So, if you are used with books which focus on stories and on easy to understand graphics. Well, “Derivatives- Principles and Practice” is much more complex for several reasons.

First of all, this is an academic book written with motivated and well-informed students on mind. Although the authors specify that you need to know only high-school mathematics and that everything else is within the covers of the book, it might be very hard for the reader to progress if he/she does not grasp well the basic mathematical concepts. After all, this is a book on derivatives – which represent one of the most complex financial subject on planet Earth.

Secondly, the book focuses nicely on all the main topics in the field. It can be thus used as a full reference in the complex finance area, making it one of the few volumes on the libraries shelves which are so complete. Just have a look at the topic list:

1. Futures and Forwards
2. Options
3. Swaps
4. Interest Rate Modeling
5. Credit Risk
6. Computation

As with any Mc Graw Hill Professional book, this one comes fully loaded with detailed explanations and case studies. In the beginning, the volume of the material in the book can be overwhelming, but after a few chapters I realized that it is just the complexity of the field that drives this.

As a practitioner in the trading field, I appreciated very well how nicely the logically is the modeling of the swaps or the options laid out here. We often use quite complicated models without understanding what is behind them. “Derivatives- Principles and Practice” manages to offer a complete overview on some hot topics. And even if it looks a bit too deep, it is just because it tries to spell it all out here, as any normal academic book should do…

One of my favorite chapters of the book remains the one on the Black-Scholes Model, one of the widest models used to explain the options pricing. I liked a lot the comment on how easy is the model implemented (it depends only on five variables and only one – volatility - is not directly observable). I knew that the model refers to arbitrage-free option prices but I did not knew its interesting applications on dynamic hedging. And the volatility testing of the options, once understood, can make a huge difference in any trader’s performance.

There are much more nice things within the book – for example the corporate finance applications of the swaps have developed huge new markets in the last 10 years or so. “Derivatives- Principles and Practice” can be a bit overwhelming on the beginning – but only until you get used with its rapid style and with the idea that you really need some knowledge before you start using advanced derivatives.

Enjoy reading it (and taking it back from the shelf from time to time).

If I remember well, the first volume was at the beginner to intermediate level. It was designed keeping in mind that the active traders have usually gaps in their knowledge, meaning that they could master very well some type of trading techniques (such as the Fibonacci calculations of the next price level) and not so well others (maybe graphically plotting the price action on the right side of the chart). All in all, trading is a dynamic endeavor and the bias for action means that inevitably the successful traders will skip some steps in application and jump to the most comfortable parts.

In the second volume of “Harmonic Trading”, Carney addresses the more advanced techniques of the following:
- harmonic waves (somehow similar to the Elliott waves, but incorporating block patterns and thus a higher level view into the trading equation);
- some new harmonic patterns, such as RSI and BAMM
- and lots of mini case studies showing how these techniques work into action.

Scott Carney is not new to this field and what he manages to do is to use old systems in new ways. For example, he masters quite well the Fibonacci ratios – at least that is what I see from the application of the Gartley pattern (requiring a 0.618 and a 0.786 retracement at the B and D points) which has become a ready-to-use addition in most of the nowadays trading patterns.

Now of course this could not have an universal application – and naturally I (and I think Carney too) encourages you to test a certain indicator or another on your practical trading strategy. It might be that this works well for a certain stock or forex pair and fails miserably for another one, so you should be careful.

Carney sets on to present several new patterns such as the 5-0, the reciprocal AB=CD, the alternate BAMM and most notably the RSI BAMM. Although these are quite new, I dared to back test them quickly on a 6 month history of a forex pair and the first results seemed quite good (meaning profit if you used constantly that strategy, which in itself is a victory over the randomness of the markets). The RSI BAMM especially looks interesting – it combines the Relative Strength Index (RSI) with some advanced harmonic trading techniques, such as the technical entities (which are Carney’s name for pattern alignments).

At last (but not at least), Carney underlines an interesting idea – he states clearly that “there are no market gurus”. Whilst this is an idea floating usually in the trading environments, it is relatively unusual to hear it from a trading author. Yet, Carney is relatively honest and lays this out, which I obviously appreciated and took note of.

These things, said, I wish you many happy returns on your investments.

How long will this decrease last is the question and our doitinvest.com opinion is that the feeling of disappointment will last for several weeks. However, the fundamentals in the economies have not changed, just the pace of the surprises. So investing in shares should be viable after these corrections, provided you choose the right sector and the perfect timing…

Plane photo doitinvest.com

1. There is no Holy Grail in investing
There is no single system which will make you tons of money. The trading game is a fast and furious one and if you stick long enough to survive, you will make money.

2. The trading game is a zero sum game
If you win some money, somebody else looses. Keep this in mind when trading!

3. Trading is a risky and stressful activity
If you cannot cope relaxed with the most catastrophic downfall of your funds, you might like to consider some other adrenaline rush activity.

4. Technical analysis works for you and for the broker too
Never forget that in a trading platform (such as the MT4) the broker can see all your moves. And he is watching for sure, trying to take out the zones where most S/L are!

5. Markets are unpredictable and large patterns occur yet periodically
Technical analysis is fascinating and you could spend ages reading about it. But at the end of the day, markets will invalidate any pattern.

I know I sound a bit disappointing for most of you folks. But if you want to be successful in any field, you need 1% talent and 99% sweat. Why would it be different here?

Blog originally published by doitinvest.com in the fascinant year of 2010.

The British pound declined and gilts (the British bonds issued by government) advanced amidst speculation the government’s pledge to balance the budget by the end of its first term will damp the economic growth. Osborne said the government will cut the deficit to 20 billion pounds by 2015-2016 and will cut spending by 30 billion pounds annually.

Concern the U.K. would struggle to narrow the biggest budget deficit among the Group of Seven nations helped send the pound 9 percent lower against the dollar this year. Speculation the U.K. would lose its AAA rating helped the 10-year yield reach 4.3 percent on Feb. 22.Osborne, 39, the youngest chancellor since 1886, will outline plans to cut spending by the most in a generation to rein in the deficit, which amounts to 11.1 percent of gross domestic product. “We have set a brisk pace since taking office,” Osborne said while presenting the budget. “It has earned us credibility.”

Gilts outperformed both German and U.S. bonds following the May 6 election that ousted former Prime Minister Gordon Brown’s Labour Party after 13 years in power.

U.K. securities returned 2 percent, compared with a gain of 0.4 percent for German bonds and 0.8 percent for U.S. Treasuries, according to Bank of America Merrill Lynch Indexes.

Scott Carney, founder and president of a company called (surprise surprise) “Harmonic Trading”, has studied quite a long time these patterns. His experience started with the Fibonacci approach, a trading method which uses the Fibonacci numbers to predict the most probable incoming price levels. This is a probabilistic approach and, like all the methods based on probabilities, it chases patterns where over the long term you are more likely to offset losses with your gains (rather than the other way around).

Many of the methods (if not all) described in the volume 1 are methods which a seasoned trader has previously seen in other books, piece by piece. I have been reading quite a few technical analysis books in the last year and I was impressed by one thing when looking at “Harmonic Trading – Profiting from the Natural Order of the Financial Markets”: the book is accessibly written. It takes you from the basics of the Fibonacci numbers, then it shows you the main methods to identify a pattern and the main patters, just to finish with a trade management system.

The book is quite easy to read and does not involve too much effort from the reader. And it does a good job in order to bring together the main patterns and their detailed explanations under one cover. I liked a lot the so-called “bat pattern”, where the price of a security goes up and down tracing the shape of a bat’s wings (if you add also the bottom lines). Carney not only showed the bat pattern in various set-ups, but also did the extra mile job to trace on the graph the Fibonacci proportions among the bat’s wings. Now this is what I call an above-the-average effort, since most of the books I was reading were just telling you to look by yourself at those numbers and required you to believe them and trace the proportions in solitude.

“Harmonic Trading – Profiting from the Natural Order of the Financial Markets” is not a book for the beginners, though. It requires you to understand a bit the mechanics behind trading. You should have also used for a couple of months a trading platform, otherwise you risk of being discouraged by the relatively technical language of the book. Yet, the book is not too advanced in notions – just at the average level of a trader, making the reader’s life much easier.

The book also look at the candlestick patterns – an area most often treated separately in most of the other technical analysis materials I read. I enjoyed recapitulating the major reversal patterns based on candlesticks. The reason is that these are easy to spot (at least for myself) and easy to act on. Now, if you want more complicated patterns, Carney’s book has those too. The only caveat here is that you have to train again and again your eye until the development of the pattern becomes automatic for you…

The good news is that there is a volume 2 for this book, with more advanced techniques. When I will get my hands on this second volume of “Harmonic Trading – Profiting from the Natural Order of the Financial Markets”, I will surely come back with more details. Until then, have a nice reading session!

And boy, the book is like a time bomb. Stiglitz is not at all playing around the bushes (or the obamas or the banks). He says it from the introduction - the measures taken to steam off the crisis actually deepened it and were against the public interest. Which public interest is often noted as the taxpayer’s interest.

His arguments are quite simple:
- the crisis has been provoked by the banks looking for more lucrative ways to boost their profits, which got into trouble and used the excuses of public interest and being too big to fail to get hte bailout;
- the bailout money should not have been given to the banks, which created the problems and afterwards took advantage of those to make more…. money, of course;
- the measures taken by the two administrations were actually quite inefficient and bought the future in order to (apparently) save the present situation.

The book is quite heavy (literally, in the paperback edition). It explains in a smart and simple way how the banks and the lack of regulations created the mortgage mess we have now in the US and abroand. It also goes on on demonstrating how weak are the banks’ arguments for being saved and how wrong was to give them the bailout money. I liked very much the comparison between the banks and the US car makers - why should banks get zero money interest to choke the economy even further with their monopoly on lending money and why where the car manufacturers treated so harshly, together with the car industry unions? Some of the answers are in the book, some others are simple - because.

“Freefall” it is not only a diagnosis book. Stiglitz does a nice job and proposes some alternative measures for the crisis. And these measures could be very useful for the nowadays Greece, Portugal or Spainfinancial problems. Only if the EU decision makers would consider these measures, definitely. Anyway, “Freefall” is very well documented and written. It shows not only that the crisis was avoidable, but also how not-so-different from other crisis it is. And, above all, “Freefall” demonstrates why pure economic measures will always have to be linked to the politics and to the lobby factors behind. Why? Read the book and you will get it.

All in all, “Freefall” is not just another book about the recent financial crisis. In a sense, it is THE BOOK, since it explains most of the causes, the developments and potential future measures to improve the economic standing of the global economy. And as such, it deserves a place on your shelves, especially if you want to understand the new economic rules of the investing game.

Nothing is better than continuous education. And in this respect, we at doitinvest.com did read and review quite a lot of books in the technical analysis field lately. We don’t have any statistics readily availabel, but I suppose that doitinvest.com has become a top reviewer of the trading books and materials published since 2009…
Now back to work :). I recently got for review one of the books deemed to be a full encyclopedia of techical analysis techniques. So I got quite curious - was it so?

The first look at the book content was quite convincing. The book is very well organized and takes the reader from the basics to the most advanced techniques. It starts with the fundamental assumptions of the technical analysis field - is the random walk theory valid? Are the trends predictable? What is the blend between mass psychology and statistcis which allows you to make money from analysing the markets? What are the main assumptions behind technical analysis and how well do they stand the test of practice? and so on.

The book is relatively accademically written, meaning that it makes refferences to lots of literature pieces. However, the refferences are there only to be addressed and not to block the flow of reading, which I liked. I also liked a lot the review questions testing your understanding of the concepts at the end of each sub-chapter. Last time when I used this recap approach (besides my student times, long time ago in another galaxy) was with Alexander Elder’s “Come into my Trading Room” study guide. At that moment, I enjoyed checking my understanding of the trading book. And believe me, this helps people with the attention deficit syndrome (like myself) to stay focused on the goals of the book and memorize actually some useful principles.

What I also liked was the relative comprehesiveness of the “Technical Analysis: The Complete Resource for Financial Market Technicians”. It does not go into a great level of detail with each topic, indeed. This would be difficult, since each such subject has tons of years and books behind. But this technical book is quite complete, since I failed to spot any missing major subject in the field. The book goes through may topics which I found interesting such as:
- the history of the technical analysis (a topic vastly ignored by most of the books in the field);
- the markets sentiment and the dow theory - the theories which shaped the aggregation of the market feelings in the actual sophisticated charting techniques;
- how to measure the strength of the market - or the basics of a technical analysis;
- temporal patterns and cycles, flow of funds etc.

Maybe the most interesting part is the third one - trend analysis. Of course here any decent trader must know the basics, otherwise he/she would be very quickly out of the game (in the red losses zone). The detailed approach of “Technical Analysis: The Complete Resource for Financial Market Technicians” paid off for me by covering the gaps (or worse - the misconceptions) I had about technical analysis. For example, I knew lots of things about “points and figure” charts, yet I ignored constantly their interpretation based on the type of scale those graphs used - arithmetic or logarithmic. The latter accelerate the graph trends since they give more weight to the latest figures plotted and this might explain their relative higher usefullness in the faster markets, as well as their shortcomings in the more stable markets.

Another chapter which I enjoyed was the one reffering to the system testing and management. I know that most books nowadays start with the warnings - on how the trading system should be devised, how it should be tested and how it should be periodically changed to prevent its shortcomings. Fine and well, yet most books fail to present the theoretical basics on how to do the testing job with any system, not just with some particular one. “Technical Analysis: The Complete Resource for Financial Market Technicians” goes there and stretched my understanding a bit with its remarks simillar to the project management rules I had on my master courses. Long time ago, yet the link was so useful for me.

All in all, htis is a nice lecture and a book to keep on the working shelves for quick refferences. Enjoy!