Author: Altucher, James

Title: Trade Like a Hedge Fund

CMT Reading List: No

A collection of relatively simple trading ideas anybody can use.

The author, a hedge fund manager, gives us a handful of somewhat simplistic trading strategies. How useful (profitable) they are is debatable. But the real value in the book is that it will help to stimulate your thinking. Personally, I appreciated that he explained the market psychology he was trying to capture with each strategy.

Author: Bollinger, John

Title: Bollinger on Bollinger Bands

CMT Reading List: No

Detailed guide to using Bollinger bands, straight from the source.

The calculation of Bollinger bands is pretty simple. But this book provides a thorough description of how to interpret price action relative to the bands, plus some indicators derived from Bollinger bands. It also runs through the history of trading bands and envelopes. A good book for those who want to go beyond the basics.

Author: Brown, Constance

Title: Technical Analysis for the Trading Professional

CMT Reading List: Yes, level 3

Connie Brown is smarter than you. She is more experienced than you. And she works harder than you.

I am not sure which puzzles me more: Brown’s purpose for writing this book, or why the MTA includes it on their reading list. At times, this book feels like it is more about the greatness of the author rather than technical analysis. She frequently leaves out important details about some of the techniques she describes (can’t give away my secrets, ya know!). And shame on you if you can not manage to figure it out for yourself.
As for the MTA, maybe they include it on the reading list as a counterbalance to some of the more anal retentive rules-based books. This book certainly encourages you to not play by the rules.
I am just glad that I received a second-hand copy of the book and didn’t pay any money for it.

Author: du Plessis, Jeremy

Title: The Definitive Guide to Point and Figure

CMT Reading List: Yes, levels 1 2 and 3

Book lives up to its title. Don’t try Point and Figure at home until you read this one.

If, like most people, you know little about the crazy charts with Xs and Os all over, this book will make you feel confident in using them. Everything is explained in detail, even when a bearish signal is really just a mirror image of a bullish one. The author uses a common sense approach in sometimes breaking from previous authors. One drawback to point and figure charts is the confusing terminology which has evolved over the years. You will frequently find yourself stopping to note whether the author is descussing 1-box charts or 3-box charts.

Author: Frost, A.J. and Prechter, Robert

Title: Elliott Wave Principle

CMT Reading List: Yes, levels 2 and 3

What we believe, we see.

This book is a “must read” if you, umm, must read about Elliott Wave theory. Personally, I’m not buying it or the pseudo-scientific justification behind it. Elliott Wave theory is certainly an interesting idea for explaining the ebbs and flows in markets(and in societies as a whole). But for something that is purportedly a “theory” it is shockingly proscriptive. See, for example, the 6 page list of “rules and guidelines”. The book does have a good review of the “golden ratio”, popularly known now as “Fibonacci ratios”, though they oversell it a bit.

Author: Lowenstein, Roger

Title: When Genius Failed

CMT Reading List: No

High leverage and slavish devotion to theoretical models caused a major hedge fund to collapse.

The hedge fund Long Term Capital Management went from the top of the world to bankruptcy in a very short time. The author explains how they became so successful, and how it all ended so badly. The fund managers compared their strategy to picking up nickels from the sidewalk. It is a riskless, low-profit activity. But you can turn it into a high-profit activity by amping up the leverage. Their models eventually stopped working, they were slow to accept it, and their competitors smelled blood. In fact, their models would prove to be correct – eventually. But by then they were already wiped out.

Author: Murphy, John

Title: Intermarket Analysis

CMT Reading List: Yes, level 3

Intermarket analysis involves complex relationships between markets.

If this is the best book on intermarket analysis out there, it is only due to a lack of alternatives. It reads like a decade’s worth of Wall Street Journal headlines pasted together into book form and is woefully short on hypotheses. Market X “usually” changes direction before Market Y? Why should it be so? We never find out. At one point, the author comments that the various markets “did what they were supposed to do”, as if the job of the markets is to fit a theory and not the other way around. We are told that, in most cases, stocks and bonds travel in the same direction. But Murphy also states that stock and bonds are “constantly competing” for money, which would imply that when one is “winning” the other is “losing”. Unless maybe, possibly, perhaps there is more to it than pithy, declarative statements.

Author: Murphy, John

Title: Technical Analysis of the Financial Markets

CMT Reading List: No

A good Technical Analysis 101 starter book which covers all the basics.

If you are new to technical analysis, this book will serve as a good introduction. It gives a good overview of all the important concepts, even when you sometimes get the feeling Murphy does not find some specific techniques or theories very useful.

Be careful! A little knowledge can be dangerous – to yourself and your brokerage account. You will surely find yourself on the ass end of an ass-kicking if you start trading based only on the material presented here.

Author: Nison, Steve

Title: Japanese Candlestick Charting Techniques

CMT Reading List: Yes, levels 2 and 3

The author is right – after reading this book you will never go back to bar charts.

This is an excellent book on analysing candlestick charts, complete with amusing and colorful Japanese phrases. It is clearly written and, unlike some books, discusses the market psychology behind the various chart patterns. You will find that there is really alot of overlap between Japanese candlestick charts and “western” bar chart interpretations – including an infatuation with the number 3!

Author: Partnoy, Frank

Title: Infectious Greed

CMT Reading List: No

Financial meltdowns are not new.

The author, a Wall Street veteran turned professor, takes an impartial and academic look at what can now be described as the “early days” of sales/trading of derivatives. Starting in the 1980s, banks were using (and misusing) computers to create complex derivative products (you know, “innovation”). The numbers almost seem quaint now. “Patient Zero”, the first derivatives trader to blow up, lost $80 million. Unfortunately for us, our leaders did not correct any of the problems identified in this book.

Author: Pring, Martin

Title: Investment Psychology Explained

CMT Reading List: Yes, level 2

A generally good description of the trader versus himself (or herself).

This is one of the classic “investor psychology” books. It is oriented more to individual emotions and motivations, while Shiller’s Irrational Exuberance takes more of a macro perspective. Pring does not tell us much about ourselves that we didn’t already know. But it has value in helping us to recognize our shortcomings and to take a more disciplined approach to investing.

Author: Shiller, Robert

Title: Irrational Exuberance

CMT Reading List: Yes, level 3

Good review of how “bubbles” can form in markets.

Professor Shiller discusses the conditions which led to bubbles in the stock market and real estate market. A key point of the book is that people usually mimic each other or merely repeat what others have said, without doing any individual analysis. And this can lead to a feedback loop which takes markets far away from reality. He finds many economic, technological, and social factors at work to produce the stock market bubble of the late 1990s. Unfortunately, he was a little inconsistent in “backtesting” the factors he cited. It left the book stuck in a gray area between the generic conditions for a bubble and the specific situation of the 1990s.

Author: Wilkinson, Chris

Title: Technically Speaking

CMT Reading List: Yes, level 2 (but only the Phil Roth interview)

20 technical analysts, 20 different styles.

Wilkinson interviews 20 technical analysts, with an emphasis on their methods as opposed to making any forecasts. It is interesting how many of those guys [and by 'guys', I mean the interviewees were all men] said they learned to have a feel for the market from drawing their charts by hand. For those going through the CMT program, it is worthwile to read the entire book just to re-establish that there is no “cookie cutter” way of doing analysis. For every fat crayon type, there is another person feeding 100 variables into a computer model.