The Deipnosophist

Where the science of investing becomes an art of living

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Location: Summerlin, Nevada, United States

A private investor for 20+ years, I manage private portfolios and write about investing. You can read my market musings on three different sites: 1) The Deipnosophist, dedicated to teaching the market's processes and mechanics; 2) Investment Poetry, a subscription site dedicated to real time investment recommendations; and 3) Seeking Alpha, a combination of the other two sites with a mix of reprints from this site and all-original content. See you here, there, or the other site!

03 January 2010

Trading From Your Gut by Curtis Faith - A review

Curtis Faith's new book, Trading From Your Gut, is particularly excellent.

Now that assessment will strike some early readers as rather controversial, for complaints arise re the book's brevity, even that Curtis Faith fails to teach meaningful trading methodologies.

I disagree on all counts, although I would quibble with other aspects of the book. Sure, at ~190 pages, the book seems brief but then I prefer an author get to his or her point. And, as it regards insights and methodologies, well, Faith is no Scrooge, which I detail below. I do quibble that the editor seems missing in action: Way too many typos creep into the text, Faith relies overly much on analogies (although I understand his reasons), and that Faith spends too much time settling an old score with Michael Covel, which has no place in this book because its personal nature disrupts the book's narrative flow and offers no universal purpose.

Faith writes simply and directly to the 80% of his readership who lack basic investing skills; the other, more experienced 20% can glean insight from combining their experience with Faith's insights...

From pp 22-23:
Inexperienced traders commonly latch on to a particular trading guru's methods. These new traders often follow the guru's explanation for how to trade without bothering to build an internal rationale or model for why those methods will work. They follow the letter of the law without attempting to understand the spirit of the law. They attempt to learn the "what" but not the "why" for trading based on a particular method. The problem with this approach is that it is static: It can't adapt to changing markets. It also leaves no room for the gut. The best approach is to use each part of our brain for what it is best suited to. The left brain is good at building and understanding models for how the world of trading works, and the right brain is good at generating ideas and recognizing opportunities. This explains why master traders use their whole mind for trading. They prime their right brains with patterns that their left brains understand and categorize using carefully reasoned analysis.
Faith addresses the topic of tyro investors who focus monomaniacally to improve their skills, an important objective, yes; whereas master traders (professional investors, in my parlance) seek to improve their aptitude, attitude, and talent, in addition to their skill set. An investor can understand the hows and whys, but be unable to pull the trigger.

From p40
Master traders are always ready to change their opinions and perspectives. They consistently look for the reasons why they are wrong instead of trying to prove themselves right. Master traders don't suffer from mental inertia. Mental inertia comes from the prime lesson that new learning is retained for later use. When you form an opinion, it takes some specific impetus to change that opinion. The stronger your opinion, the stronger the impetus required to change that opinion. So when you have an idea that the market is not good for buying, it takes considerable motivation to change that idea. When a trader decides to place a trade, it often takes considerable drive to change course and exit the trade...
The beauty and wonder of this book is its final ~75 pages. Curtis Faith shares one of his core set-ups, his "rebound swing method," shows visually its set-up -- and then points out the precise bar that manifests as his entry signal. In essence, Faith's set-up is the double bottom (or top), and his entry is the second low (or high)... But that single, singular bar for the second low must conform to specific parameters.

Other investing books are available, but most of them dedicate to a single purpose: pattern recognition / analysis, investor psychology, evaluating company fundamentals, etc; the method by which Curtis Faith shares his insights (in this book) is especially inspiring, even for my old investor's eyes and mind. Trading From Your Gut marries the analytical with the perceptual and adds into the mix the notion that aptitude + attitude + skill set + doing the hard thing = trust in yourself, and thus consistent investment success.

Buy and read Trading From Your Gut to learn from Curtis Faith: a trading setup, an over-arching methodology... and how to achieve that elusive, but not illusive, goal of consistent investment success.
-- David M Gordon / The Deipnosophist


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