The Trend Following Bible: How Professional Traders Compound Wealth & Manage Risk
By Andrew Abraham
Wiley, 2013
$75.00; 224 pages; E-book $48.99; 224 pages
Normally it’s best to start any book review with a description of what value a book can offer readers, and postpone complaints. Here, a criticism must come first else readers might quit at the first paragraph, never to see the value Andrew Abraham’s new book offers. He writes in his Introduction that “…in 1994 very few people had ever heard of… ‘trend follower’ or ‘trend following’.” Don’t discard this book because of this egregious historical error or you will miss the good stuff.
For the record, the English political economist and investor David Ricardo (1772-1823), wrote; “Cut your losses, and let your profits run on.” Charles Dow (between 1899 and 1902); Edwin Lefèvre (1923); Richard Schabacker (1932), and Edwards & McGee (1947) all described trend-following fully, as have many others since.
This book is really an autobiography of Abraham’s professional trading and investing life, not the bible. It should have been titled “My Journey as a Trend Follower,” but authors rarely get to name their books.
That said, trend followers, and investors who are considering adding trend-following funds to their investment portfolios, can profit from this author’s journey.
The first three chapters offer little that is not already well known about trend following and risk management, but Abraham’s summary of his experience with MF Global is “must” reading. His advice about using U.S. Treasury Direct and independent money market funds away from brokers should be read, marked, learned and inwardly digested.
Ignore his occasional claims of proprietary ideas in his review of what it takes to be a successful trend follower. Pay close attention to Abraham’s powerful plea that trend followers MUST learn to write testing programs of their own (which he did when he started), or learn to use existing testing programs. He writes that any good testing program will do, adding that he now uses Metastock.
Later Abraham addresses trading psychology, the most important of the three components of trading success; the others being money management and a trading method or system.
We don’t often get to see exactly how a trend follower, or any other kind of trader, operates, but near the end of Abraham’s book, we do. Assuming comparison yields insight, we have a real person with whom we can compare ourselves, which may make this the most important of the 10 chapters.
Alas, this book is set in 9-point type, making it hard to read. The many excellent charts are even harder to see, so use a good magnifying glass. Type in some E-book formats can be enlarged, but alas, the charts seem to remain the same size.
Desmond MacRae is a New York-based business writer specializing in banking, finance and investments. E-mail him at desmondmacrae@nyc.rr.com.