From the April 01, 2012 issue of Futures Magazine • Subscribe!

The Universal Principles of Successful Trading

Book Review

imageThe Universal Principles of Successful Trading:
Essential Knowledge for All Traders in All Markets
By Brent Penfold
John Wiley &Sons (Asia) Pte. Ltd.
$49.95, 394 pages

Penfold, a successful full-time trader, author and educator, provides a blueprint on how to become a consistently profitable trader.  He notes that fewer than 10 percent of active traders are consistently profitable over the long run. Interestingly, he points out that many elite traders use simple trading systems.  He holds very strong views on trading and he is not shy about expressing them and explaining them at length.  This is an in-depth book that requires hours of study.  I read it twice and obtained a great deal of useful knowledge. 

According to the author, the universal principles of successful trading apply to traders using all time frames from day traders to long term traders, as well as apply to every trading vehicle such as forex, equities, commodities, options, futures and interest rates. Every consistently profitable trader must learn, understand, embrace, and implement universal principles. He/she needs to adopt and embrace a good trading process. 

He devotes one chapter to each of his six principles of trading: Preparation, enlightenment, trading style, markets, three pillars and trading. Penfold delineates the pillars of successful trading as:

  1. methodology – analysis and trading plan behind buy and sell criteria
  2. money management – amount of money you can commit to a trade
  3. psychology – discipline to follow your trading plan

He says: “I have huge experience in losing money. I have more cuts, bruises and bumps than any other trader, so I claim to be an expert in them.….I’ve also managed to survive and navigate my way through the confusing world of  technical analysis.”  This experience certainly shines through in this thorough review of the world of trading. Not surprisingly, he trades off daily charts and is a mechanical trader.

The author firmly believes that “… most of what is written about trading or incorporated into trading programs does not work.”  Therefore, he learned to validate ideas first, before accepting the belief has value.

Furthermore, he points out that ignorance, gullibility and laziness are the main reasons 90% of traders lose.  He believes that averaging down makes a trader a ‘worst loser’.  Moreover, failure to use stops and a trading plan are big trader mistakes. Successful long-term trading will require a trader to be a good loser. Many investors believe that technical analysis is all they need to make money, ignoring money management and psychology.  They are wrong, according to the author. 

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