The Art of Trading: Combining the Science of Technical Analysis with the Art of Reality-Based Trading
By Bennett A. McDowell
296 pages, $70
Bennett A. McDowell asserts that most indicators are derived from either price or volume. They are like diluted second-generation copies of the real thing, and as such, they can lose effectiveness, particularly as the researcher tries to tweak them for best historical results. McDowell’s solution is to go right to the sources. His signals, part of a software program called Applied Reality Trading (ART), are pattern-based prices with additional volume analysis. The resulting four main signals incorporate momentum, counter trending and scalp-oriented approaches. They are basic – McDowell shares a widely held opinion that simple is best – and applied the same to all markets and timeframes.
You have to buy the actual program separately, although a free trial is available with the book purchase. A thorough explanation of the signals is provided though, there are no unknown black box elements. The software merely furnishes the live streaming signals which would be otherwise difficult to calculate in the heat of market battle. Many charts in the book effectively illustrate McDowell’s points, but the most persuasive content is in the accompanying DVD demonstration of the ART program.
The Art of Trading provides a thorough overview of the nature of markets, trader psychology, risk management and deceptive claims by system vendors. Any system can look good over strategically selected time periods. By contrast, McDowell doesn’t present his methodology as an ultimate mechanical system but rather as an ongoing argument for simplicity, objectivity and discipline. Nothing tells you more about a market’s worth than its last price. The challenge is in determining which of the ongoing flashes have relevance, something that is inevitably tied to where a market has moved relative to its previous neutral position. System traders know this as setup and execution.
In the latter book sections, the author integrates his components with the addition of filtering techniques. This is a thought-provoking book even for those who don’t elect to subscribe to the software. For those who take the additional step and follow McDowell’s guidelines, it’s probable that the very least you’ll do is stay out of trouble.
Art Collins is a frequent lecturer and author of “Beating The Financial Futures Market.”