(John Wiley & Sons, New York, 242 pages) $39.95
reviewed by Gregory Bresiger
Many, many traders are lost. They don't understand. They don't have techniques to minimize risk and they don't know themselves. They can't describe their trading styles; what is good and what is dangerous about these styles. They will not accept the hard fact that the "vast majority" of traders are losers. They should make a career move now, before they do more than a little damage to themselves and others.
That's because they often don't know how to measure success or lack either the mental makeup to endure and understand the rigors of daily trading, an experience that even humbles the best of veteran traders.
These conclusions come from the author of this intriguing book. He is a floor trader with about a decade of trading experience. George Angell has written an interesting and – at times – a very detailed book that is not an autobiography glamorizing his triumphs in the style of self-aggrandizing books that one frequently finds in this group. Those kind of books constitute the "I am great" books category, such as the ones that are ghost written for Donald Trump. They should be entitled something along the lines of, "Surviving on Fluff-How I Fool the Bankers, Pols and Media Every Day."
Angell thankfully gives the reader none of this. There is little here of Angell telling us about his greatness and, much to his credit, there is much about Angell's failures as well as those of others who thought that trading was as easy as opening a bottle of brew and watching the tube.
Trading for a living is demanding. Trading requires years of experience and the development of skills, Angell repeatedly reminds readers. And most traders lose, Angell tells us. And that is about as likely to change, I would say, as the laws of gravity or the likelihood of major government departments shutting down and returning tax dollars to the average Joe. But let Angell explain why some aspects of markets never change.
"Although the volatility has risen immensely in recent years," Angell writes, "the basic market patterns have not changed – nor have the proverbial games that floor traders play. The fact is, human nature remains the same, and this is the strongest argument one could make about the future. Human fear and greed are likely to remain the same and so are the mistakes that unsuspecting traders will make. The vast majority of traders will continue to lose – and a good thing, too, since these are the people who supply the profits to the winners." (page 39).
The last sentence should be repeated 10,000 times a day by every rookie trader, especially by the ones who are expected to be among the most talented and promising. These poor souls are the trading equivalents of the vast majority of credulous souls in the great nations of Europe in August 1914, who thought World War I would be an easy turkey shoot that would be over in a few weeks. (For more on this, see Barbara Tuchman's superb book, "The Guns of August.")
"Hey, hotshot," someone should tell these would-be trading professionals, "someone is waiting to eat your lunch. Hey, hotshot, someone just left with your lunch!"
Modest Man
One of the merits of this book is that instead of depicting himself as "the Donald" of the trading world, Angell, who is nevertheless proud of his career as a trader, comes across as a modest man who realizes how easily one can fall into the ranks of the trading has-beens. He spends these pages addressing himself to the technical issues of trading – is there a system that works most of the time? – as well as the psychological issues raised by trading. (A large number of very smart people are aping the behavior of most born-to- lose gamblers on a hot streak at Las Vegas – they'll end up giving back all of their profits to the house or, in the case of many of Angell's colleagues, they'll give it all back to that rapacious fellow called Mr. Market.)
Succeeding at trading is not an impossible task, but Angell says that one must be modest and understand where one stands at all times. Successful traders, Angell notes, know how to keep score and know the quality of each trade. And quantity instead of quality is the issue, he says.
"Essentially," Angell writes, "you can win on only ten percent of your trades and still make a lot of money – if the winners are big and the losses are small. So the important question isn't one of winning versus losing percentages. How much money, on average, do you make on every trade, including winners and losers?" (page 29). Many traders, he warns, don't know the answer to that critical question.
To manage a trading system effectively, Angell says trades should be divided into two categories: The run-of-the-mill trade and the go-for-broke trade. Find enough of the latter, know how to grab them, and a trader will prosper, he writes. Why do traders so often fail?
Angell says two of the most common reasons are they trade too much and they enter the game without enough money to compete effectively. Undercapitalization is a common mistake of new traders, he warns.
"Beating the market is difficult enough without having to worry about the money," he writes. "Undercapitalized traders invariably think about the money to exclusion of everything else. If you are trading a system, you need to know the maximum drawdown, and then expect to lose that amount right at the outset. With any luck, this won't happen, but it could. Being undercapitalized is probably the single most significant reason for traders busting out than any other cause. Just as you think you are about to master the curve, you run out of money." (page 199).
Angell also says that he has worked with tyro traders who wanted to know why there wasn't trading action all the time. They often pestered Angell with queries about why he was sometimes on the sidelines; waiting for the right opportunity. They wanted constant excitement. They ended up broke. He calls this overtrading syndrome, "another fatal error of the novice trader."
Angell writes: "The idea is to make the money and keep it, not give it all back because you were reckless. If you can make even a small amount of money each day, a difficult task, your account will grow." (page 199). Overtrading, he cautions, only helps the commissions of the broker. And relying on the latter often is another problem for traders trying to become successful.
Unusual People
Traders, at least those who are successful, are very unusual people, Angell notes. They must be their own worst critics and their own best friends. They must be stoical enough to accept losses and not become carried away by sudden success.
"The best traders," according to Angell, "can look at their mistakes with an element of detachment. They can take satisfaction in their judgment when they are right and they can forgive themselves when they are wrong." In other words, traders are in a select company of survivors, or, as Angell puts it, "I suspect that relatively few people are natural-born traders." (page 194).
Most of trading, Angell maintains, is psychological – probably 70 percent – and the rest is based on the trading approach or system one uses. "Put another way, it doesn't matter so much what approach you take as it does who you are," Angell writes (page 192).
Know thyself.
This is good advice for the student of philosophy or life. But it is even better advice for the professional trader trying to survive in the financial jungle called markets.
