Trade the Trader: Know Your Competition and
Find Your Edge for Profitable Trading
By Quint Tatro
FT Press, 2010
$27.99, 208 pages
Quint Tatro says early on in this book, "You’re trading against expert traders who care only about one thing: Taking your money." The author puts forth the premise that a trader’s greatest profit potential comes from trading the traders, not just trading the market.
As a trader and hedge fund manager, Tatro learned his trading approach in the trenches. He emphasizes the need to have a profitable trading strategy and not abandon it in pursuit of a new one, which probably will lead to continued failure. That is why a trader needs to select a strategy that fits his/her personality. Successful traders, he points out, spend a lifetime tweaking a profitable strategy.
According to Tatro, technical analysis can be used to interpret the movement of other traders. Understanding price action is the key to success. A trader needs to comprehend a few basics of technical price patterns and go with the trend. Then the trader needs to learn how to trade the traders who are following just the basics. A trader must think one step ahead of other traders who are trading well-known price patterns. This requires that a trader pay attention to the charts, learn how the market works and look for pattern failures.
Tatro recommends that traders create and maintain a trading journal to develop a statistical edge and instill confidence. He lays out eight key variables that need to be addressed in a plan that can be tracked manually or electronically. Reviewing the trades will allow traders to learn from their mistakes, reduce weaknesses and capitalize on strengths.
Tatro hones in on the importance of controlling risk. His typical risk is 0.2% on short-term trades, and 0.5% to 1% for longer-term money. He points out that constant risk adjustments will lead to an erratic and ever-changing portfolio equity curve. Instead, he urges traders to keep risk levels consistent by taking at least 10 trades without changing risk parameters. Afterward, the trader can adjust risk to a manageable level.
In summary, Tatro provides an insightful, introspective and realistic look at the key steps to becoming a profitable trader. However, his explanation of how to trade the trader requires practice and in-depth knowledge on the part of the reader. Surprisingly, he provides neither a bibliography nor a listing of useful charting or trading websites for more in-depth research. In the end, he concludes that successful trading should be rather boring.
Leslie N. Masonson is the author of Buy — DON’T Hold: Investing with ETFs Using Relative Strength to Increase Returns with Less Risk and All About Market Timing. Reach him at email@example.com.