. After selecting the main period, choose a larger time frame for the long term, and finally select a smaller period for the short term.
Step 2: Find the major trend from the long-term candlestick chart. Once the trend is established, prepare to enter the market when the medium-term trend is opposite to the long-term trend. Look for entry signals on the short-term candlestick chart, set the stop loss at the medium term, and exit at the long term.
Step 3: Confirm the direction in the long term, and wait for the medium term to show an opposite trend.
The above is a simple demonstration of the triple filter trading system. Everyone can use the indicators they are proficient with and choose suitable periods to try. As always, first backtest to confirm effectiveness before going live.
Old fans know that my daily strategy sharing for SOL from February to April was done by combining market maker habits with on-chain data from the SOL blockchain and macro-level information along with the trading techniques in this book. The accuracy rate is over 97%.
2️⃣ (Trend Trading Method)
(Trend Trading Method) The book uses Dow Theory to define trends more intricately and builds a trading system around it. There are many basic technical explanations in the book, such as trend lines, turning point lines, boundary point A, etc. There are also more complex discussions, such as new viewpoints on wave theory and candlestick techniques, and there are numerous practical case studies. I find this book quite comprehensive and offers a deep understanding of trading systems.
I do not recommend everyone to study very complex wave theory, as it is difficult to understand and, even after learning, may not significantly help with trading. Instead, the most fundamental candlestick theory, how to draw trend lines, how to draw turning point lines, and how to find boundary point A are all easy to learn, simple, and practical. As long as one can apply them flexibly, the trading results will not be poor.
The technical methods in this book are worth learning, but they also have their own issues. The (Trend Trading Method) is now in its 3rd edition, and the previous versions were simpler, mainly explaining three methods of trend trading:
One is to follow the trend line to trade the trend.
Another is to follow the channel line to trade the trend.
Another is to use trend lines, channel lines, and boundary point A to filter trends for trading.
After reading the content of the book, I chose the first method: to go long above the trend line breakout and short below it, which is a simple but somewhat crude approach. Why do I say this? Because I encountered problems during practical execution.
1: The standards for drawing trend lines are unclear, and in practice, they end up being drawn smaller and smaller. Although the book provides relatively clear definitions for drawing trend lines, there are still ambiguous areas. The longer one watches the market in practice, the more one tends to focus on the details of market changes, drawing trend lines that connect smaller price points. The trend lines become increasingly aggressive, trading frequency increases, and technical issues can affect trading confidence, making it ultimately difficult to execute this way (this method is challenging to implement and requires extensive experience to grasp the rhythm).
2: The technical standards of this method are too simple, and the error rate in trading is too high, with a lot of psychological pressure during execution. In a volatile market, one can be slapped left and right, suffering consecutive losses, getting anxious after 3 mistakes, getting angry after 5 mistakes, furious after 7 mistakes, and going crazy after 10 mistakes, ultimately unable to execute at all (this requires a strong mindset, but this method poses too great a psychological challenge).
Most of the technical theories in this book are worth learning, but it does not take into account the clear categorization of trading system details, leaving a lot of subjective ambiguities that may make it difficult to execute a trading system long-term. However, we cannot deny the value of this book, as it clearly and practically covers many foundational trading concepts and principles, making it worth reading. From a technical standpoint, I recommend focusing on Chapter 4 on candlestick theory, Chapter 5 on trend lines, Chapter 6 on turning point lines, Chapter 7 on boundary point A, and Chapter 9 on trend trading methods.
3️⃣ (Black Swan)
Many friends are likely familiar with this book, so I won't go into too much detail about its content today. Instead, I'll share my understanding of this book: it describes a harsh and real world that is beyond our cognizance.
The world of trading is extreme. The book presents two important concepts: average and extreme. Average refers to the situation where, when the sample size is large enough, a single case does not significantly affect the overall. For example, average height, average life expectancy, and average IQ all belong to the average. Your height will not affect the average height of humanity. Extreme refers to situations where individuals disproportionately impact the whole. For example, wealth distribution shows an enormous gap between the rich and the poor. For instance, when Musk became the world's richest person this year, his total assets were $187.1 billion, while the per capita GDP of impoverished African countries was less than $1,000.
So what does the extreme world of trading mean for us traders? Among all traders, the distribution of profits and losses is extremely uneven; only a few can ultimately make a profit, while most become cannon fodder. The real world continuously instills the idea that everyone is born equal, and teachers tell us to work hard and strive for success. But in the trading world, due to different resources, market information, and capital amounts, unfairness arises in trading, and this unfairness cannot be compensated for by hard work and diligence.
To achieve profitability in trading, one must improve technical skills, cognition, and psychology in sync. If one only focuses on one aspect, no matter how diligently one studies, they may still incur losses in the market. Of course, if the constraints of trading are broken, the income from success can be quite groundbreaking, which is part of the charm of trading. Both sides of trading stand out and require us to make our own choices.
At the same time, starting trading may also be a black swan event for oneself. Unpredictable and sudden black swan events can have a significant impact on social and historical progress, and unexpected events in life can also greatly influence the direction of our lives, just like participating in high-risk trading. For me, entering the trading industry was my life's black swan event. From a chance encounter at a drinking party, I learned about trading from someone, and from then on, I became deeply involved, starting over a decade of trading life, changing the direction of my life. I once didn't realize I had entered an extreme world, thinking I could do anything, which led to severe losses and a low point in my life. After struggling through various challenges, I have come to where I am today. If you ask me if I want to experience it again, my answer might be, I'd rather do business than suffer from trading again, because it's too against human nature.
So, I hope everyone makes the worst-case scenario before starting to trade. Think about whether you can handle it if trading becomes a black swan event in your life, before starting your so-called trading career. Therefore, no matter which stage of trading you are in, I recommend reading this book (Black Swan). It will give you a deeper understanding of the risks in trading and a clearer idea about your life.
4️⃣ (Essays of Montaigne)
(Essays of Montaigne) This book may not be known to many people. It is a philosophical book by the French thinker Montaigne. After inheriting his father's Montaigne estate at the age of 37, he began a life of retreat. His life can be summarized as having hardly worked, spending all his time contemplating life. He discussed his thoughts on the myriad phenomena of the world with the eyes of a sage, and I found some of his theories very interesting, revealing a very profound aspect of human nature.
One of the essays is called (On Fear). "Fear drives wisdom out of my heart." In this part of the book, many terrifying examples are discussed. Some people freeze in fear on the battlefield, while many more make mistakes and go mad due to fear. "Fear's sharpness surpasses all emotions." Those who have trading experience have felt the emotion of "fear", such as fearing stop losses, fearing profit pullbacks, fearing to open positions, etc. The emotion of fear is innate, because in trading, you will face many unknowns, which will inevitably accompany the entire trading process. Moreover, fear is a powerful emotion that you can never completely overcome. Just like me, after more than 10 years of trading, I still experience worries and fear, though to a lesser extent than an average person.
Since the emotion of fear cannot be conquered, what we need to do is to avoid challenging fear in trading as much as possible. How to understand this? Through extensive practice, refining trading skills, and deeply understanding the overall long-term market situation, we can minimize the unknowns in trading. The more you understand, the less intense your fear will be. The better you control risks, the less your fear will be. We do not challenge it, nor do we eliminate it, nor do we confront it; instead, we adapt to it and understand it, allowing us to coexist peacefully with it, making it a part of our trading.
"When one is impulsive, emotions are in charge, speaking, not ourselves." "Anger easily leads to judgment errors; looking at errors through emotional lenses magnifies them, which is akin to seeing things through a fog." In (Essays of Montaigne), many views on emotions are discussed, including anger. When you are in a state of anger, you essentially lose all rationality, and all emotions are infinitely amplified. Simply put, when angry, you no longer think clearly. Making trades in this state carries a high probability of error, and mistakes will be infinitely magnified. Therefore, having stable emotions in trading is crucial.
"A person who does not set a rough goal for their life cannot arrange their individual actions in an orderly manner. A person without a general shape in their mind cannot piece together the fragments."
In fact, trading is very similar to other livelihoods. It requires certain goals and a process; it is definitely not something that can be achieved overnight. And remember one thing, things that come too quickly, if they exceed your capability, will disappear even faster from your sight. Many people, when they don't understand trading deeply, experience significant profits or large profits during certain periods. These profits come more from luck than from trading ability, and in later trading experiences, they will return to the market in various forms, even overdrawing their own investments. This is also one of the deepest insights I gained from past trading failures.
At the beginning of trading, I only encountered scattered trading information, seeing only the tip of the iceberg of the market. I used to think these fragments were the whole iceberg, which is why I was caught off guard when I hit the iceberg. Therefore, before understanding the whole picture of a matter, one should not jump to conclusions or invest fully. Instead, one should understand more, make more plans, set goals, and as the whole picture unfolds bit by bit, make decisive moves; the probability of success will be much higher.
There are so many thought-provoking contents in this book that I won't list them all. In fact, trading is a very simple yet complicated endeavor. Traders often look to others, seeking external standards for trading success, but few turn their gaze inward, reflecting on themselves, the deeply rooted weaknesses of human nature, and whether they have truly put in the effort to succeed.
Many people find philosophical books boring, but the writing of this book is very casual and smooth. While reading this book, I felt like I wasn't reading but conversing with Montaigne. From this sage, I saw the shadow of human nature and reflected on my past awkwardness in trading, feeling deeply moved. I don't want to elevate trading to a philosophical level, but it cannot be denied that doing well in trading indeed requires wisdom from life, which comes from your life experiences, reflections on the past, and self-examination.
I'll stop here for today; my thoughts are a bit scattered. However, it's truly what I think. I'll conclude today's content with a quote from (Essays of Montaigne): "I have two faithful assistants, one is my patience, and the other is my hands" — (Essays of Montaigne).
Let's encourage each other!