Recently in Books / Reading Category

Some of you may be interested in the new book "The Quants: How a New Breed of Math Whizzes Conquered Wall Street and Nearly Destroyed It". Here's a short description (as if the title doesn't say it all):

In March 2006, the worldrs"s richest men sipped champagne in an opulent New York hotel. They were preparing to compete in a poker tournament with shy;million-dollar stakes. At the card table that night was Peter Muller, who managed a fabulously successful hedge fund called PDT. With him was Ken Griffin, who was the tough-as-nails head of Citadel Investment Group. There, too, were Cliff Asness, the sharp-tongued, mercurial founder of the hedge fund AQR Capital Management, and Boaz Weinstein, chess "life master" and king of the credit-default swap. Muller, Griffin, Asness, and Weinstein were among the best and brightest of a new breed, the quants. Over the past twenty years, this species of math whiz had usurped the testosterone-fueled, kill-or-be-killed risk takers whors"d long been the alpha males of the worldrs"s largest casino. The quants believed that a cocktail of differential calculus, quantum physics, and advanced geometry held the key to reaping riches from the financial markets. And they helped create a digitized money-trading machine that could shift shy;billions around the globe with the click of a mouse. Few realized that night, though, that in creating this extraordinary system, men like Muller, Griffin, Asness, and Weinstein had sown the seeds for historyrs"s greatest financial disaster.

You can listen to a discussion about it on yesterday's NPR 'Fresh Air' show. There's also an excerpt of the book posted on that NPR page.

So the bulls barely gave up any ground to end the week and that leaves the indices very extended. I think that it's going to take some great earnings releases to drive the market much higher without at least a few days of sideways movement. The Nasdaq actually punched out a new 2009 high last week but it did so on below average volume. That makes me the move suspect in my mind. If we start to get some big names reporting weak earnings I wouldn't be surprised to see the Nasdaq fill Wednesday's gap.

It's a similar story for the S&P 500 except that it hasn't made a new high for the year. It's perched right below resistance from its 2009 high. The short-term stochastic is very overbought, which isn't surprising after a 7% move in four days. I'd like to see stochastic cool off before thinking about putting new money to work.

I was mildly amused by Friday's Worden report, especially the part about the "true" author of Technical Analysis of Stock Trends. I envision him being the Little Richard of technical analysis had he lived to see the popularity of later works...

Having shattered a perfectly good head&shoulders top, demonstrating an obvious zeal in the process, the market is now once again showing signs of confusion and trepidation. Now what is it supposed to do? The sky is one big resistance zone.

My email reveals what appears to be a fairly wide lack of understanding of H&S tops, despite the fact it is probably the most widely recognized picture pattern on a chart. It probably is that, since it is so recognizable, it has become the most famous picture pattern used by technicians. Considering the American propensity to admire the rich and famous, the H&S stands out as a celebrity of sorts. The pattern presents such a clear picture--a lineup of a left shoulder, then a head, then a right shoulder.

None of the other picture patterns are as unambiguous. However, the artistic merit of an H&S should not be construed as the key to its accuracy as a forecasting tool. It is a good tool, but most picture patterns are just as good. You'll never find one that is perfect or that will do your thinking for you, whether it be a rising wedge, an ascending triangle, a double top or a W bottom. Try doing some Google searches on specific patterns. You may be surprised at the amount of free information you can pick up on the Internet.

These are patterns that technicians have been spotting for decades. All the famous ones are described in what is sometimes referred to as "the bible of technical analysis:" Technical Analysis of Stock Trends is the name of the book. I won't mention the authors' names, since the real author of the important parts of the book was named Richard Schabacker. They didn't even include his name among the supposed authors. Schabacker, who died quite young, was the master chartist. His charting section has been published under another name: Technical Analysis and Stock Market Profits. The Real Bible of Technical Analysis.  It's available from Amazon. I believe every technician should have a copy of this book.

Now that the H&S has been dissipated, a new picture pattern may develop. I see possible early signs of what is called "a Broadening Top." It is sometimes called a Megaphone Pattern, because it is in the shape of a megaphone with higher highs AND lower lows as the pattern progresses from left to right. It is a bearish pattern. There are other possibilities, some bullish.

As it stands, I think the short-term uptrend has moved up impetuously and may require some kind of a setback to regain its confidence. That is, if it is intent on moving up. There are quite a few important earnings reports that will come out soon. They will have an effect--especially now that almost nobody knows how to evaluate the market based on anything that hasn't actually happened.

No changes

Howard Lindzon's new book, "The Wallstrip Edge: Using Trends to Make Money -- Find Them, Ride Them, and Get Off" is out this month. If you are a fan of the WallStrip show and/or trend following you should check it out. I haven't read it yet but here's the product description from Amazon:

It's been often observed that anyone who invests in the stock market needs to have a very strong sense of humor....indeed; no truer words were ever spoken.

And the truth is, Howard Lindzon took that observation quite literally. Indeed, Howard's creation -- Wallstrip.com -- has become just that - a total melding of humor and investing, or as the New York Times observed about Wallstrip - "It's Squawk Box meets Saturday Night Live." Wallstrip.com pulls in between 5 and 7 million visitors a year, and the show's rabid following includes stock market enthusiasts, venture capitalists, traders, and others who tune in to hear, see, and talk about what's happening in the markets.

If you haven't been to Wallstrip.com, well, you're in for a real treat. Lindzon's parodies are priceless. And in THE WALLSTRIP EDGE, Howard captures his most unusual (but very smart) approach to how he picks winners, and you can too.

In THE WALLSTRIP EDGE, Howard Lindzon shows readers how to profit from his straightforward investment philosophy -- a unique trend watching philosophy that makes Wallstrip.com such an amazing phenomenon, including how to look at trends from a different perspective, knowing when to buy a certain stock, how to hold it, and of course when to sell. It's all done using the power of the Internet and your own instincts. It's a surprisingly simple (and fun) strategy that works, and best of all, you don't need to be a financial genius to make it work for you.

A comment by Andrew on Barry's post about the SEC wanting to ban all short selling sent me to my copy of Michael Panzner's book Financial Armageddon. Andrew stated that "tonight's event draws me to the last paragraph of ch.7 in Michael Panzer's Financial Armageddon". When I read that paragraph I was reminded of how I felt while reading the book back in March 2007. The scenarios that Panzner laid out were nothing short of chilling. I kept wondering if he really believed all those dire things would actually happen or if they were just a worst case scenario. In flipping through a few chapters tonight it's scary to see just how much of what Panzner wrote has come to pass. Here are the last two paragraph from chapter 7 ("Depression") which Andrew was talking about (hopefully Michael won't mind me posting so much of his text):

Eventually, with a decades-long orgy of credit expansion unraveling fast; the meltdown of stock, bond, commodity, and other markets; a cratering economy; and more of the nation's largest financial institutions precariously on the edge, the Federal Reserve and Washington as a whole will have reached a critical juncture. There will be widespread pressure, bordering perhaps on hysteria, for somebody, somewhere to take action and stem the rapidly rising tide of disaster.

Only then, after being unwilling to react quickly and forcefully enough early on, the Federal Reserve will abruptly shift gears, no longer fearing the consequences of an aggressive monetary response. In a sense, they will have nothing to lose. With immediate effect, they will give up their self-imposed yoke of restraint and move wholeheartedly into money-creation mode. That will mark the beginning of the second phase of the great unraveling.

Sound familiar? Here's some more from Chapter 6 ("Systemic Crisis")

No doubt a systemic meltdown will provoke a similar response. For the financial system and the markets, however, the fallout will likely be worse than any downturn in many decades, owing to a unique combination of modern developments and incendiary circumstances. The explosive growth of derivatives trading and leveraged hedge fund investing, hidden behind a shroud of lightly regulated secrecy, means that few people will have a handle on where dangerous risk is concentrated or overall levels of exposure -- not until it's too late...

-SNIP-

Simply put, people will find it difficult to react in timely, logical or focused fashion to the unfolding calamity...

-SNIP-

Despite increased levels of sophistication and the broad use of modern risk management systems, no one can be sure how new or exotic instruments and markets will behave when conditions take an ominous turn. The sheer scale of the unfolding financial crisis—in terms of the number of participants, firms, regulators, products, countries, and markets—will make it difficult to penetrate the problems...

-SNIP-

This time, however, a vast and efficient global communications network will ensure that destructive energies are rapidly transmitted to billions of people. So, too, will trading technology that facilitates and encourages traders and investors to act on their impulses. Many will find it too easy to shoot first -- or point and click -- and ask questions later in a 21st-century rush for the exits.. Not only will the fastest or sharpest operators look to get out. Firms that have come to depend on leverage, including hedge funds, brokers, and even banks, will also face immediate and rapidly growing pressure to scale back positions because of demands for additional cash collateral or reduced access to financing. Meanwhile, those who still have the wherewithal to initiate fresh positions or act independently will look to dive in and take advantage of the stampede.

-SNIP-

A constant global ripple effect will occur as positions are adjusted to take account of risk management strategies or cash-raising demands. The widespread use of flawed models will further aggravate the situation.

-SNIP-

By the time the systemic crisis is full-blown, there will almost certainly have been a domino-like collapse of more than a few large intermediaries and allegedly sophisticated global financial firms, including hedge funds, insurers, and brokers. As the number of failures grows, concerns over counterparty risk will take center stage. Lenders, investors, and risk managers will fret and gossip about which institution is next. Worries about fraud and chicanery will boost anxiety to a fever pitch. Even firms not in dire straits may suddenly find themselves at risk. In times of upheaval, a lack of information and concern about the ability of others to manage their exposure often spurs a self-fulfilling prophecy, where idle chatter alone leads to institutions being squeezed or cut off—just when they need access to financing most.

-SNIP-

Few areas of the financial system will be unaffected when the meltdown rages. In the insurance sector, for example, debt downgrades and defaults will occur at a quickening pace... At least some of the $2 trillion held in money market funds will anxiously flee to safer pastures as the prices of one or more pools fall below par -- "breaks the buck" -- because of shaky markets and holdings that turn out to be much riskier than expected.

Pretty much all of this has taken place over the last few weeks. Kudos to Michael Panzner for nailing all of this. And somehow I still have hope that much of the other stuff in the book is worst case scenario and won't come to pass. But I'm losing hope by the day.

Unfortunately I haven't had a chance to read my review copy of Timothy Sykes' new book 'An American Hedge Fund: How I Made $2 Million as a Stock Operator & Created a Hedge Fund'. But since you all read financial blogs I'm sure you've seen at least one of the many rave reviews across the net. The book was officially released this week and Tim was nice enough to send me the final edition as well. Since I now have two unread copies I'm going to give away my review copy, which is an uncorrected proof version.

Update: Timothy has offered two signed FINAL copies of the book. So here's what we'll do -- The two closest guessers will receive the final edition from Tim. I hate to let a book go to waste, I'm gonna give my uncorrected proof to the bronze medalist.

So here's the deal. Leave a comment guessing tomorrow's (Friday's) closing price of the Nasdaq. The person who's the closest gets the book -- U.S. addresses only.

Note: your guess must be entered by 9 PM EST today

I'm really looking forward to reading Kedrick Brown's book, Trend Trading: Timing Market Tides. It's been near the top of my reading list for several weeks now. (I really need to carve out more reading time!). I've only skimmed through it thus far but it looks like a very good read. Kedrick just informed me about an interview he recently did with Tavis Smiley which you can listen to below:

Financial wiz Kedrick Brown says certain aspects of an “unpredictable” market can be predicted with good investment strategy in his book, Trend Trading: Timing Market Tides.

[audio:KedrickBrown_01192007.mp3]

For a bit more detail on the book, check out Kedrick's self-review:

Somehow, between writing for his own site, his TraderFeed Blog, TradingMarkets.com and various presentaions Dr. Steenbarger found the time to write a new book, Enhancing Trader Performance. I just got my hands on a copy and am looking forward to reading it. Dr. Brett wrote a little bit about the book yesterday in his post entitled 'Finding Your Performance Niche'. In that post he provided a link to a PDF of the first chapter of the book. So have at it.

More details about the book are below...

Michelle B submits: A daytrader I knew who had a very high-percentage win rate, around ninety-five percent, when faced with a loss, would let it run. He was capitalized enough to do what he called "pouring on the gasoline." This activity of his would involve "lining up cans of gasoline as far as the eye could see." What he would do was to buy furiously all the way down at various support levels to reduce his cost basis. Sometimes, this took days, even weeks. Most of the time, after tying up his buying power and only focusing on his special kind of arson while missing many other opportunities, he would be able to get out with a small loss--the amount he could have booked in the first place. Every once in awhile, his account would get burned by his own arson. Because of his high win rate and trading skill, he would make up the losses fairly soon. Eventually, he would be faced with a loss, and he would turn arsonist once again.

He knew what he was doing was contrary to everything he knew about trading discipline. He referred to this crazy reaction being done by the 'nut within'. At the same time, I was also doing battle with myself. Taking my clue from him, I went a step further, and identified my 'nuts within'. I had three of them! The one that wanted to control every tick in the market. The one that had to be immediately gratified by the market. Last but least, the one that lived only to be entertained by the market. These 'nuts' managed my trading turret. Every once in awhile, the sane trader would make an appearance and trade well, but not for long. The 'nuts' were too potent and too numerous.

I then recalled a book that I read a long time ago, called, Taming your Gremlin, written by Rich Carson. I no longer had a copy, but I remembered one aspect of the approach to dealing with self-sabotage. That aspect was to identify the gremlin, to be conscious of its existence, while not trying to banish it. If you try to stop your nonsense all at once, it won't work. Maybe for awhile, you will trade like a sane person, but then the self-sabotage will appear once again.

I remember the British singer, Marianne Faithfull, when asked why she almost destroyed herself through drug addiction, responding the why did not matter, only that she knew she could stop taking drugs. Do not reason with yourself, nor scold yourself, or go into deep analysis why you trade like an idiot at times, just identify the kind of sabotage you do. Shine the light of recognition on the beast--chase that thing from the shadows. Don't yell at it, don't try to destroy it, just know it is there and see it in all its beastliness. Its power lies in it being secret, hidden, and vaque. Name it by name.

Gremlins scuttle back to their hiding places when exposed to light. They don't mind popping out into the light of your consciousness disguised as the greatest trader ever known and make you trade like a jerk. But, that is their choice. However, they have no tolerance when you decide to shine the light on them. They don't appreciate that. After awhile, they just don't bother to come out. If they do manage to come out, they don't stay long. But, they are always there, they never go away. You have just tamed them, so you can function in a positive manner.

Of all of my gremlins, the control freak was the hardest and took the longest to tame. However, if it does appears now, and says, do not honor your stop loss because you have planned the trade PERFECTLY, you have researched EVERYTHING to ensure the trade will work, so if it does not work, just IGNORE that fact, my response is laughter. I know I cannot structure the market, I can only structure my interaction with it, and that my trading plan just has a probability of working. The control freak scuttles back under its rock, and the stop loss stays.

When the gremlin which wants to be immediately gratified pokes its head out, and insists I book a profit earlier than my target, I review the reasons why I have decided on such a target, and if the reasons are still there, the trade stays on, and that gremlin slinks away.

The silly gremlin which thinks the market is a show, and want to get its kicks from being entertained in exciting ways, still visits, and screams in its frenzied voice, hey, why don't you jump aboard that hot stock to just see how far it goes? I check out the support and resistance on various timeframes, and if I cannot perceive an opportunity, I decline the urge to trade without an edge. That gremlin slithers away also.

Depending on the ferocity and different kinds of self-sabotage, it can take quite awhile to tame these inner beasts. At first, the self-saboteur will hate what you are doing, and will raise a fuss, making the gremlin appear stronger and even more powerful. Don't argue with the beast, just keep shining the light of recognition upon it, enabling you, the trader, with your knowledge and skill to rise to the occasion and manage your trading turret.

Michelle B submits: The Disciplined Trader by Mark Douglas sits near my trading turret in a place of honor. Following rules is very problematical for traders. Having rules, and some traders have many, is not the same as being disciplined. A disciplined trader follows his rules, while a trader who has rules may not necessarily be disciplined enough to follow them. Trading without controlling emotions often takes the form of a vicious circle--the trader becomes ensnared in a trap of his own making, and it can be nearly impossible to break this viciousness. Sometimes, in extreme cases, the only solution is to take an extended sabbatical from trading. It can take a long time to heal the psychological damage resulting from trading without discipline, so it is much better to try to prevent this damage from happening in the first place.

After reading some of John Carter's articles in Stocks, Futures and Options Magazine I was looking forward to reading his then upcoming book "Mastering the Trade: Proven Techniques for Profiting from Intraday and Swing Trading Setups". It was obvious from his articles that John had some good insights into how the markets work and that comes across even more so in the book. "Mastering the Trade" covers a lot of ground including writing a business plan (something that too few books cover), how to choose the proper hardware and software, an introduction to futures and currency trading (Forex) , an overview of trader psychology, a premarket checklist, a variety of trading setups and seven key internals to monitor in order to gauge intraday market strength & direction.

Some of you may be interested in the new book "The Quants: How a New Breed of Math Whizzes Conquered Wall Street and Nearly Destroyed It". Here's a short description (as if the title doesn't say it all):

In March 2006, the worldrs"s richest men sipped champagne in an opulent New York hotel. They were preparing to compete in a poker tournament with shy;million-dollar stakes. At the card table that night was Peter Muller, who managed a fabulously successful hedge fund called PDT. With him was Ken Griffin, who was the tough-as-nails head of Citadel Investment Group. There, too, were Cliff Asness, the sharp-tongued, mercurial founder of the hedge fund AQR Capital Management, and Boaz Weinstein, chess "life master" and king of the credit-default swap. Muller, Griffin, Asness, and Weinstein were among the best and brightest of a new breed, the quants. Over the past twenty years, this species of math whiz had usurped the testosterone-fueled, kill-or-be-killed risk takers whors"d long been the alpha males of the worldrs"s largest casino. The quants believed that a cocktail of differential calculus, quantum physics, and advanced geometry held the key to reaping riches from the financial markets. And they helped create a digitized money-trading machine that could shift shy;billions around the globe with the click of a mouse. Few realized that night, though, that in creating this extraordinary system, men like Muller, Griffin, Asness, and Weinstein had sown the seeds for historyrs"s greatest financial disaster.

You can listen to a discussion about it on yesterday's NPR 'Fresh Air' show. There's also an excerpt of the book posted on that NPR page.

So the bulls barely gave up any ground to end the week and that leaves the indices very extended. I think that it's going to take some great earnings releases to drive the market much higher without at least a few days of sideways movement. The Nasdaq actually punched out a new 2009 high last week but it did so on below average volume. That makes me the move suspect in my mind. If we start to get some big names reporting weak earnings I wouldn't be surprised to see the Nasdaq fill Wednesday's gap.

It's a similar story for the S&P 500 except that it hasn't made a new high for the year. It's perched right below resistance from its 2009 high. The short-term stochastic is very overbought, which isn't surprising after a 7% move in four days. I'd like to see stochastic cool off before thinking about putting new money to work.

I was mildly amused by Friday's Worden report, especially the part about the "true" author of Technical Analysis of Stock Trends. I envision him being the Little Richard of technical analysis had he lived to see the popularity of later works...

Having shattered a perfectly good head&shoulders top, demonstrating an obvious zeal in the process, the market is now once again showing signs of confusion and trepidation. Now what is it supposed to do? The sky is one big resistance zone.

My email reveals what appears to be a fairly wide lack of understanding of H&S tops, despite the fact it is probably the most widely recognized picture pattern on a chart. It probably is that, since it is so recognizable, it has become the most famous picture pattern used by technicians. Considering the American propensity to admire the rich and famous, the H&S stands out as a celebrity of sorts. The pattern presents such a clear picture--a lineup of a left shoulder, then a head, then a right shoulder.

None of the other picture patterns are as unambiguous. However, the artistic merit of an H&S should not be construed as the key to its accuracy as a forecasting tool. It is a good tool, but most picture patterns are just as good. You'll never find one that is perfect or that will do your thinking for you, whether it be a rising wedge, an ascending triangle, a double top or a W bottom. Try doing some Google searches on specific patterns. You may be surprised at the amount of free information you can pick up on the Internet.

These are patterns that technicians have been spotting for decades. All the famous ones are described in what is sometimes referred to as "the bible of technical analysis:" Technical Analysis of Stock Trends is the name of the book. I won't mention the authors' names, since the real author of the important parts of the book was named Richard Schabacker. They didn't even include his name among the supposed authors. Schabacker, who died quite young, was the master chartist. His charting section has been published under another name: Technical Analysis and Stock Market Profits. The Real Bible of Technical Analysis.  It's available from Amazon. I believe every technician should have a copy of this book.

Now that the H&S has been dissipated, a new picture pattern may develop. I see possible early signs of what is called "a Broadening Top." It is sometimes called a Megaphone Pattern, because it is in the shape of a megaphone with higher highs AND lower lows as the pattern progresses from left to right. It is a bearish pattern. There are other possibilities, some bullish.

As it stands, I think the short-term uptrend has moved up impetuously and may require some kind of a setback to regain its confidence. That is, if it is intent on moving up. There are quite a few important earnings reports that will come out soon. They will have an effect--especially now that almost nobody knows how to evaluate the market based on anything that hasn't actually happened.

No changes

Howard Lindzon's new book, "The Wallstrip Edge: Using Trends to Make Money -- Find Them, Ride Them, and Get Off" is out this month. If you are a fan of the WallStrip show and/or trend following you should check it out. I haven't read it yet but here's the product description from Amazon:

It's been often observed that anyone who invests in the stock market needs to have a very strong sense of humor....indeed; no truer words were ever spoken.

And the truth is, Howard Lindzon took that observation quite literally. Indeed, Howard's creation -- Wallstrip.com -- has become just that - a total melding of humor and investing, or as the New York Times observed about Wallstrip - "It's Squawk Box meets Saturday Night Live." Wallstrip.com pulls in between 5 and 7 million visitors a year, and the show's rabid following includes stock market enthusiasts, venture capitalists, traders, and others who tune in to hear, see, and talk about what's happening in the markets.

If you haven't been to Wallstrip.com, well, you're in for a real treat. Lindzon's parodies are priceless. And in THE WALLSTRIP EDGE, Howard captures his most unusual (but very smart) approach to how he picks winners, and you can too.

In THE WALLSTRIP EDGE, Howard Lindzon shows readers how to profit from his straightforward investment philosophy -- a unique trend watching philosophy that makes Wallstrip.com such an amazing phenomenon, including how to look at trends from a different perspective, knowing when to buy a certain stock, how to hold it, and of course when to sell. It's all done using the power of the Internet and your own instincts. It's a surprisingly simple (and fun) strategy that works, and best of all, you don't need to be a financial genius to make it work for you.

A comment by Andrew on Barry's post about the SEC wanting to ban all short selling sent me to my copy of Michael Panzner's book Financial Armageddon. Andrew stated that "tonight's event draws me to the last paragraph of ch.7 in Michael Panzer's Financial Armageddon". When I read that paragraph I was reminded of how I felt while reading the book back in March 2007. The scenarios that Panzner laid out were nothing short of chilling. I kept wondering if he really believed all those dire things would actually happen or if they were just a worst case scenario. In flipping through a few chapters tonight it's scary to see just how much of what Panzner wrote has come to pass. Here are the last two paragraph from chapter 7 ("Depression") which Andrew was talking about (hopefully Michael won't mind me posting so much of his text):

Eventually, with a decades-long orgy of credit expansion unraveling fast; the meltdown of stock, bond, commodity, and other markets; a cratering economy; and more of the nation's largest financial institutions precariously on the edge, the Federal Reserve and Washington as a whole will have reached a critical juncture. There will be widespread pressure, bordering perhaps on hysteria, for somebody, somewhere to take action and stem the rapidly rising tide of disaster.

Only then, after being unwilling to react quickly and forcefully enough early on, the Federal Reserve will abruptly shift gears, no longer fearing the consequences of an aggressive monetary response. In a sense, they will have nothing to lose. With immediate effect, they will give up their self-imposed yoke of restraint and move wholeheartedly into money-creation mode. That will mark the beginning of the second phase of the great unraveling.

Sound familiar? Here's some more from Chapter 6 ("Systemic Crisis")

No doubt a systemic meltdown will provoke a similar response. For the financial system and the markets, however, the fallout will likely be worse than any downturn in many decades, owing to a unique combination of modern developments and incendiary circumstances. The explosive growth of derivatives trading and leveraged hedge fund investing, hidden behind a shroud of lightly regulated secrecy, means that few people will have a handle on where dangerous risk is concentrated or overall levels of exposure -- not until it's too late...

-SNIP-

Simply put, people will find it difficult to react in timely, logical or focused fashion to the unfolding calamity...

-SNIP-

Despite increased levels of sophistication and the broad use of modern risk management systems, no one can be sure how new or exotic instruments and markets will behave when conditions take an ominous turn. The sheer scale of the unfolding financial crisis—in terms of the number of participants, firms, regulators, products, countries, and markets—will make it difficult to penetrate the problems...

-SNIP-

This time, however, a vast and efficient global communications network will ensure that destructive energies are rapidly transmitted to billions of people. So, too, will trading technology that facilitates and encourages traders and investors to act on their impulses. Many will find it too easy to shoot first -- or point and click -- and ask questions later in a 21st-century rush for the exits.. Not only will the fastest or sharpest operators look to get out. Firms that have come to depend on leverage, including hedge funds, brokers, and even banks, will also face immediate and rapidly growing pressure to scale back positions because of demands for additional cash collateral or reduced access to financing. Meanwhile, those who still have the wherewithal to initiate fresh positions or act independently will look to dive in and take advantage of the stampede.

-SNIP-

A constant global ripple effect will occur as positions are adjusted to take account of risk management strategies or cash-raising demands. The widespread use of flawed models will further aggravate the situation.

-SNIP-

By the time the systemic crisis is full-blown, there will almost certainly have been a domino-like collapse of more than a few large intermediaries and allegedly sophisticated global financial firms, including hedge funds, insurers, and brokers. As the number of failures grows, concerns over counterparty risk will take center stage. Lenders, investors, and risk managers will fret and gossip about which institution is next. Worries about fraud and chicanery will boost anxiety to a fever pitch. Even firms not in dire straits may suddenly find themselves at risk. In times of upheaval, a lack of information and concern about the ability of others to manage their exposure often spurs a self-fulfilling prophecy, where idle chatter alone leads to institutions being squeezed or cut off—just when they need access to financing most.

-SNIP-

Few areas of the financial system will be unaffected when the meltdown rages. In the insurance sector, for example, debt downgrades and defaults will occur at a quickening pace... At least some of the $2 trillion held in money market funds will anxiously flee to safer pastures as the prices of one or more pools fall below par -- "breaks the buck" -- because of shaky markets and holdings that turn out to be much riskier than expected.

Pretty much all of this has taken place over the last few weeks. Kudos to Michael Panzner for nailing all of this. And somehow I still have hope that much of the other stuff in the book is worst case scenario and won't come to pass. But I'm losing hope by the day.

Unfortunately I haven't had a chance to read my review copy of Timothy Sykes' new book 'An American Hedge Fund: How I Made $2 Million as a Stock Operator & Created a Hedge Fund'. But since you all read financial blogs I'm sure you've seen at least one of the many rave reviews across the net. The book was officially released this week and Tim was nice enough to send me the final edition as well. Since I now have two unread copies I'm going to give away my review copy, which is an uncorrected proof version.

Update: Timothy has offered two signed FINAL copies of the book. So here's what we'll do -- The two closest guessers will receive the final edition from Tim. I hate to let a book go to waste, I'm gonna give my uncorrected proof to the bronze medalist.

So here's the deal. Leave a comment guessing tomorrow's (Friday's) closing price of the Nasdaq. The person who's the closest gets the book -- U.S. addresses only.

Note: your guess must be entered by 9 PM EST today

I'm really looking forward to reading Kedrick Brown's book, Trend Trading: Timing Market Tides. It's been near the top of my reading list for several weeks now. (I really need to carve out more reading time!). I've only skimmed through it thus far but it looks like a very good read. Kedrick just informed me about an interview he recently did with Tavis Smiley which you can listen to below:

Financial wiz Kedrick Brown says certain aspects of an “unpredictable” market can be predicted with good investment strategy in his book, Trend Trading: Timing Market Tides.

[audio:KedrickBrown_01192007.mp3]

For a bit more detail on the book, check out Kedrick's self-review:

Somehow, between writing for his own site, his TraderFeed Blog, TradingMarkets.com and various presentaions Dr. Steenbarger found the time to write a new book, Enhancing Trader Performance. I just got my hands on a copy and am looking forward to reading it. Dr. Brett wrote a little bit about the book yesterday in his post entitled 'Finding Your Performance Niche'. In that post he provided a link to a PDF of the first chapter of the book. So have at it.

More details about the book are below...

Michelle B submits: A daytrader I knew who had a very high-percentage win rate, around ninety-five percent, when faced with a loss, would let it run. He was capitalized enough to do what he called "pouring on the gasoline." This activity of his would involve "lining up cans of gasoline as far as the eye could see." What he would do was to buy furiously all the way down at various support levels to reduce his cost basis. Sometimes, this took days, even weeks. Most of the time, after tying up his buying power and only focusing on his special kind of arson while missing many other opportunities, he would be able to get out with a small loss--the amount he could have booked in the first place. Every once in awhile, his account would get burned by his own arson. Because of his high win rate and trading skill, he would make up the losses fairly soon. Eventually, he would be faced with a loss, and he would turn arsonist once again.

He knew what he was doing was contrary to everything he knew about trading discipline. He referred to this crazy reaction being done by the 'nut within'. At the same time, I was also doing battle with myself. Taking my clue from him, I went a step further, and identified my 'nuts within'. I had three of them! The one that wanted to control every tick in the market. The one that had to be immediately gratified by the market. Last but least, the one that lived only to be entertained by the market. These 'nuts' managed my trading turret. Every once in awhile, the sane trader would make an appearance and trade well, but not for long. The 'nuts' were too potent and too numerous.

I then recalled a book that I read a long time ago, called, Taming your Gremlin, written by Rich Carson. I no longer had a copy, but I remembered one aspect of the approach to dealing with self-sabotage. That aspect was to identify the gremlin, to be conscious of its existence, while not trying to banish it. If you try to stop your nonsense all at once, it won't work. Maybe for awhile, you will trade like a sane person, but then the self-sabotage will appear once again.

I remember the British singer, Marianne Faithfull, when asked why she almost destroyed herself through drug addiction, responding the why did not matter, only that she knew she could stop taking drugs. Do not reason with yourself, nor scold yourself, or go into deep analysis why you trade like an idiot at times, just identify the kind of sabotage you do. Shine the light of recognition on the beast--chase that thing from the shadows. Don't yell at it, don't try to destroy it, just know it is there and see it in all its beastliness. Its power lies in it being secret, hidden, and vaque. Name it by name.

Gremlins scuttle back to their hiding places when exposed to light. They don't mind popping out into the light of your consciousness disguised as the greatest trader ever known and make you trade like a jerk. But, that is their choice. However, they have no tolerance when you decide to shine the light on them. They don't appreciate that. After awhile, they just don't bother to come out. If they do manage to come out, they don't stay long. But, they are always there, they never go away. You have just tamed them, so you can function in a positive manner.

Of all of my gremlins, the control freak was the hardest and took the longest to tame. However, if it does appears now, and says, do not honor your stop loss because you have planned the trade PERFECTLY, you have researched EVERYTHING to ensure the trade will work, so if it does not work, just IGNORE that fact, my response is laughter. I know I cannot structure the market, I can only structure my interaction with it, and that my trading plan just has a probability of working. The control freak scuttles back under its rock, and the stop loss stays.

When the gremlin which wants to be immediately gratified pokes its head out, and insists I book a profit earlier than my target, I review the reasons why I have decided on such a target, and if the reasons are still there, the trade stays on, and that gremlin slinks away.

The silly gremlin which thinks the market is a show, and want to get its kicks from being entertained in exciting ways, still visits, and screams in its frenzied voice, hey, why don't you jump aboard that hot stock to just see how far it goes? I check out the support and resistance on various timeframes, and if I cannot perceive an opportunity, I decline the urge to trade without an edge. That gremlin slithers away also.

Depending on the ferocity and different kinds of self-sabotage, it can take quite awhile to tame these inner beasts. At first, the self-saboteur will hate what you are doing, and will raise a fuss, making the gremlin appear stronger and even more powerful. Don't argue with the beast, just keep shining the light of recognition upon it, enabling you, the trader, with your knowledge and skill to rise to the occasion and manage your trading turret.

Michelle B submits: The Disciplined Trader by Mark Douglas sits near my trading turret in a place of honor. Following rules is very problematical for traders. Having rules, and some traders have many, is not the same as being disciplined. A disciplined trader follows his rules, while a trader who has rules may not necessarily be disciplined enough to follow them. Trading without controlling emotions often takes the form of a vicious circle--the trader becomes ensnared in a trap of his own making, and it can be nearly impossible to break this viciousness. Sometimes, in extreme cases, the only solution is to take an extended sabbatical from trading. It can take a long time to heal the psychological damage resulting from trading without discipline, so it is much better to try to prevent this damage from happening in the first place.

After reading some of John Carter's articles in Stocks, Futures and Options Magazine I was looking forward to reading his then upcoming book "Mastering the Trade: Proven Techniques for Profiting from Intraday and Swing Trading Setups". It was obvious from his articles that John had some good insights into how the markets work and that comes across even more so in the book. "Mastering the Trade" covers a lot of ground including writing a business plan (something that too few books cover), how to choose the proper hardware and software, an introduction to futures and currency trading (Forex) , an overview of trader psychology, a premarket checklist, a variety of trading setups and seven key internals to monitor in order to gauge intraday market strength & direction.

Some of you may be interested in the new book "The Quants: How a New Breed of Math Whizzes Conquered Wall Street and Nearly Destroyed It". Here's a short description (as if the title doesn't say it all):

In March 2006, the worldrs"s richest men sipped champagne in an opulent New York hotel. They were preparing to compete in a poker tournament with shy;million-dollar stakes. At the card table that night was Peter Muller, who managed a fabulously successful hedge fund called PDT. With him was Ken Griffin, who was the tough-as-nails head of Citadel Investment Group. There, too, were Cliff Asness, the sharp-tongued, mercurial founder of the hedge fund AQR Capital Management, and Boaz Weinstein, chess "life master" and king of the credit-default swap. Muller, Griffin, Asness, and Weinstein were among the best and brightest of a new breed, the quants. Over the past twenty years, this species of math whiz had usurped the testosterone-fueled, kill-or-be-killed risk takers whors"d long been the alpha males of the worldrs"s largest casino. The quants believed that a cocktail of differential calculus, quantum physics, and advanced geometry held the key to reaping riches from the financial markets. And they helped create a digitized money-trading machine that could shift shy;billions around the globe with the click of a mouse. Few realized that night, though, that in creating this extraordinary system, men like Muller, Griffin, Asness, and Weinstein had sown the seeds for historyrs"s greatest financial disaster.

You can listen to a discussion about it on yesterday's NPR 'Fresh Air' show. There's also an excerpt of the book posted on that NPR page.

So the bulls barely gave up any ground to end the week and that leaves the indices very extended. I think that it's going to take some great earnings releases to drive the market much higher without at least a few days of sideways movement. The Nasdaq actually punched out a new 2009 high last week but it did so on below average volume. That makes me the move suspect in my mind. If we start to get some big names reporting weak earnings I wouldn't be surprised to see the Nasdaq fill Wednesday's gap.

It's a similar story for the S&P 500 except that it hasn't made a new high for the year. It's perched right below resistance from its 2009 high. The short-term stochastic is very overbought, which isn't surprising after a 7% move in four days. I'd like to see stochastic cool off before thinking about putting new money to work.

I was mildly amused by Friday's Worden report, especially the part about the "true" author of Technical Analysis of Stock Trends. I envision him being the Little Richard of technical analysis had he lived to see the popularity of later works...

Having shattered a perfectly good head&shoulders top, demonstrating an obvious zeal in the process, the market is now once again showing signs of confusion and trepidation. Now what is it supposed to do? The sky is one big resistance zone.

My email reveals what appears to be a fairly wide lack of understanding of H&S tops, despite the fact it is probably the most widely recognized picture pattern on a chart. It probably is that, since it is so recognizable, it has become the most famous picture pattern used by technicians. Considering the American propensity to admire the rich and famous, the H&S stands out as a celebrity of sorts. The pattern presents such a clear picture--a lineup of a left shoulder, then a head, then a right shoulder.

None of the other picture patterns are as unambiguous. However, the artistic merit of an H&S should not be construed as the key to its accuracy as a forecasting tool. It is a good tool, but most picture patterns are just as good. You'll never find one that is perfect or that will do your thinking for you, whether it be a rising wedge, an ascending triangle, a double top or a W bottom. Try doing some Google searches on specific patterns. You may be surprised at the amount of free information you can pick up on the Internet.

These are patterns that technicians have been spotting for decades. All the famous ones are described in what is sometimes referred to as "the bible of technical analysis:" Technical Analysis of Stock Trends is the name of the book. I won't mention the authors' names, since the real author of the important parts of the book was named Richard Schabacker. They didn't even include his name among the supposed authors. Schabacker, who died quite young, was the master chartist. His charting section has been published under another name: Technical Analysis and Stock Market Profits. The Real Bible of Technical Analysis.  It's available from Amazon. I believe every technician should have a copy of this book.

Now that the H&S has been dissipated, a new picture pattern may develop. I see possible early signs of what is called "a Broadening Top." It is sometimes called a Megaphone Pattern, because it is in the shape of a megaphone with higher highs AND lower lows as the pattern progresses from left to right. It is a bearish pattern. There are other possibilities, some bullish.

As it stands, I think the short-term uptrend has moved up impetuously and may require some kind of a setback to regain its confidence. That is, if it is intent on moving up. There are quite a few important earnings reports that will come out soon. They will have an effect--especially now that almost nobody knows how to evaluate the market based on anything that hasn't actually happened.

No changes

Howard Lindzon's new book, "The Wallstrip Edge: Using Trends to Make Money -- Find Them, Ride Them, and Get Off" is out this month. If you are a fan of the WallStrip show and/or trend following you should check it out. I haven't read it yet but here's the product description from Amazon:

It's been often observed that anyone who invests in the stock market needs to have a very strong sense of humor....indeed; no truer words were ever spoken.

And the truth is, Howard Lindzon took that observation quite literally. Indeed, Howard's creation -- Wallstrip.com -- has become just that - a total melding of humor and investing, or as the New York Times observed about Wallstrip - "It's Squawk Box meets Saturday Night Live." Wallstrip.com pulls in between 5 and 7 million visitors a year, and the show's rabid following includes stock market enthusiasts, venture capitalists, traders, and others who tune in to hear, see, and talk about what's happening in the markets.

If you haven't been to Wallstrip.com, well, you're in for a real treat. Lindzon's parodies are priceless. And in THE WALLSTRIP EDGE, Howard captures his most unusual (but very smart) approach to how he picks winners, and you can too.

In THE WALLSTRIP EDGE, Howard Lindzon shows readers how to profit from his straightforward investment philosophy -- a unique trend watching philosophy that makes Wallstrip.com such an amazing phenomenon, including how to look at trends from a different perspective, knowing when to buy a certain stock, how to hold it, and of course when to sell. It's all done using the power of the Internet and your own instincts. It's a surprisingly simple (and fun) strategy that works, and best of all, you don't need to be a financial genius to make it work for you.

A comment by Andrew on Barry's post about the SEC wanting to ban all short selling sent me to my copy of Michael Panzner's book Financial Armageddon. Andrew stated that "tonight's event draws me to the last paragraph of ch.7 in Michael Panzer's Financial Armageddon". When I read that paragraph I was reminded of how I felt while reading the book back in March 2007. The scenarios that Panzner laid out were nothing short of chilling. I kept wondering if he really believed all those dire things would actually happen or if they were just a worst case scenario. In flipping through a few chapters tonight it's scary to see just how much of what Panzner wrote has come to pass. Here are the last two paragraph from chapter 7 ("Depression") which Andrew was talking about (hopefully Michael won't mind me posting so much of his text):

Eventually, with a decades-long orgy of credit expansion unraveling fast; the meltdown of stock, bond, commodity, and other markets; a cratering economy; and more of the nation's largest financial institutions precariously on the edge, the Federal Reserve and Washington as a whole will have reached a critical juncture. There will be widespread pressure, bordering perhaps on hysteria, for somebody, somewhere to take action and stem the rapidly rising tide of disaster.

Only then, after being unwilling to react quickly and forcefully enough early on, the Federal Reserve will abruptly shift gears, no longer fearing the consequences of an aggressive monetary response. In a sense, they will have nothing to lose. With immediate effect, they will give up their self-imposed yoke of restraint and move wholeheartedly into money-creation mode. That will mark the beginning of the second phase of the great unraveling.

Sound familiar? Here's some more from Chapter 6 ("Systemic Crisis")

No doubt a systemic meltdown will provoke a similar response. For the financial system and the markets, however, the fallout will likely be worse than any downturn in many decades, owing to a unique combination of modern developments and incendiary circumstances. The explosive growth of derivatives trading and leveraged hedge fund investing, hidden behind a shroud of lightly regulated secrecy, means that few people will have a handle on where dangerous risk is concentrated or overall levels of exposure -- not until it's too late...

-SNIP-

Simply put, people will find it difficult to react in timely, logical or focused fashion to the unfolding calamity...

-SNIP-

Despite increased levels of sophistication and the broad use of modern risk management systems, no one can be sure how new or exotic instruments and markets will behave when conditions take an ominous turn. The sheer scale of the unfolding financial crisis—in terms of the number of participants, firms, regulators, products, countries, and markets—will make it difficult to penetrate the problems...

-SNIP-

This time, however, a vast and efficient global communications network will ensure that destructive energies are rapidly transmitted to billions of people. So, too, will trading technology that facilitates and encourages traders and investors to act on their impulses. Many will find it too easy to shoot first -- or point and click -- and ask questions later in a 21st-century rush for the exits.. Not only will the fastest or sharpest operators look to get out. Firms that have come to depend on leverage, including hedge funds, brokers, and even banks, will also face immediate and rapidly growing pressure to scale back positions because of demands for additional cash collateral or reduced access to financing. Meanwhile, those who still have the wherewithal to initiate fresh positions or act independently will look to dive in and take advantage of the stampede.

-SNIP-

A constant global ripple effect will occur as positions are adjusted to take account of risk management strategies or cash-raising demands. The widespread use of flawed models will further aggravate the situation.

-SNIP-

By the time the systemic crisis is full-blown, there will almost certainly have been a domino-like collapse of more than a few large intermediaries and allegedly sophisticated global financial firms, including hedge funds, insurers, and brokers. As the number of failures grows, concerns over counterparty risk will take center stage. Lenders, investors, and risk managers will fret and gossip about which institution is next. Worries about fraud and chicanery will boost anxiety to a fever pitch. Even firms not in dire straits may suddenly find themselves at risk. In times of upheaval, a lack of information and concern about the ability of others to manage their exposure often spurs a self-fulfilling prophecy, where idle chatter alone leads to institutions being squeezed or cut off—just when they need access to financing most.

-SNIP-

Few areas of the financial system will be unaffected when the meltdown rages. In the insurance sector, for example, debt downgrades and defaults will occur at a quickening pace... At least some of the $2 trillion held in money market funds will anxiously flee to safer pastures as the prices of one or more pools fall below par -- "breaks the buck" -- because of shaky markets and holdings that turn out to be much riskier than expected.

Pretty much all of this has taken place over the last few weeks. Kudos to Michael Panzner for nailing all of this. And somehow I still have hope that much of the other stuff in the book is worst case scenario and won't come to pass. But I'm losing hope by the day.

Unfortunately I haven't had a chance to read my review copy of Timothy Sykes' new book 'An American Hedge Fund: How I Made $2 Million as a Stock Operator & Created a Hedge Fund'. But since you all read financial blogs I'm sure you've seen at least one of the many rave reviews across the net. The book was officially released this week and Tim was nice enough to send me the final edition as well. Since I now have two unread copies I'm going to give away my review copy, which is an uncorrected proof version.

Update: Timothy has offered two signed FINAL copies of the book. So here's what we'll do -- The two closest guessers will receive the final edition from Tim. I hate to let a book go to waste, I'm gonna give my uncorrected proof to the bronze medalist.

So here's the deal. Leave a comment guessing tomorrow's (Friday's) closing price of the Nasdaq. The person who's the closest gets the book -- U.S. addresses only.

Note: your guess must be entered by 9 PM EST today

I'm really looking forward to reading Kedrick Brown's book, Trend Trading: Timing Market Tides. It's been near the top of my reading list for several weeks now. (I really need to carve out more reading time!). I've only skimmed through it thus far but it looks like a very good read. Kedrick just informed me about an interview he recently did with Tavis Smiley which you can listen to below:

Financial wiz Kedrick Brown says certain aspects of an “unpredictable” market can be predicted with good investment strategy in his book, Trend Trading: Timing Market Tides.

[audio:KedrickBrown_01192007.mp3]

For a bit more detail on the book, check out Kedrick's self-review:

Somehow, between writing for his own site, his TraderFeed Blog, TradingMarkets.com and various presentaions Dr. Steenbarger found the time to write a new book, Enhancing Trader Performance. I just got my hands on a copy and am looking forward to reading it. Dr. Brett wrote a little bit about the book yesterday in his post entitled 'Finding Your Performance Niche'. In that post he provided a link to a PDF of the first chapter of the book. So have at it.

More details about the book are below...

Michelle B submits: A daytrader I knew who had a very high-percentage win rate, around ninety-five percent, when faced with a loss, would let it run. He was capitalized enough to do what he called "pouring on the gasoline." This activity of his would involve "lining up cans of gasoline as far as the eye could see." What he would do was to buy furiously all the way down at various support levels to reduce his cost basis. Sometimes, this took days, even weeks. Most of the time, after tying up his buying power and only focusing on his special kind of arson while missing many other opportunities, he would be able to get out with a small loss--the amount he could have booked in the first place. Every once in awhile, his account would get burned by his own arson. Because of his high win rate and trading skill, he would make up the losses fairly soon. Eventually, he would be faced with a loss, and he would turn arsonist once again.

He knew what he was doing was contrary to everything he knew about trading discipline. He referred to this crazy reaction being done by the 'nut within'. At the same time, I was also doing battle with myself. Taking my clue from him, I went a step further, and identified my 'nuts within'. I had three of them! The one that wanted to control every tick in the market. The one that had to be immediately gratified by the market. Last but least, the one that lived only to be entertained by the market. These 'nuts' managed my trading turret. Every once in awhile, the sane trader would make an appearance and trade well, but not for long. The 'nuts' were too potent and too numerous.

I then recalled a book that I read a long time ago, called, Taming your Gremlin, written by Rich Carson. I no longer had a copy, but I remembered one aspect of the approach to dealing with self-sabotage. That aspect was to identify the gremlin, to be conscious of its existence, while not trying to banish it. If you try to stop your nonsense all at once, it won't work. Maybe for awhile, you will trade like a sane person, but then the self-sabotage will appear once again.

I remember the British singer, Marianne Faithfull, when asked why she almost destroyed herself through drug addiction, responding the why did not matter, only that she knew she could stop taking drugs. Do not reason with yourself, nor scold yourself, or go into deep analysis why you trade like an idiot at times, just identify the kind of sabotage you do. Shine the light of recognition on the beast--chase that thing from the shadows. Don't yell at it, don't try to destroy it, just know it is there and see it in all its beastliness. Its power lies in it being secret, hidden, and vaque. Name it by name.

Gremlins scuttle back to their hiding places when exposed to light. They don't mind popping out into the light of your consciousness disguised as the greatest trader ever known and make you trade like a jerk. But, that is their choice. However, they have no tolerance when you decide to shine the light on them. They don't appreciate that. After awhile, they just don't bother to come out. If they do manage to come out, they don't stay long. But, they are always there, they never go away. You have just tamed them, so you can function in a positive manner.

Of all of my gremlins, the control freak was the hardest and took the longest to tame. However, if it does appears now, and says, do not honor your stop loss because you have planned the trade PERFECTLY, you have researched EVERYTHING to ensure the trade will work, so if it does not work, just IGNORE that fact, my response is laughter. I know I cannot structure the market, I can only structure my interaction with it, and that my trading plan just has a probability of working. The control freak scuttles back under its rock, and the stop loss stays.

When the gremlin which wants to be immediately gratified pokes its head out, and insists I book a profit earlier than my target, I review the reasons why I have decided on such a target, and if the reasons are still there, the trade stays on, and that gremlin slinks away.

The silly gremlin which thinks the market is a show, and want to get its kicks from being entertained in exciting ways, still visits, and screams in its frenzied voice, hey, why don't you jump aboard that hot stock to just see how far it goes? I check out the support and resistance on various timeframes, and if I cannot perceive an opportunity, I decline the urge to trade without an edge. That gremlin slithers away also.

Depending on the ferocity and different kinds of self-sabotage, it can take quite awhile to tame these inner beasts. At first, the self-saboteur will hate what you are doing, and will raise a fuss, making the gremlin appear stronger and even more powerful. Don't argue with the beast, just keep shining the light of recognition upon it, enabling you, the trader, with your knowledge and skill to rise to the occasion and manage your trading turret.

Michelle B submits: The Disciplined Trader by Mark Douglas sits near my trading turret in a place of honor. Following rules is very problematical for traders. Having rules, and some traders have many, is not the same as being disciplined. A disciplined trader follows his rules, while a trader who has rules may not necessarily be disciplined enough to follow them. Trading without controlling emotions often takes the form of a vicious circle--the trader becomes ensnared in a trap of his own making, and it can be nearly impossible to break this viciousness. Sometimes, in extreme cases, the only solution is to take an extended sabbatical from trading. It can take a long time to heal the psychological damage resulting from trading without discipline, so it is much better to try to prevent this damage from happening in the first place.

After reading some of John Carter's articles in Stocks, Futures and Options Magazine I was looking forward to reading his then upcoming book "Mastering the Trade: Proven Techniques for Profiting from Intraday and Swing Trading Setups". It was obvious from his articles that John had some good insights into how the markets work and that comes across even more so in the book. "Mastering the Trade" covers a lot of ground including writing a business plan (something that too few books cover), how to choose the proper hardware and software, an introduction to futures and currency trading (Forex) , an overview of trader psychology, a premarket checklist, a variety of trading setups and seven key internals to monitor in order to gauge intraday market strength & direction.

Some of you may be interested in the new book "The Quants: How a New Breed of Math Whizzes Conquered Wall Street and Nearly Destroyed It". Here's a short description (as if the title doesn't say it all):

In March 2006, the worldrs"s richest men sipped champagne in an opulent New York hotel. They were preparing to compete in a poker tournament with shy;million-dollar stakes. At the card table that night was Peter Muller, who managed a fabulously successful hedge fund called PDT. With him was Ken Griffin, who was the tough-as-nails head of Citadel Investment Group. There, too, were Cliff Asness, the sharp-tongued, mercurial founder of the hedge fund AQR Capital Management, and Boaz Weinstein, chess "life master" and king of the credit-default swap. Muller, Griffin, Asness, and Weinstein were among the best and brightest of a new breed, the quants. Over the past twenty years, this species of math whiz had usurped the testosterone-fueled, kill-or-be-killed risk takers whors"d long been the alpha males of the worldrs"s largest casino. The quants believed that a cocktail of differential calculus, quantum physics, and advanced geometry held the key to reaping riches from the financial markets. And they helped create a digitized money-trading machine that could shift shy;billions around the globe with the click of a mouse. Few realized that night, though, that in creating this extraordinary system, men like Muller, Griffin, Asness, and Weinstein had sown the seeds for historyrs"s greatest financial disaster.

You can listen to a discussion about it on yesterday's NPR 'Fresh Air' show. There's also an excerpt of the book posted on that NPR page.

So the bulls barely gave up any ground to end the week and that leaves the indices very extended. I think that it's going to take some great earnings releases to drive the market much higher without at least a few days of sideways movement. The Nasdaq actually punched out a new 2009 high last week but it did so on below average volume. That makes me the move suspect in my mind. If we start to get some big names reporting weak earnings I wouldn't be surprised to see the Nasdaq fill Wednesday's gap.

It's a similar story for the S&P 500 except that it hasn't made a new high for the year. It's perched right below resistance from its 2009 high. The short-term stochastic is very overbought, which isn't surprising after a 7% move in four days. I'd like to see stochastic cool off before thinking about putting new money to work.

I was mildly amused by Friday's Worden report, especially the part about the "true" author of Technical Analysis of Stock Trends. I envision him being the Little Richard of technical analysis had he lived to see the popularity of later works...

Having shattered a perfectly good head&shoulders top, demonstrating an obvious zeal in the process, the market is now once again showing signs of confusion and trepidation. Now what is it supposed to do? The sky is one big resistance zone.

My email reveals what appears to be a fairly wide lack of understanding of H&S tops, despite the fact it is probably the most widely recognized picture pattern on a chart. It probably is that, since it is so recognizable, it has become the most famous picture pattern used by technicians. Considering the American propensity to admire the rich and famous, the H&S stands out as a celebrity of sorts. The pattern presents such a clear picture--a lineup of a left shoulder, then a head, then a right shoulder.

None of the other picture patterns are as unambiguous. However, the artistic merit of an H&S should not be construed as the key to its accuracy as a forecasting tool. It is a good tool, but most picture patterns are just as good. You'll never find one that is perfect or that will do your thinking for you, whether it be a rising wedge, an ascending triangle, a double top or a W bottom. Try doing some Google searches on specific patterns. You may be surprised at the amount of free information you can pick up on the Internet.

These are patterns that technicians have been spotting for decades. All the famous ones are described in what is sometimes referred to as "the bible of technical analysis:" Technical Analysis of Stock Trends is the name of the book. I won't mention the authors' names, since the real author of the important parts of the book was named Richard Schabacker. They didn't even include his name among the supposed authors. Schabacker, who died quite young, was the master chartist. His charting section has been published under another name: Technical Analysis and Stock Market Profits. The Real Bible of Technical Analysis.  It's available from Amazon. I believe every technician should have a copy of this book.

Now that the H&S has been dissipated, a new picture pattern may develop. I see possible early signs of what is called "a Broadening Top." It is sometimes called a Megaphone Pattern, because it is in the shape of a megaphone with higher highs AND lower lows as the pattern progresses from left to right. It is a bearish pattern. There are other possibilities, some bullish.

As it stands, I think the short-term uptrend has moved up impetuously and may require some kind of a setback to regain its confidence. That is, if it is intent on moving up. There are quite a few important earnings reports that will come out soon. They will have an effect--especially now that almost nobody knows how to evaluate the market based on anything that hasn't actually happened.

No changes

Howard Lindzon's new book, "The Wallstrip Edge: Using Trends to Make Money -- Find Them, Ride Them, and Get Off" is out this month. If you are a fan of the WallStrip show and/or trend following you should check it out. I haven't read it yet but here's the product description from Amazon:

It's been often observed that anyone who invests in the stock market needs to have a very strong sense of humor....indeed; no truer words were ever spoken.

And the truth is, Howard Lindzon took that observation quite literally. Indeed, Howard's creation -- Wallstrip.com -- has become just that - a total melding of humor and investing, or as the New York Times observed about Wallstrip - "It's Squawk Box meets Saturday Night Live." Wallstrip.com pulls in between 5 and 7 million visitors a year, and the show's rabid following includes stock market enthusiasts, venture capitalists, traders, and others who tune in to hear, see, and talk about what's happening in the markets.

If you haven't been to Wallstrip.com, well, you're in for a real treat. Lindzon's parodies are priceless. And in THE WALLSTRIP EDGE, Howard captures his most unusual (but very smart) approach to how he picks winners, and you can too.

In THE WALLSTRIP EDGE, Howard Lindzon shows readers how to profit from his straightforward investment philosophy -- a unique trend watching philosophy that makes Wallstrip.com such an amazing phenomenon, including how to look at trends from a different perspective, knowing when to buy a certain stock, how to hold it, and of course when to sell. It's all done using the power of the Internet and your own instincts. It's a surprisingly simple (and fun) strategy that works, and best of all, you don't need to be a financial genius to make it work for you.

A comment by Andrew on Barry's post about the SEC wanting to ban all short selling sent me to my copy of Michael Panzner's book Financial Armageddon. Andrew stated that "tonight's event draws me to the last paragraph of ch.7 in Michael Panzer's Financial Armageddon". When I read that paragraph I was reminded of how I felt while reading the book back in March 2007. The scenarios that Panzner laid out were nothing short of chilling. I kept wondering if he really believed all those dire things would actually happen or if they were just a worst case scenario. In flipping through a few chapters tonight it's scary to see just how much of what Panzner wrote has come to pass. Here are the last two paragraph from chapter 7 ("Depression") which Andrew was talking about (hopefully Michael won't mind me posting so much of his text):

Eventually, with a decades-long orgy of credit expansion unraveling fast; the meltdown of stock, bond, commodity, and other markets; a cratering economy; and more of the nation's largest financial institutions precariously on the edge, the Federal Reserve and Washington as a whole will have reached a critical juncture. There will be widespread pressure, bordering perhaps on hysteria, for somebody, somewhere to take action and stem the rapidly rising tide of disaster.

Only then, after being unwilling to react quickly and forcefully enough early on, the Federal Reserve will abruptly shift gears, no longer fearing the consequences of an aggressive monetary response. In a sense, they will have nothing to lose. With immediate effect, they will give up their self-imposed yoke of restraint and move wholeheartedly into money-creation mode. That will mark the beginning of the second phase of the great unraveling.

Sound familiar? Here's some more from Chapter 6 ("Systemic Crisis")

No doubt a systemic meltdown will provoke a similar response. For the financial system and the markets, however, the fallout will likely be worse than any downturn in many decades, owing to a unique combination of modern developments and incendiary circumstances. The explosive growth of derivatives trading and leveraged hedge fund investing, hidden behind a shroud of lightly regulated secrecy, means that few people will have a handle on where dangerous risk is concentrated or overall levels of exposure -- not until it's too late...

-SNIP-

Simply put, people will find it difficult to react in timely, logical or focused fashion to the unfolding calamity...

-SNIP-

Despite increased levels of sophistication and the broad use of modern risk management systems, no one can be sure how new or exotic instruments and markets will behave when conditions take an ominous turn. The sheer scale of the unfolding financial crisis—in terms of the number of participants, firms, regulators, products, countries, and markets—will make it difficult to penetrate the problems...

-SNIP-

This time, however, a vast and efficient global communications network will ensure that destructive energies are rapidly transmitted to billions of people. So, too, will trading technology that facilitates and encourages traders and investors to act on their impulses. Many will find it too easy to shoot first -- or point and click -- and ask questions later in a 21st-century rush for the exits.. Not only will the fastest or sharpest operators look to get out. Firms that have come to depend on leverage, including hedge funds, brokers, and even banks, will also face immediate and rapidly growing pressure to scale back positions because of demands for additional cash collateral or reduced access to financing. Meanwhile, those who still have the wherewithal to initiate fresh positions or act independently will look to dive in and take advantage of the stampede.

-SNIP-

A constant global ripple effect will occur as positions are adjusted to take account of risk management strategies or cash-raising demands. The widespread use of flawed models will further aggravate the situation.

-SNIP-

By the time the systemic crisis is full-blown, there will almost certainly have been a domino-like collapse of more than a few large intermediaries and allegedly sophisticated global financial firms, including hedge funds, insurers, and brokers. As the number of failures grows, concerns over counterparty risk will take center stage. Lenders, investors, and risk managers will fret and gossip about which institution is next. Worries about fraud and chicanery will boost anxiety to a fever pitch. Even firms not in dire straits may suddenly find themselves at risk. In times of upheaval, a lack of information and concern about the ability of others to manage their exposure often spurs a self-fulfilling prophecy, where idle chatter alone leads to institutions being squeezed or cut off—just when they need access to financing most.

-SNIP-

Few areas of the financial system will be unaffected when the meltdown rages. In the insurance sector, for example, debt downgrades and defaults will occur at a quickening pace... At least some of the $2 trillion held in money market funds will anxiously flee to safer pastures as the prices of one or more pools fall below par -- "breaks the buck" -- because of shaky markets and holdings that turn out to be much riskier than expected.

Pretty much all of this has taken place over the last few weeks. Kudos to Michael Panzner for nailing all of this. And somehow I still have hope that much of the other stuff in the book is worst case scenario and won't come to pass. But I'm losing hope by the day.

Unfortunately I haven't had a chance to read my review copy of Timothy Sykes' new book 'An American Hedge Fund: How I Made $2 Million as a Stock Operator & Created a Hedge Fund'. But since you all read financial blogs I'm sure you've seen at least one of the many rave reviews across the net. The book was officially released this week and Tim was nice enough to send me the final edition as well. Since I now have two unread copies I'm going to give away my review copy, which is an uncorrected proof version.

Update: Timothy has offered two signed FINAL copies of the book. So here's what we'll do -- The two closest guessers will receive the final edition from Tim. I hate to let a book go to waste, I'm gonna give my uncorrected proof to the bronze medalist.

So here's the deal. Leave a comment guessing tomorrow's (Friday's) closing price of the Nasdaq. The person who's the closest gets the book -- U.S. addresses only.

Note: your guess must be entered by 9 PM EST today

I'm really looking forward to reading Kedrick Brown's book, Trend Trading: Timing Market Tides. It's been near the top of my reading list for several weeks now. (I really need to carve out more reading time!). I've only skimmed through it thus far but it looks like a very good read. Kedrick just informed me about an interview he recently did with Tavis Smiley which you can listen to below:

Financial wiz Kedrick Brown says certain aspects of an “unpredictable” market can be predicted with good investment strategy in his book, Trend Trading: Timing Market Tides.

[audio:KedrickBrown_01192007.mp3]

For a bit more detail on the book, check out Kedrick's self-review:

Somehow, between writing for his own site, his TraderFeed Blog, TradingMarkets.com and various presentaions Dr. Steenbarger found the time to write a new book, Enhancing Trader Performance. I just got my hands on a copy and am looking forward to reading it. Dr. Brett wrote a little bit about the book yesterday in his post entitled 'Finding Your Performance Niche'. In that post he provided a link to a PDF of the first chapter of the book. So have at it.

More details about the book are below...

Michelle B submits: A daytrader I knew who had a very high-percentage win rate, around ninety-five percent, when faced with a loss, would let it run. He was capitalized enough to do what he called "pouring on the gasoline." This activity of his would involve "lining up cans of gasoline as far as the eye could see." What he would do was to buy furiously all the way down at various support levels to reduce his cost basis. Sometimes, this took days, even weeks. Most of the time, after tying up his buying power and only focusing on his special kind of arson while missing many other opportunities, he would be able to get out with a small loss--the amount he could have booked in the first place. Every once in awhile, his account would get burned by his own arson. Because of his high win rate and trading skill, he would make up the losses fairly soon. Eventually, he would be faced with a loss, and he would turn arsonist once again.

He knew what he was doing was contrary to everything he knew about trading discipline. He referred to this crazy reaction being done by the 'nut within'. At the same time, I was also doing battle with myself. Taking my clue from him, I went a step further, and identified my 'nuts within'. I had three of them! The one that wanted to control every tick in the market. The one that had to be immediately gratified by the market. Last but least, the one that lived only to be entertained by the market. These 'nuts' managed my trading turret. Every once in awhile, the sane trader would make an appearance and trade well, but not for long. The 'nuts' were too potent and too numerous.

I then recalled a book that I read a long time ago, called, Taming your Gremlin, written by Rich Carson. I no longer had a copy, but I remembered one aspect of the approach to dealing with self-sabotage. That aspect was to identify the gremlin, to be conscious of its existence, while not trying to banish it. If you try to stop your nonsense all at once, it won't work. Maybe for awhile, you will trade like a sane person, but then the self-sabotage will appear once again.

I remember the British singer, Marianne Faithfull, when asked why she almost destroyed herself through drug addiction, responding the why did not matter, only that she knew she could stop taking drugs. Do not reason with yourself, nor scold yourself, or go into deep analysis why you trade like an idiot at times, just identify the kind of sabotage you do. Shine the light of recognition on the beast--chase that thing from the shadows. Don't yell at it, don't try to destroy it, just know it is there and see it in all its beastliness. Its power lies in it being secret, hidden, and vaque. Name it by name.

Gremlins scuttle back to their hiding places when exposed to light. They don't mind popping out into the light of your consciousness disguised as the greatest trader ever known and make you trade like a jerk. But, that is their choice. However, they have no tolerance when you decide to shine the light on them. They don't appreciate that. After awhile, they just don't bother to come out. If they do manage to come out, they don't stay long. But, they are always there, they never go away. You have just tamed them, so you can function in a positive manner.

Of all of my gremlins, the control freak was the hardest and took the longest to tame. However, if it does appears now, and says, do not honor your stop loss because you have planned the trade PERFECTLY, you have researched EVERYTHING to ensure the trade will work, so if it does not work, just IGNORE that fact, my response is laughter. I know I cannot structure the market, I can only structure my interaction with it, and that my trading plan just has a probability of working. The control freak scuttles back under its rock, and the stop loss stays.

When the gremlin which wants to be immediately gratified pokes its head out, and insists I book a profit earlier than my target, I review the reasons why I have decided on such a target, and if the reasons are still there, the trade stays on, and that gremlin slinks away.

The silly gremlin which thinks the market is a show, and want to get its kicks from being entertained in exciting ways, still visits, and screams in its frenzied voice, hey, why don't you jump aboard that hot stock to just see how far it goes? I check out the support and resistance on various timeframes, and if I cannot perceive an opportunity, I decline the urge to trade without an edge. That gremlin slithers away also.

Depending on the ferocity and different kinds of self-sabotage, it can take quite awhile to tame these inner beasts. At first, the self-saboteur will hate what you are doing, and will raise a fuss, making the gremlin appear stronger and even more powerful. Don't argue with the beast, just keep shining the light of recognition upon it, enabling you, the trader, with your knowledge and skill to rise to the occasion and manage your trading turret.

Michelle B submits: The Disciplined Trader by Mark Douglas sits near my trading turret in a place of honor. Following rules is very problematical for traders. Having rules, and some traders have many, is not the same as being disciplined. A disciplined trader follows his rules, while a trader who has rules may not necessarily be disciplined enough to follow them. Trading without controlling emotions often takes the form of a vicious circle--the trader becomes ensnared in a trap of his own making, and it can be nearly impossible to break this viciousness. Sometimes, in extreme cases, the only solution is to take an extended sabbatical from trading. It can take a long time to heal the psychological damage resulting from trading without discipline, so it is much better to try to prevent this damage from happening in the first place.

After reading some of John Carter's articles in Stocks, Futures and Options Magazine I was looking forward to reading his then upcoming book "Mastering the Trade: Proven Techniques for Profiting from Intraday and Swing Trading Setups". It was obvious from his articles that John had some good insights into how the markets work and that comes across even more so in the book. "Mastering the Trade" covers a lot of ground including writing a business plan (something that too few books cover), how to choose the proper hardware and software, an introduction to futures and currency trading (Forex) , an overview of trader psychology, a premarket checklist, a variety of trading setups and seven key internals to monitor in order to gauge intraday market strength & direction.

Some of you may be interested in the new book "The Quants: How a New Breed of Math Whizzes Conquered Wall Street and Nearly Destroyed It". Here's a short description (as if the title doesn't say it all):

In March 2006, the worldrs"s richest men sipped champagne in an opulent New York hotel. They were preparing to compete in a poker tournament with shy;million-dollar stakes. At the card table that night was Peter Muller, who managed a fabulously successful hedge fund called PDT. With him was Ken Griffin, who was the tough-as-nails head of Citadel Investment Group. There, too, were Cliff Asness, the sharp-tongued, mercurial founder of the hedge fund AQR Capital Management, and Boaz Weinstein, chess "life master" and king of the credit-default swap. Muller, Griffin, Asness, and Weinstein were among the best and brightest of a new breed, the quants. Over the past twenty years, this species of math whiz had usurped the testosterone-fueled, kill-or-be-killed risk takers whors"d long been the alpha males of the worldrs"s largest casino. The quants believed that a cocktail of differential calculus, quantum physics, and advanced geometry held the key to reaping riches from the financial markets. And they helped create a digitized money-trading machine that could shift shy;billions around the globe with the click of a mouse. Few realized that night, though, that in creating this extraordinary system, men like Muller, Griffin, Asness, and Weinstein had sown the seeds for historyrs"s greatest financial disaster.

You can listen to a discussion about it on yesterday's NPR 'Fresh Air' show. There's also an excerpt of the book posted on that NPR page.

So the bulls barely gave up any ground to end the week and that leaves the indices very extended. I think that it's going to take some great earnings releases to drive the market much higher without at least a few days of sideways movement. The Nasdaq actually punched out a new 2009 high last week but it did so on below average volume. That makes me the move suspect in my mind. If we start to get some big names reporting weak earnings I wouldn't be surprised to see the Nasdaq fill Wednesday's gap.

It's a similar story for the S&P 500 except that it hasn't made a new high for the year. It's perched right below resistance from its 2009 high. The short-term stochastic is very overbought, which isn't surprising after a 7% move in four days. I'd like to see stochastic cool off before thinking about putting new money to work.

I was mildly amused by Friday's Worden report, especially the part about the "true" author of Technical Analysis of Stock Trends. I envision him being the Little Richard of technical analysis had he lived to see the popularity of later works...

Having shattered a perfectly good head&shoulders top, demonstrating an obvious zeal in the process, the market is now once again showing signs of confusion and trepidation. Now what is it supposed to do? The sky is one big resistance zone.

My email reveals what appears to be a fairly wide lack of understanding of H&S tops, despite the fact it is probably the most widely recognized picture pattern on a chart. It probably is that, since it is so recognizable, it has become the most famous picture pattern used by technicians. Considering the American propensity to admire the rich and famous, the H&S stands out as a celebrity of sorts. The pattern presents such a clear picture--a lineup of a left shoulder, then a head, then a right shoulder.

None of the other picture patterns are as unambiguous. However, the artistic merit of an H&S should not be construed as the key to its accuracy as a forecasting tool. It is a good tool, but most picture patterns are just as good. You'll never find one that is perfect or that will do your thinking for you, whether it be a rising wedge, an ascending triangle, a double top or a W bottom. Try doing some Google searches on specific patterns. You may be surprised at the amount of free information you can pick up on the Internet.

These are patterns that technicians have been spotting for decades. All the famous ones are described in what is sometimes referred to as "the bible of technical analysis:" Technical Analysis of Stock Trends is the name of the book. I won't mention the authors' names, since the real author of the important parts of the book was named Richard Schabacker. They didn't even include his name among the supposed authors. Schabacker, who died quite young, was the master chartist. His charting section has been published under another name: Technical Analysis and Stock Market Profits. The Real Bible of Technical Analysis.  It's available from Amazon. I believe every technician should have a copy of this book.

Now that the H&S has been dissipated, a new picture pattern may develop. I see possible early signs of what is called "a Broadening Top." It is sometimes called a Megaphone Pattern, because it is in the shape of a megaphone with higher highs AND lower lows as the pattern progresses from left to right. It is a bearish pattern. There are other possibilities, some bullish.

As it stands, I think the short-term uptrend has moved up impetuously and may require some kind of a setback to regain its confidence. That is, if it is intent on moving up. There are quite a few important earnings reports that will come out soon. They will have an effect--especially now that almost nobody knows how to evaluate the market based on anything that hasn't actually happened.

No changes

Howard Lindzon's new book, "The Wallstrip Edge: Using Trends to Make Money -- Find Them, Ride Them, and Get Off" is out this month. If you are a fan of the WallStrip show and/or trend following you should check it out. I haven't read it yet but here's the product description from Amazon:

It's been often observed that anyone who invests in the stock market needs to have a very strong sense of humor....indeed; no truer words were ever spoken.

And the truth is, Howard Lindzon took that observation quite literally. Indeed, Howard's creation -- Wallstrip.com -- has become just that - a total melding of humor and investing, or as the New York Times observed about Wallstrip - "It's Squawk Box meets Saturday Night Live." Wallstrip.com pulls in between 5 and 7 million visitors a year, and the show's rabid following includes stock market enthusiasts, venture capitalists, traders, and others who tune in to hear, see, and talk about what's happening in the markets.

If you haven't been to Wallstrip.com, well, you're in for a real treat. Lindzon's parodies are priceless. And in THE WALLSTRIP EDGE, Howard captures his most unusual (but very smart) approach to how he picks winners, and you can too.

In THE WALLSTRIP EDGE, Howard Lindzon shows readers how to profit from his straightforward investment philosophy -- a unique trend watching philosophy that makes Wallstrip.com such an amazing phenomenon, including how to look at trends from a different perspective, knowing when to buy a certain stock, how to hold it, and of course when to sell. It's all done using the power of the Internet and your own instincts. It's a surprisingly simple (and fun) strategy that works, and best of all, you don't need to be a financial genius to make it work for you.

A comment by Andrew on Barry's post about the SEC wanting to ban all short selling sent me to my copy of Michael Panzner's book Financial Armageddon. Andrew stated that "tonight's event draws me to the last paragraph of ch.7 in Michael Panzer's Financial Armageddon". When I read that paragraph I was reminded of how I felt while reading the book back in March 2007. The scenarios that Panzner laid out were nothing short of chilling. I kept wondering if he really believed all those dire things would actually happen or if they were just a worst case scenario. In flipping through a few chapters tonight it's scary to see just how much of what Panzner wrote has come to pass. Here are the last two paragraph from chapter 7 ("Depression") which Andrew was talking about (hopefully Michael won't mind me posting so much of his text):

Eventually, with a decades-long orgy of credit expansion unraveling fast; the meltdown of stock, bond, commodity, and other markets; a cratering economy; and more of the nation's largest financial institutions precariously on the edge, the Federal Reserve and Washington as a whole will have reached a critical juncture. There will be widespread pressure, bordering perhaps on hysteria, for somebody, somewhere to take action and stem the rapidly rising tide of disaster.

Only then, after being unwilling to react quickly and forcefully enough early on, the Federal Reserve will abruptly shift gears, no longer fearing the consequences of an aggressive monetary response. In a sense, they will have nothing to lose. With immediate effect, they will give up their self-imposed yoke of restraint and move wholeheartedly into money-creation mode. That will mark the beginning of the second phase of the great unraveling.

Sound familiar? Here's some more from Chapter 6 ("Systemic Crisis")

No doubt a systemic meltdown will provoke a similar response. For the financial system and the markets, however, the fallout will likely be worse than any downturn in many decades, owing to a unique combination of modern developments and incendiary circumstances. The explosive growth of derivatives trading and leveraged hedge fund investing, hidden behind a shroud of lightly regulated secrecy, means that few people will have a handle on where dangerous risk is concentrated or overall levels of exposure -- not until it's too late...

-SNIP-

Simply put, people will find it difficult to react in timely, logical or focused fashion to the unfolding calamity...

-SNIP-

Despite increased levels of sophistication and the broad use of modern risk management systems, no one can be sure how new or exotic instruments and markets will behave when conditions take an ominous turn. The sheer scale of the unfolding financial crisis—in terms of the number of participants, firms, regulators, products, countries, and markets—will make it difficult to penetrate the problems...

-SNIP-

This time, however, a vast and efficient global communications network will ensure that destructive energies are rapidly transmitted to billions of people. So, too, will trading technology that facilitates and encourages traders and investors to act on their impulses. Many will find it too easy to shoot first -- or point and click -- and ask questions later in a 21st-century rush for the exits.. Not only will the fastest or sharpest operators look to get out. Firms that have come to depend on leverage, including hedge funds, brokers, and even banks, will also face immediate and rapidly growing pressure to scale back positions because of demands for additional cash collateral or reduced access to financing. Meanwhile, those who still have the wherewithal to initiate fresh positions or act independently will look to dive in and take advantage of the stampede.

-SNIP-

A constant global ripple effect will occur as positions are adjusted to take account of risk management strategies or cash-raising demands. The widespread use of flawed models will further aggravate the situation.

-SNIP-

By the time the systemic crisis is full-blown, there will almost certainly have been a domino-like collapse of more than a few large intermediaries and allegedly sophisticated global financial firms, including hedge funds, insurers, and brokers. As the number of failures grows, concerns over counterparty risk will take center stage. Lenders, investors, and risk managers will fret and gossip about which institution is next. Worries about fraud and chicanery will boost anxiety to a fever pitch. Even firms not in dire straits may suddenly find themselves at risk. In times of upheaval, a lack of information and concern about the ability of others to manage their exposure often spurs a self-fulfilling prophecy, where idle chatter alone leads to institutions being squeezed or cut off—just when they need access to financing most.

-SNIP-

Few areas of the financial system will be unaffected when the meltdown rages. In the insurance sector, for example, debt downgrades and defaults will occur at a quickening pace... At least some of the $2 trillion held in money market funds will anxiously flee to safer pastures as the prices of one or more pools fall below par -- "breaks the buck" -- because of shaky markets and holdings that turn out to be much riskier than expected.

Pretty much all of this has taken place over the last few weeks. Kudos to Michael Panzner for nailing all of this. And somehow I still have hope that much of the other stuff in the book is worst case scenario and won't come to pass. But I'm losing hope by the day.

Unfortunately I haven't had a chance to read my review copy of Timothy Sykes' new book 'An American Hedge Fund: How I Made $2 Million as a Stock Operator & Created a Hedge Fund'. But since you all read financial blogs I'm sure you've seen at least one of the many rave reviews across the net. The book was officially released this week and Tim was nice enough to send me the final edition as well. Since I now have two unread copies I'm going to give away my review copy, which is an uncorrected proof version.

Update: Timothy has offered two signed FINAL copies of the book. So here's what we'll do -- The two closest guessers will receive the final edition from Tim. I hate to let a book go to waste, I'm gonna give my uncorrected proof to the bronze medalist.

So here's the deal. Leave a comment guessing tomorrow's (Friday's) closing price of the Nasdaq. The person who's the closest gets the book -- U.S. addresses only.

Note: your guess must be entered by 9 PM EST today

I'm really looking forward to reading Kedrick Brown's book, Trend Trading: Timing Market Tides. It's been near the top of my reading list for several weeks now. (I really need to carve out more reading time!). I've only skimmed through it thus far but it looks like a very good read. Kedrick just informed me about an interview he recently did with Tavis Smiley which you can listen to below:

Financial wiz Kedrick Brown says certain aspects of an “unpredictable” market can be predicted with good investment strategy in his book, Trend Trading: Timing Market Tides.

[audio:KedrickBrown_01192007.mp3]

For a bit more detail on the book, check out Kedrick's self-review:

Somehow, between writing for his own site, his TraderFeed Blog, TradingMarkets.com and various presentaions Dr. Steenbarger found the time to write a new book, Enhancing Trader Performance. I just got my hands on a copy and am looking forward to reading it. Dr. Brett wrote a little bit about the book yesterday in his post entitled 'Finding Your Performance Niche'. In that post he provided a link to a PDF of the first chapter of the book. So have at it.

More details about the book are below...

Michelle B submits: A daytrader I knew who had a very high-percentage win rate, around ninety-five percent, when faced with a loss, would let it run. He was capitalized enough to do what he called "pouring on the gasoline." This activity of his would involve "lining up cans of gasoline as far as the eye could see." What he would do was to buy furiously all the way down at various support levels to reduce his cost basis. Sometimes, this took days, even weeks. Most of the time, after tying up his buying power and only focusing on his special kind of arson while missing many other opportunities, he would be able to get out with a small loss--the amount he could have booked in the first place. Every once in awhile, his account would get burned by his own arson. Because of his high win rate and trading skill, he would make up the losses fairly soon. Eventually, he would be faced with a loss, and he would turn arsonist once again.

He knew what he was doing was contrary to everything he knew about trading discipline. He referred to this crazy reaction being done by the 'nut within'. At the same time, I was also doing battle with myself. Taking my clue from him, I went a step further, and identified my 'nuts within'. I had three of them! The one that wanted to control every tick in the market. The one that had to be immediately gratified by the market. Last but least, the one that lived only to be entertained by the market. These 'nuts' managed my trading turret. Every once in awhile, the sane trader would make an appearance and trade well, but not for long. The 'nuts' were too potent and too numerous.

I then recalled a book that I read a long time ago, called, Taming your Gremlin, written by Rich Carson. I no longer had a copy, but I remembered one aspect of the approach to dealing with self-sabotage. That aspect was to identify the gremlin, to be conscious of its existence, while not trying to banish it. If you try to stop your nonsense all at once, it won't work. Maybe for awhile, you will trade like a sane person, but then the self-sabotage will appear once again.

I remember the British singer, Marianne Faithfull, when asked why she almost destroyed herself through drug addiction, responding the why did not matter, only that she knew she could stop taking drugs. Do not reason with yourself, nor scold yourself, or go into deep analysis why you trade like an idiot at times, just identify the kind of sabotage you do. Shine the light of recognition on the beast--chase that thing from the shadows. Don't yell at it, don't try to destroy it, just know it is there and see it in all its beastliness. Its power lies in it being secret, hidden, and vaque. Name it by name.

Gremlins scuttle back to their hiding places when exposed to light. They don't mind popping out into the light of your consciousness disguised as the greatest trader ever known and make you trade like a jerk. But, that is their choice. However, they have no tolerance when you decide to shine the light on them. They don't appreciate that. After awhile, they just don't bother to come out. If they do manage to come out, they don't stay long. But, they are always there, they never go away. You have just tamed them, so you can function in a positive manner.

Of all of my gremlins, the control freak was the hardest and took the longest to tame. However, if it does appears now, and says, do not honor your stop loss because you have planned the trade PERFECTLY, you have researched EVERYTHING to ensure the trade will work, so if it does not work, just IGNORE that fact, my response is laughter. I know I cannot structure the market, I can only structure my interaction with it, and that my trading plan just has a probability of working. The control freak scuttles back under its rock, and the stop loss stays.

When the gremlin which wants to be immediately gratified pokes its head out, and insists I book a profit earlier than my target, I review the reasons why I have decided on such a target, and if the reasons are still there, the trade stays on, and that gremlin slinks away.

The silly gremlin which thinks the market is a show, and want to get its kicks from being entertained in exciting ways, still visits, and screams in its frenzied voice, hey, why don't you jump aboard that hot stock to just see how far it goes? I check out the support and resistance on various timeframes, and if I cannot perceive an opportunity, I decline the urge to trade without an edge. That gremlin slithers away also.

Depending on the ferocity and different kinds of self-sabotage, it can take quite awhile to tame these inner beasts. At first, the self-saboteur will hate what you are doing, and will raise a fuss, making the gremlin appear stronger and even more powerful. Don't argue with the beast, just keep shining the light of recognition upon it, enabling you, the trader, with your knowledge and skill to rise to the occasion and manage your trading turret.

Michelle B submits: The Disciplined Trader by Mark Douglas sits near my trading turret in a place of honor. Following rules is very problematical for traders. Having rules, and some traders have many, is not the same as being disciplined. A disciplined trader follows his rules, while a trader who has rules may not necessarily be disciplined enough to follow them. Trading without controlling emotions often takes the form of a vicious circle--the trader becomes ensnared in a trap of his own making, and it can be nearly impossible to break this viciousness. Sometimes, in extreme cases, the only solution is to take an extended sabbatical from trading. It can take a long time to heal the psychological damage resulting from trading without discipline, so it is much better to try to prevent this damage from happening in the first place.

After reading some of John Carter's articles in Stocks, Futures and Options Magazine I was looking forward to reading his then upcoming book "Mastering the Trade: Proven Techniques for Profiting from Intraday and Swing Trading Setups". It was obvious from his articles that John had some good insights into how the markets work and that comes across even more so in the book. "Mastering the Trade" covers a lot of ground including writing a business plan (something that too few books cover), how to choose the proper hardware and software, an introduction to futures and currency trading (Forex) , an overview of trader psychology, a premarket checklist, a variety of trading setups and seven key internals to monitor in order to gauge intraday market strength & direction.

Some of you may be interested in the new book "The Quants: How a New Breed of Math Whizzes Conquered Wall Street and Nearly Destroyed It". Here's a short description (as if the title doesn't say it all):

In March 2006, the worldrs"s richest men sipped champagne in an opulent New York hotel. They were preparing to compete in a poker tournament with shy;million-dollar stakes. At the card table that night was Peter Muller, who managed a fabulously successful hedge fund called PDT. With him was Ken Griffin, who was the tough-as-nails head of Citadel Investment Group. There, too, were Cliff Asness, the sharp-tongued, mercurial founder of the hedge fund AQR Capital Management, and Boaz Weinstein, chess "life master" and king of the credit-default swap. Muller, Griffin, Asness, and Weinstein were among the best and brightest of a new breed, the quants. Over the past twenty years, this species of math whiz had usurped the testosterone-fueled, kill-or-be-killed risk takers whors"d long been the alpha males of the worldrs"s largest casino. The quants believed that a cocktail of differential calculus, quantum physics, and advanced geometry held the key to reaping riches from the financial markets. And they helped create a digitized money-trading machine that could shift shy;billions around the globe with the click of a mouse. Few realized that night, though, that in creating this extraordinary system, men like Muller, Griffin, Asness, and Weinstein had sown the seeds for historyrs"s greatest financial disaster.

You can listen to a discussion about it on yesterday's NPR 'Fresh Air' show. There's also an excerpt of the book posted on that NPR page.

So the bulls barely gave up any ground to end the week and that leaves the indices very extended. I think that it's going to take some great earnings releases to drive the market much higher without at least a few days of sideways movement. The Nasdaq actually punched out a new 2009 high last week but it did so on below average volume. That makes me the move suspect in my mind. If we start to get some big names reporting weak earnings I wouldn't be surprised to see the Nasdaq fill Wednesday's gap.

It's a similar story for the S&P 500 except that it hasn't made a new high for the year. It's perched right below resistance from its 2009 high. The short-term stochastic is very overbought, which isn't surprising after a 7% move in four days. I'd like to see stochastic cool off before thinking about putting new money to work.

I was mildly amused by Friday's Worden report, especially the part about the "true" author of Technical Analysis of Stock Trends. I envision him being the Little Richard of technical analysis had he lived to see the popularity of later works...

Having shattered a perfectly good head&shoulders top, demonstrating an obvious zeal in the process, the market is now once again showing signs of confusion and trepidation. Now what is it supposed to do? The sky is one big resistance zone.

My email reveals what appears to be a fairly wide lack of understanding of H&S tops, despite the fact it is probably the most widely recognized picture pattern on a chart. It probably is that, since it is so recognizable, it has become the most famous picture pattern used by technicians. Considering the American propensity to admire the rich and famous, the H&S stands out as a celebrity of sorts. The pattern presents such a clear picture--a lineup of a left shoulder, then a head, then a right shoulder.

None of the other picture patterns are as unambiguous. However, the artistic merit of an H&S should not be construed as the key to its accuracy as a forecasting tool. It is a good tool, but most picture patterns are just as good. You'll never find one that is perfect or that will do your thinking for you, whether it be a rising wedge, an ascending triangle, a double top or a W bottom. Try doing some Google searches on specific patterns. You may be surprised at the amount of free information you can pick up on the Internet.

These are patterns that technicians have been spotting for decades. All the famous ones are described in what is sometimes referred to as "the bible of technical analysis:" Technical Analysis of Stock Trends is the name of the book. I won't mention the authors' names, since the real author of the important parts of the book was named Richard Schabacker. They didn't even include his name among the supposed authors. Schabacker, who died quite young, was the master chartist. His charting section has been published under another name: Technical Analysis and Stock Market Profits. The Real Bible of Technical Analysis.  It's available from Amazon. I believe every technician should have a copy of this book.

Now that the H&S has been dissipated, a new picture pattern may develop. I see possible early signs of what is called "a Broadening Top." It is sometimes called a Megaphone Pattern, because it is in the shape of a megaphone with higher highs AND lower lows as the pattern progresses from left to right. It is a bearish pattern. There are other possibilities, some bullish.

As it stands, I think the short-term uptrend has moved up impetuously and may require some kind of a setback to regain its confidence. That is, if it is intent on moving up. There are quite a few important earnings reports that will come out soon. They will have an effect--especially now that almost nobody knows how to evaluate the market based on anything that hasn't actually happened.

No changes

Howard Lindzon's new book, "The Wallstrip Edge: Using Trends to Make Money -- Find Them, Ride Them, and Get Off" is out this month. If you are a fan of the WallStrip show and/or trend following you should check it out. I haven't read it yet but here's the product description from Amazon:

It's been often observed that anyone who invests in the stock market needs to have a very strong sense of humor....indeed; no truer words were ever spoken.

And the truth is, Howard Lindzon took that observation quite literally. Indeed, Howard's creation -- Wallstrip.com -- has become just that - a total melding of humor and investing, or as the New York Times observed about Wallstrip - "It's Squawk Box meets Saturday Night Live." Wallstrip.com pulls in between 5 and 7 million visitors a year, and the show's rabid following includes stock market enthusiasts, venture capitalists, traders, and others who tune in to hear, see, and talk about what's happening in the markets.

If you haven't been to Wallstrip.com, well, you're in for a real treat. Lindzon's parodies are priceless. And in THE WALLSTRIP EDGE, Howard captures his most unusual (but very smart) approach to how he picks winners, and you can too.

In THE WALLSTRIP EDGE, Howard Lindzon shows readers how to profit from his straightforward investment philosophy -- a unique trend watching philosophy that makes Wallstrip.com such an amazing phenomenon, including how to look at trends from a different perspective, knowing when to buy a certain stock, how to hold it, and of course when to sell. It's all done using the power of the Internet and your own instincts. It's a surprisingly simple (and fun) strategy that works, and best of all, you don't need to be a financial genius to make it work for you.

A comment by Andrew on Barry's post about the SEC wanting to ban all short selling sent me to my copy of Michael Panzner's book Financial Armageddon. Andrew stated that "tonight's event draws me to the last paragraph of ch.7 in Michael Panzer's Financial Armageddon". When I read that paragraph I was reminded of how I felt while reading the book back in March 2007. The scenarios that Panzner laid out were nothing short of chilling. I kept wondering if he really believed all those dire things would actually happen or if they were just a worst case scenario. In flipping through a few chapters tonight it's scary to see just how much of what Panzner wrote has come to pass. Here are the last two paragraph from chapter 7 ("Depression") which Andrew was talking about (hopefully Michael won't mind me posting so much of his text):

Eventually, with a decades-long orgy of credit expansion unraveling fast; the meltdown of stock, bond, commodity, and other markets; a cratering economy; and more of the nation's largest financial institutions precariously on the edge, the Federal Reserve and Washington as a whole will have reached a critical juncture. There will be widespread pressure, bordering perhaps on hysteria, for somebody, somewhere to take action and stem the rapidly rising tide of disaster.

Only then, after being unwilling to react quickly and forcefully enough early on, the Federal Reserve will abruptly shift gears, no longer fearing the consequences of an aggressive monetary response. In a sense, they will have nothing to lose. With immediate effect, they will give up their self-imposed yoke of restraint and move wholeheartedly into money-creation mode. That will mark the beginning of the second phase of the great unraveling.

Sound familiar? Here's some more from Chapter 6 ("Systemic Crisis")

No doubt a systemic meltdown will provoke a similar response. For the financial system and the markets, however, the fallout will likely be worse than any downturn in many decades, owing to a unique combination of modern developments and incendiary circumstances. The explosive growth of derivatives trading and leveraged hedge fund investing, hidden behind a shroud of lightly regulated secrecy, means that few people will have a handle on where dangerous risk is concentrated or overall levels of exposure -- not until it's too late...

-SNIP-

Simply put, people will find it difficult to react in timely, logical or focused fashion to the unfolding calamity...

-SNIP-

Despite increased levels of sophistication and the broad use of modern risk management systems, no one can be sure how new or exotic instruments and markets will behave when conditions take an ominous turn. The sheer scale of the unfolding financial crisis—in terms of the number of participants, firms, regulators, products, countries, and markets—will make it difficult to penetrate the problems...

-SNIP-

This time, however, a vast and efficient global communications network will ensure that destructive energies are rapidly transmitted to billions of people. So, too, will trading technology that facilitates and encourages traders and investors to act on their impulses. Many will find it too easy to shoot first -- or point and click -- and ask questions later in a 21st-century rush for the exits.. Not only will the fastest or sharpest operators look to get out. Firms that have come to depend on leverage, including hedge funds, brokers, and even banks, will also face immediate and rapidly growing pressure to scale back positions because of demands for additional cash collateral or reduced access to financing. Meanwhile, those who still have the wherewithal to initiate fresh positions or act independently will look to dive in and take advantage of the stampede.

-SNIP-

A constant global ripple effect will occur as positions are adjusted to take account of risk management strategies or cash-raising demands. The widespread use of flawed models will further aggravate the situation.

-SNIP-

By the time the systemic crisis is full-blown, there will almost certainly have been a domino-like collapse of more than a few large intermediaries and allegedly sophisticated global financial firms, including hedge funds, insurers, and brokers. As the number of failures grows, concerns over counterparty risk will take center stage. Lenders, investors, and risk managers will fret and gossip about which institution is next. Worries about fraud and chicanery will boost anxiety to a fever pitch. Even firms not in dire straits may suddenly find themselves at risk. In times of upheaval, a lack of information and concern about the ability of others to manage their exposure often spurs a self-fulfilling prophecy, where idle chatter alone leads to institutions being squeezed or cut off—just when they need access to financing most.

-SNIP-

Few areas of the financial system will be unaffected when the meltdown rages. In the insurance sector, for example, debt downgrades and defaults will occur at a quickening pace... At least some of the $2 trillion held in money market funds will anxiously flee to safer pastures as the prices of one or more pools fall below par -- "breaks the buck" -- because of shaky markets and holdings that turn out to be much riskier than expected.

Pretty much all of this has taken place over the last few weeks. Kudos to Michael Panzner for nailing all of this. And somehow I still have hope that much of the other stuff in the book is worst case scenario and won't come to pass. But I'm losing hope by the day.

Unfortunately I haven't had a chance to read my review copy of Timothy Sykes' new book 'An American Hedge Fund: How I Made $2 Million as a Stock Operator & Created a Hedge Fund'. But since you all read financial blogs I'm sure you've seen at least one of the many rave reviews across the net. The book was officially released this week and Tim was nice enough to send me the final edition as well. Since I now have two unread copies I'm going to give away my review copy, which is an uncorrected proof version.

Update: Timothy has offered two signed FINAL copies of the book. So here's what we'll do -- The two closest guessers will receive the final edition from Tim. I hate to let a book go to waste, I'm gonna give my uncorrected proof to the bronze medalist.

So here's the deal. Leave a comment guessing tomorrow's (Friday's) closing price of the Nasdaq. The person who's the closest gets the book -- U.S. addresses only.

Note: your guess must be entered by 9 PM EST today

I'm really looking forward to reading Kedrick Brown's book, Trend Trading: Timing Market Tides. It's been near the top of my reading list for several weeks now. (I really need to carve out more reading time!). I've only skimmed through it thus far but it looks like a very good read. Kedrick just informed me about an interview he recently did with Tavis Smiley which you can listen to below:

Financial wiz Kedrick Brown says certain aspects of an “unpredictable” market can be predicted with good investment strategy in his book, Trend Trading: Timing Market Tides.

[audio:KedrickBrown_01192007.mp3]

For a bit more detail on the book, check out Kedrick's self-review:

Somehow, between writing for his own site, his TraderFeed Blog, TradingMarkets.com and various presentaions Dr. Steenbarger found the time to write a new book, Enhancing Trader Performance. I just got my hands on a copy and am looking forward to reading it. Dr. Brett wrote a little bit about the book yesterday in his post entitled 'Finding Your Performance Niche'. In that post he provided a link to a PDF of the first chapter of the book. So have at it.

More details about the book are below...

Michelle B submits: A daytrader I knew who had a very high-percentage win rate, around ninety-five percent, when faced with a loss, would let it run. He was capitalized enough to do what he called "pouring on the gasoline." This activity of his would involve "lining up cans of gasoline as far as the eye could see." What he would do was to buy furiously all the way down at various support levels to reduce his cost basis. Sometimes, this took days, even weeks. Most of the time, after tying up his buying power and only focusing on his special kind of arson while missing many other opportunities, he would be able to get out with a small loss--the amount he could have booked in the first place. Every once in awhile, his account would get burned by his own arson. Because of his high win rate and trading skill, he would make up the losses fairly soon. Eventually, he would be faced with a loss, and he would turn arsonist once again.

He knew what he was doing was contrary to everything he knew about trading discipline. He referred to this crazy reaction being done by the 'nut within'. At the same time, I was also doing battle with myself. Taking my clue from him, I went a step further, and identified my 'nuts within'. I had three of them! The one that wanted to control every tick in the market. The one that had to be immediately gratified by the market. Last but least, the one that lived only to be entertained by the market. These 'nuts' managed my trading turret. Every once in awhile, the sane trader would make an appearance and trade well, but not for long. The 'nuts' were too potent and too numerous.

I then recalled a book that I read a long time ago, called, Taming your Gremlin, written by Rich Carson. I no longer had a copy, but I remembered one aspect of the approach to dealing with self-sabotage. That aspect was to identify the gremlin, to be conscious of its existence, while not trying to banish it. If you try to stop your nonsense all at once, it won't work. Maybe for awhile, you will trade like a sane person, but then the self-sabotage will appear once again.

I remember the British singer, Marianne Faithfull, when asked why she almost destroyed herself through drug addiction, responding the why did not matter, only that she knew she could stop taking drugs. Do not reason with yourself, nor scold yourself, or go into deep analysis why you trade like an idiot at times, just identify the kind of sabotage you do. Shine the light of recognition on the beast--chase that thing from the shadows. Don't yell at it, don't try to destroy it, just know it is there and see it in all its beastliness. Its power lies in it being secret, hidden, and vaque. Name it by name.

Gremlins scuttle back to their hiding places when exposed to light. They don't mind popping out into the light of your consciousness disguised as the greatest trader ever known and make you trade like a jerk. But, that is their choice. However, they have no tolerance when you decide to shine the light on them. They don't appreciate that. After awhile, they just don't bother to come out. If they do manage to come out, they don't stay long. But, they are always there, they never go away. You have just tamed them, so you can function in a positive manner.

Of all of my gremlins, the control freak was the hardest and took the longest to tame. However, if it does appears now, and says, do not honor your stop loss because you have planned the trade PERFECTLY, you have researched EVERYTHING to ensure the trade will work, so if it does not work, just IGNORE that fact, my response is laughter. I know I cannot structure the market, I can only structure my interaction with it, and that my trading plan just has a probability of working. The control freak scuttles back under its rock, and the stop loss stays.

When the gremlin which wants to be immediately gratified pokes its head out, and insists I book a profit earlier than my target, I review the reasons why I have decided on such a target, and if the reasons are still there, the trade stays on, and that gremlin slinks away.

The silly gremlin which thinks the market is a show, and want to get its kicks from being entertained in exciting ways, still visits, and screams in its frenzied voice, hey, why don't you jump aboard that hot stock to just see how far it goes? I check out the support and resistance on various timeframes, and if I cannot perceive an opportunity, I decline the urge to trade without an edge. That gremlin slithers away also.

Depending on the ferocity and different kinds of self-sabotage, it can take quite awhile to tame these inner beasts. At first, the self-saboteur will hate what you are doing, and will raise a fuss, making the gremlin appear stronger and even more powerful. Don't argue with the beast, just keep shining the light of recognition upon it, enabling you, the trader, with your knowledge and skill to rise to the occasion and manage your trading turret.

Michelle B submits: The Disciplined Trader by Mark Douglas sits near my trading turret in a place of honor. Following rules is very problematical for traders. Having rules, and some traders have many, is not the same as being disciplined. A disciplined trader follows his rules, while a trader who has rules may not necessarily be disciplined enough to follow them. Trading without controlling emotions often takes the form of a vicious circle--the trader becomes ensnared in a trap of his own making, and it can be nearly impossible to break this viciousness. Sometimes, in extreme cases, the only solution is to take an extended sabbatical from trading. It can take a long time to heal the psychological damage resulting from trading without discipline, so it is much better to try to prevent this damage from happening in the first place.

After reading some of John Carter's articles in Stocks, Futures and Options Magazine I was looking forward to reading his then upcoming book "Mastering the Trade: Proven Techniques for Profiting from Intraday and Swing Trading Setups". It was obvious from his articles that John had some good insights into how the markets work and that comes across even more so in the book. "Mastering the Trade" covers a lot of ground including writing a business plan (something that too few books cover), how to choose the proper hardware and software, an introduction to futures and currency trading (Forex) , an overview of trader psychology, a premarket checklist, a variety of trading setups and seven key internals to monitor in order to gauge intraday market strength & direction.

Some of you may be interested in the new book "The Quants: How a New Breed of Math Whizzes Conquered Wall Street and Nearly Destroyed It". Here's a short description (as if the title doesn't say it all):

In March 2006, the worldrs"s richest men sipped champagne in an opulent New York hotel. They were preparing to compete in a poker tournament with shy;million-dollar stakes. At the card table that night was Peter Muller, who managed a fabulously successful hedge fund called PDT. With him was Ken Griffin, who was the tough-as-nails head of Citadel Investment Group. There, too, were Cliff Asness, the sharp-tongued, mercurial founder of the hedge fund AQR Capital Management, and Boaz Weinstein, chess "life master" and king of the credit-default swap. Muller, Griffin, Asness, and Weinstein were among the best and brightest of a new breed, the quants. Over the past twenty years, this species of math whiz had usurped the testosterone-fueled, kill-or-be-killed risk takers whors"d long been the alpha males of the worldrs"s largest casino. The quants believed that a cocktail of differential calculus, quantum physics, and advanced geometry held the key to reaping riches from the financial markets. And they helped create a digitized money-trading machine that could shift shy;billions around the globe with the click of a mouse. Few realized that night, though, that in creating this extraordinary system, men like Muller, Griffin, Asness, and Weinstein had sown the seeds for historyrs"s greatest financial disaster.

You can listen to a discussion about it on yesterday's NPR 'Fresh Air' show. There's also an excerpt of the book posted on that NPR page.

So the bulls barely gave up any ground to end the week and that leaves the indices very extended. I think that it's going to take some great earnings releases to drive the market much higher without at least a few days of sideways movement. The Nasdaq actually punched out a new 2009 high last week but it did so on below average volume. That makes me the move suspect in my mind. If we start to get some big names reporting weak earnings I wouldn't be surprised to see the Nasdaq fill Wednesday's gap.

It's a similar story for the S&P 500 except that it hasn't made a new high for the year. It's perched right below resistance from its 2009 high. The short-term stochastic is very overbought, which isn't surprising after a 7% move in four days. I'd like to see stochastic cool off before thinking about putting new money to work.

I was mildly amused by Friday's Worden report, especially the part about the "true" author of Technical Analysis of Stock Trends. I envision him being the Little Richard of technical analysis had he lived to see the popularity of later works...

Having shattered a perfectly good head&shoulders top, demonstrating an obvious zeal in the process, the market is now once again showing signs of confusion and trepidation. Now what is it supposed to do? The sky is one big resistance zone.

My email reveals what appears to be a fairly wide lack of understanding of H&S tops, despite the fact it is probably the most widely recognized picture pattern on a chart. It probably is that, since it is so recognizable, it has become the most famous picture pattern used by technicians. Considering the American propensity to admire the rich and famous, the H&S stands out as a celebrity of sorts. The pattern presents such a clear picture--a lineup of a left shoulder, then a head, then a right shoulder.

None of the other picture patterns are as unambiguous. However, the artistic merit of an H&S should not be construed as the key to its accuracy as a forecasting tool. It is a good tool, but most picture patterns are just as good. You'll never find one that is perfect or that will do your thinking for you, whether it be a rising wedge, an ascending triangle, a double top or a W bottom. Try doing some Google searches on specific patterns. You may be surprised at the amount of free information you can pick up on the Internet.

These are patterns that technicians have been spotting for decades. All the famous ones are described in what is sometimes referred to as "the bible of technical analysis:" Technical Analysis of Stock Trends is the name of the book. I won't mention the authors' names, since the real author of the important parts of the book was named Richard Schabacker. They didn't even include his name among the supposed authors. Schabacker, who died quite young, was the master chartist. His charting section has been published under another name: Technical Analysis and Stock Market Profits. The Real Bible of Technical Analysis.  It's available from Amazon. I believe every technician should have a copy of this book.

Now that the H&S has been dissipated, a new picture pattern may develop. I see possible early signs of what is called "a Broadening Top." It is sometimes called a Megaphone Pattern, because it is in the shape of a megaphone with higher highs AND lower lows as the pattern progresses from left to right. It is a bearish pattern. There are other possibilities, some bullish.

As it stands, I think the short-term uptrend has moved up impetuously and may require some kind of a setback to regain its confidence. That is, if it is intent on moving up. There are quite a few important earnings reports that will come out soon. They will have an effect--especially now that almost nobody knows how to evaluate the market based on anything that hasn't actually happened.

No changes

Howard Lindzon's new book, "The Wallstrip Edge: Using Trends to Make Money -- Find Them, Ride Them, and Get Off" is out this month. If you are a fan of the WallStrip show and/or trend following you should check it out. I haven't read it yet but here's the product description from Amazon:

It's been often observed that anyone who invests in the stock market needs to have a very strong sense of humor....indeed; no truer words were ever spoken.

And the truth is, Howard Lindzon took that observation quite literally. Indeed, Howard's creation -- Wallstrip.com -- has become just that - a total melding of humor and investing, or as the New York Times observed about Wallstrip - "It's Squawk Box meets Saturday Night Live." Wallstrip.com pulls in between 5 and 7 million visitors a year, and the show's rabid following includes stock market enthusiasts, venture capitalists, traders, and others who tune in to hear, see, and talk about what's happening in the markets.

If you haven't been to Wallstrip.com, well, you're in for a real treat. Lindzon's parodies are priceless. And in THE WALLSTRIP EDGE, Howard captures his most unusual (but very smart) approach to how he picks winners, and you can too.

In THE WALLSTRIP EDGE, Howard Lindzon shows readers how to profit from his straightforward investment philosophy -- a unique trend watching philosophy that makes Wallstrip.com such an amazing phenomenon, including how to look at trends from a different perspective, knowing when to buy a certain stock, how to hold it, and of course when to sell. It's all done using the power of the Internet and your own instincts. It's a surprisingly simple (and fun) strategy that works, and best of all, you don't need to be a financial genius to make it work for you.

A comment by Andrew on Barry's post about the SEC wanting to ban all short selling sent me to my copy of Michael Panzner's book Financial Armageddon. Andrew stated that "tonight's event draws me to the last paragraph of ch.7 in Michael Panzer's Financial Armageddon". When I read that paragraph I was reminded of how I felt while reading the book back in March 2007. The scenarios that Panzner laid out were nothing short of chilling. I kept wondering if he really believed all those dire things would actually happen or if they were just a worst case scenario. In flipping through a few chapters tonight it's scary to see just how much of what Panzner wrote has come to pass. Here are the last two paragraph from chapter 7 ("Depression") which Andrew was talking about (hopefully Michael won't mind me posting so much of his text):

Eventually, with a decades-long orgy of credit expansion unraveling fast; the meltdown of stock, bond, commodity, and other markets; a cratering economy; and more of the nation's largest financial institutions precariously on the edge, the Federal Reserve and Washington as a whole will have reached a critical juncture. There will be widespread pressure, bordering perhaps on hysteria, for somebody, somewhere to take action and stem the rapidly rising tide of disaster.

Only then, after being unwilling to react quickly and forcefully enough early on, the Federal Reserve will abruptly shift gears, no longer fearing the consequences of an aggressive monetary response. In a sense, they will have nothing to lose. With immediate effect, they will give up their self-imposed yoke of restraint and move wholeheartedly into money-creation mode. That will mark the beginning of the second phase of the great unraveling.

Sound familiar? Here's some more from Chapter 6 ("Systemic Crisis")

No doubt a systemic meltdown will provoke a similar response. For the financial system and the markets, however, the fallout will likely be worse than any downturn in many decades, owing to a unique combination of modern developments and incendiary circumstances. The explosive growth of derivatives trading and leveraged hedge fund investing, hidden behind a shroud of lightly regulated secrecy, means that few people will have a handle on where dangerous risk is concentrated or overall levels of exposure -- not until it's too late...

-SNIP-

Simply put, people will find it difficult to react in timely, logical or focused fashion to the unfolding calamity...

-SNIP-

Despite increased levels of sophistication and the broad use of modern risk management systems, no one can be sure how new or exotic instruments and markets will behave when conditions take an ominous turn. The sheer scale of the unfolding financial crisis—in terms of the number of participants, firms, regulators, products, countries, and markets—will make it difficult to penetrate the problems...

-SNIP-

This time, however, a vast and efficient global communications network will ensure that destructive energies are rapidly transmitted to billions of people. So, too, will trading technology that facilitates and encourages traders and investors to act on their impulses. Many will find it too easy to shoot first -- or point and click -- and ask questions later in a 21st-century rush for the exits.. Not only will the fastest or sharpest operators look to get out. Firms that have come to depend on leverage, including hedge funds, brokers, and even banks, will also face immediate and rapidly growing pressure to scale back positions because of demands for additional cash collateral or reduced access to financing. Meanwhile, those who still have the wherewithal to initiate fresh positions or act independently will look to dive in and take advantage of the stampede.

-SNIP-

A constant global ripple effect will occur as positions are adjusted to take account of risk management strategies or cash-raising demands. The widespread use of flawed models will further aggravate the situation.

-SNIP-

By the time the systemic crisis is full-blown, there will almost certainly have been a domino-like collapse of more than a few large intermediaries and allegedly sophisticated global financial firms, including hedge funds, insurers, and brokers. As the number of failures grows, concerns over counterparty risk will take center stage. Lenders, investors, and risk managers will fret and gossip about which institution is next. Worries about fraud and chicanery will boost anxiety to a fever pitch. Even firms not in dire straits may suddenly find themselves at risk. In times of upheaval, a lack of information and concern about the ability of others to manage their exposure often spurs a self-fulfilling prophecy, where idle chatter alone leads to institutions being squeezed or cut off—just when they need access to financing most.

-SNIP-

Few areas of the financial system will be unaffected when the meltdown rages. In the insurance sector, for example, debt downgrades and defaults will occur at a quickening pace... At least some of the $2 trillion held in money market funds will anxiously flee to safer pastures as the prices of one or more pools fall below par -- "breaks the buck" -- because of shaky markets and holdings that turn out to be much riskier than expected.

Pretty much all of this has taken place over the last few weeks. Kudos to Michael Panzner for nailing all of this. And somehow I still have hope that much of the other stuff in the book is worst case scenario and won't come to pass. But I'm losing hope by the day.

Unfortunately I haven't had a chance to read my review copy of Timothy Sykes' new book 'An American Hedge Fund: How I Made $2 Million as a Stock Operator & Created a Hedge Fund'. But since you all read financial blogs I'm sure you've seen at least one of the many rave reviews across the net. The book was officially released this week and Tim was nice enough to send me the final edition as well. Since I now have two unread copies I'm going to give away my review copy, which is an uncorrected proof version.

Update: Timothy has offered two signed FINAL copies of the book. So here's what we'll do -- The two closest guessers will receive the final edition from Tim. I hate to let a book go to waste, I'm gonna give my uncorrected proof to the bronze medalist.

So here's the deal. Leave a comment guessing tomorrow's (Friday's) closing price of the Nasdaq. The person who's the closest gets the book -- U.S. addresses only.

Note: your guess must be entered by 9 PM EST today

I'm really looking forward to reading Kedrick Brown's book, Trend Trading: Timing Market Tides. It's been near the top of my reading list for several weeks now. (I really need to carve out more reading time!). I've only skimmed through it thus far but it looks like a very good read. Kedrick just informed me about an interview he recently did with Tavis Smiley which you can listen to below:

Financial wiz Kedrick Brown says certain aspects of an “unpredictable” market can be predicted with good investment strategy in his book, Trend Trading: Timing Market Tides.

[audio:KedrickBrown_01192007.mp3]

For a bit more detail on the book, check out Kedrick's self-review:

Somehow, between writing for his own site, his TraderFeed Blog, TradingMarkets.com and various presentaions Dr. Steenbarger found the time to write a new book, Enhancing Trader Performance. I just got my hands on a copy and am looking forward to reading it. Dr. Brett wrote a little bit about the book yesterday in his post entitled 'Finding Your Performance Niche'. In that post he provided a link to a PDF of the first chapter of the book. So have at it.

More details about the book are below...

Michelle B submits: A daytrader I knew who had a very high-percentage win rate, around ninety-five percent, when faced with a loss, would let it run. He was capitalized enough to do what he called "pouring on the gasoline." This activity of his would involve "lining up cans of gasoline as far as the eye could see." What he would do was to buy furiously all the way down at various support levels to reduce his cost basis. Sometimes, this took days, even weeks. Most of the time, after tying up his buying power and only focusing on his special kind of arson while missing many other opportunities, he would be able to get out with a small loss--the amount he could have booked in the first place. Every once in awhile, his account would get burned by his own arson. Because of his high win rate and trading skill, he would make up the losses fairly soon. Eventually, he would be faced with a loss, and he would turn arsonist once again.

He knew what he was doing was contrary to everything he knew about trading discipline. He referred to this crazy reaction being done by the 'nut within'. At the same time, I was also doing battle with myself. Taking my clue from him, I went a step further, and identified my 'nuts within'. I had three of them! The one that wanted to control every tick in the market. The one that had to be immediately gratified by the market. Last but least, the one that lived only to be entertained by the market. These 'nuts' managed my trading turret. Every once in awhile, the sane trader would make an appearance and trade well, but not for long. The 'nuts' were too potent and too numerous.

I then recalled a book that I read a long time ago, called, Taming your Gremlin, written by Rich Carson. I no longer had a copy, but I remembered one aspect of the approach to dealing with self-sabotage. That aspect was to identify the gremlin, to be conscious of its existence, while not trying to banish it. If you try to stop your nonsense all at once, it won't work. Maybe for awhile, you will trade like a sane person, but then the self-sabotage will appear once again.

I remember the British singer, Marianne Faithfull, when asked why she almost destroyed herself through drug addiction, responding the why did not matter, only that she knew she could stop taking drugs. Do not reason with yourself, nor scold yourself, or go into deep analysis why you trade like an idiot at times, just identify the kind of sabotage you do. Shine the light of recognition on the beast--chase that thing from the shadows. Don't yell at it, don't try to destroy it, just know it is there and see it in all its beastliness. Its power lies in it being secret, hidden, and vaque. Name it by name.

Gremlins scuttle back to their hiding places when exposed to light. They don't mind popping out into the light of your consciousness disguised as the greatest trader ever known and make you trade like a jerk. But, that is their choice. However, they have no tolerance when you decide to shine the light on them. They don't appreciate that. After awhile, they just don't bother to come out. If they do manage to come out, they don't stay long. But, they are always there, they never go away. You have just tamed them, so you can function in a positive manner.

Of all of my gremlins, the control freak was the hardest and took the longest to tame. However, if it does appears now, and says, do not honor your stop loss because you have planned the trade PERFECTLY, you have researched EVERYTHING to ensure the trade will work, so if it does not work, just IGNORE that fact, my response is laughter. I know I cannot structure the market, I can only structure my interaction with it, and that my trading plan just has a probability of working. The control freak scuttles back under its rock, and the stop loss stays.

When the gremlin which wants to be immediately gratified pokes its head out, and insists I book a profit earlier than my target, I review the reasons why I have decided on such a target, and if the reasons are still there, the trade stays on, and that gremlin slinks away.

The silly gremlin which thinks the market is a show, and want to get its kicks from being entertained in exciting ways, still visits, and screams in its frenzied voice, hey, why don't you jump aboard that hot stock to just see how far it goes? I check out the support and resistance on various timeframes, and if I cannot perceive an opportunity, I decline the urge to trade without an edge. That gremlin slithers away also.

Depending on the ferocity and different kinds of self-sabotage, it can take quite awhile to tame these inner beasts. At first, the self-saboteur will hate what you are doing, and will raise a fuss, making the gremlin appear stronger and even more powerful. Don't argue with the beast, just keep shining the light of recognition upon it, enabling you, the trader, with your knowledge and skill to rise to the occasion and manage your trading turret.

Michelle B submits: The Disciplined Trader by Mark Douglas sits near my trading turret in a place of honor. Following rules is very problematical for traders. Having rules, and some traders have many, is not the same as being disciplined. A disciplined trader follows his rules, while a trader who has rules may not necessarily be disciplined enough to follow them. Trading without controlling emotions often takes the form of a vicious circle--the trader becomes ensnared in a trap of his own making, and it can be nearly impossible to break this viciousness. Sometimes, in extreme cases, the only solution is to take an extended sabbatical from trading. It can take a long time to heal the psychological damage resulting from trading without discipline, so it is much better to try to prevent this damage from happening in the first place.

After reading some of John Carter's articles in Stocks, Futures and Options Magazine I was looking forward to reading his then upcoming book "Mastering the Trade: Proven Techniques for Profiting from Intraday and Swing Trading Setups". It was obvious from his articles that John had some good insights into how the markets work and that comes across even more so in the book. "Mastering the Trade" covers a lot of ground including writing a business plan (something that too few books cover), how to choose the proper hardware and software, an introduction to futures and currency trading (Forex) , an overview of trader psychology, a premarket checklist, a variety of trading setups and seven key internals to monitor in order to gauge intraday market strength & direction.

Some of you may be interested in the new book "The Quants: How a New Breed of Math Whizzes Conquered Wall Street and Nearly Destroyed It". Here's a short description (as if the title doesn't say it all):

In March 2006, the worldrs"s richest men sipped champagne in an opulent New York hotel. They were preparing to compete in a poker tournament with shy;million-dollar stakes. At the card table that night was Peter Muller, who managed a fabulously successful hedge fund called PDT. With him was Ken Griffin, who was the tough-as-nails head of Citadel Investment Group. There, too, were Cliff Asness, the sharp-tongued, mercurial founder of the hedge fund AQR Capital Management, and Boaz Weinstein, chess "life master" and king of the credit-default swap. Muller, Griffin, Asness, and Weinstein were among the best and brightest of a new breed, the quants. Over the past twenty years, this species of math whiz had usurped the testosterone-fueled, kill-or-be-killed risk takers whors"d long been the alpha males of the worldrs"s largest casino. The quants believed that a cocktail of differential calculus, quantum physics, and advanced geometry held the key to reaping riches from the financial markets. And they helped create a digitized money-trading machine that could shift shy;billions around the globe with the click of a mouse. Few realized that night, though, that in creating this extraordinary system, men like Muller, Griffin, Asness, and Weinstein had sown the seeds for historyrs"s greatest financial disaster.

You can listen to a discussion about it on yesterday's NPR 'Fresh Air' show. There's also an excerpt of the book posted on that NPR page.

So the bulls barely gave up any ground to end the week and that leaves the indices very extended. I think that it's going to take some great earnings releases to drive the market much higher without at least a few days of sideways movement. The Nasdaq actually punched out a new 2009 high last week but it did so on below average volume. That makes me the move suspect in my mind. If we start to get some big names reporting weak earnings I wouldn't be surprised to see the Nasdaq fill Wednesday's gap.

It's a similar story for the S&P 500 except that it hasn't made a new high for the year. It's perched right below resistance from its 2009 high. The short-term stochastic is very overbought, which isn't surprising after a 7% move in four days. I'd like to see stochastic cool off before thinking about putting new money to work.

I was mildly amused by Friday's Worden report, especially the part about the "true" author of Technical Analysis of Stock Trends. I envision him being the Little Richard of technical analysis had he lived to see the popularity of later works...

Having shattered a perfectly good head&shoulders top, demonstrating an obvious zeal in the process, the market is now once again showing signs of confusion and trepidation. Now what is it supposed to do? The sky is one big resistance zone.

My email reveals what appears to be a fairly wide lack of understanding of H&S tops, despite the fact it is probably the most widely recognized picture pattern on a chart. It probably is that, since it is so recognizable, it has become the most famous picture pattern used by technicians. Considering the American propensity to admire the rich and famous, the H&S stands out as a celebrity of sorts. The pattern presents such a clear picture--a lineup of a left shoulder, then a head, then a right shoulder.

None of the other picture patterns are as unambiguous. However, the artistic merit of an H&S should not be construed as the key to its accuracy as a forecasting tool. It is a good tool, but most picture patterns are just as good. You'll never find one that is perfect or that will do your thinking for you, whether it be a rising wedge, an ascending triangle, a double top or a W bottom. Try doing some Google searches on specific patterns. You may be surprised at the amount of free information you can pick up on the Internet.

These are patterns that technicians have been spotting for decades. All the famous ones are described in what is sometimes referred to as "the bible of technical analysis:" Technical Analysis of Stock Trends is the name of the book. I won't mention the authors' names, since the real author of the important parts of the book was named Richard Schabacker. They didn't even include his name among the supposed authors. Schabacker, who died quite young, was the master chartist. His charting section has been published under another name: Technical Analysis and Stock Market Profits. The Real Bible of Technical Analysis.  It's available from Amazon. I believe every technician should have a copy of this book.

Now that the H&S has been dissipated, a new picture pattern may develop. I see possible early signs of what is called "a Broadening Top." It is sometimes called a Megaphone Pattern, because it is in the shape of a megaphone with higher highs AND lower lows as the pattern progresses from left to right. It is a bearish pattern. There are other possibilities, some bullish.

As it stands, I think the short-term uptrend has moved up impetuously and may require some kind of a setback to regain its confidence. That is, if it is intent on moving up. There are quite a few important earnings reports that will come out soon. They will have an effect--especially now that almost nobody knows how to evaluate the market based on anything that hasn't actually happened.

No changes

Howard Lindzon's new book, "The Wallstrip Edge: Using Trends to Make Money -- Find Them, Ride Them, and Get Off" is out this month. If you are a fan of the WallStrip show and/or trend following you should check it out. I haven't read it yet but here's the product description from Amazon:

It's been often observed that anyone who invests in the stock market needs to have a very strong sense of humor....indeed; no truer words were ever spoken.

And the truth is, Howard Lindzon took that observation quite literally. Indeed, Howard's creation -- Wallstrip.com -- has become just that - a total melding of humor and investing, or as the New York Times observed about Wallstrip - "It's Squawk Box meets Saturday Night Live." Wallstrip.com pulls in between 5 and 7 million visitors a year, and the show's rabid following includes stock market enthusiasts, venture capitalists, traders, and others who tune in to hear, see, and talk about what's happening in the markets.

If you haven't been to Wallstrip.com, well, you're in for a real treat. Lindzon's parodies are priceless. And in THE WALLSTRIP EDGE, Howard captures his most unusual (but very smart) approach to how he picks winners, and you can too.

In THE WALLSTRIP EDGE, Howard Lindzon shows readers how to profit from his straightforward investment philosophy -- a unique trend watching philosophy that makes Wallstrip.com such an amazing phenomenon, including how to look at trends from a different perspective, knowing when to buy a certain stock, how to hold it, and of course when to sell. It's all done using the power of the Internet and your own instincts. It's a surprisingly simple (and fun) strategy that works, and best of all, you don't need to be a financial genius to make it work for you.

A comment by Andrew on Barry's post about the SEC wanting to ban all short selling sent me to my copy of Michael Panzner's book Financial Armageddon. Andrew stated that "tonight's event draws me to the last paragraph of ch.7 in Michael Panzer's Financial Armageddon". When I read that paragraph I was reminded of how I felt while reading the book back in March 2007. The scenarios that Panzner laid out were nothing short of chilling. I kept wondering if he really believed all those dire things would actually happen or if they were just a worst case scenario. In flipping through a few chapters tonight it's scary to see just how much of what Panzner wrote has come to pass. Here are the last two paragraph from chapter 7 ("Depression") which Andrew was talking about (hopefully Michael won't mind me posting so much of his text):

Eventually, with a decades-long orgy of credit expansion unraveling fast; the meltdown of stock, bond, commodity, and other markets; a cratering economy; and more of the nation's largest financial institutions precariously on the edge, the Federal Reserve and Washington as a whole will have reached a critical juncture. There will be widespread pressure, bordering perhaps on hysteria, for somebody, somewhere to take action and stem the rapidly rising tide of disaster.

Only then, after being unwilling to react quickly and forcefully enough early on, the Federal Reserve will abruptly shift gears, no longer fearing the consequences of an aggressive monetary response. In a sense, they will have nothing to lose. With immediate effect, they will give up their self-imposed yoke of restraint and move wholeheartedly into money-creation mode. That will mark the beginning of the second phase of the great unraveling.

Sound familiar? Here's some more from Chapter 6 ("Systemic Crisis")

No doubt a systemic meltdown will provoke a similar response. For the financial system and the markets, however, the fallout will likely be worse than any downturn in many decades, owing to a unique combination of modern developments and incendiary circumstances. The explosive growth of derivatives trading and leveraged hedge fund investing, hidden behind a shroud of lightly regulated secrecy, means that few people will have a handle on where dangerous risk is concentrated or overall levels of exposure -- not until it's too late...

-SNIP-

Simply put, people will find it difficult to react in timely, logical or focused fashion to the unfolding calamity...

-SNIP-

Despite increased levels of sophistication and the broad use of modern risk management systems, no one can be sure how new or exotic instruments and markets will behave when conditions take an ominous turn. The sheer scale of the unfolding financial crisis—in terms of the number of participants, firms, regulators, products, countries, and markets—will make it difficult to penetrate the problems...

-SNIP-

This time, however, a vast and efficient global communications network will ensure that destructive energies are rapidly transmitted to billions of people. So, too, will trading technology that facilitates and encourages traders and investors to act on their impulses. Many will find it too easy to shoot first -- or point and click -- and ask questions later in a 21st-century rush for the exits.. Not only will the fastest or sharpest operators look to get out. Firms that have come to depend on leverage, including hedge funds, brokers, and even banks, will also face immediate and rapidly growing pressure to scale back positions because of demands for additional cash collateral or reduced access to financing. Meanwhile, those who still have the wherewithal to initiate fresh positions or act independently will look to dive in and take advantage of the stampede.

-SNIP-

A constant global ripple effect will occur as positions are adjusted to take account of risk management strategies or cash-raising demands. The widespread use of flawed models will further aggravate the situation.

-SNIP-

By the time the systemic crisis is full-blown, there will almost certainly have been a domino-like collapse of more than a few large intermediaries and allegedly sophisticated global financial firms, including hedge funds, insurers, and brokers. As the number of failures grows, concerns over counterparty risk will take center stage. Lenders, investors, and risk managers will fret and gossip about which institution is next. Worries about fraud and chicanery will boost anxiety to a fever pitch. Even firms not in dire straits may suddenly find themselves at risk. In times of upheaval, a lack of information and concern about the ability of others to manage their exposure often spurs a self-fulfilling prophecy, where idle chatter alone leads to institutions being squeezed or cut off—just when they need access to financing most.

-SNIP-

Few areas of the financial system will be unaffected when the meltdown rages. In the insurance sector, for example, debt downgrades and defaults will occur at a quickening pace... At least some of the $2 trillion held in money market funds will anxiously flee to safer pastures as the prices of one or more pools fall below par -- "breaks the buck" -- because of shaky markets and holdings that turn out to be much riskier than expected.

Pretty much all of this has taken place over the last few weeks. Kudos to Michael Panzner for nailing all of this. And somehow I still have hope that much of the other stuff in the book is worst case scenario and won't come to pass. But I'm losing hope by the day.

Unfortunately I haven't had a chance to read my review copy of Timothy Sykes' new book 'An American Hedge Fund: How I Made $2 Million as a Stock Operator & Created a Hedge Fund'. But since you all read financial blogs I'm sure you've seen at least one of the many rave reviews across the net. The book was officially released this week and Tim was nice enough to send me the final edition as well. Since I now have two unread copies I'm going to give away my review copy, which is an uncorrected proof version.

Update: Timothy has offered two signed FINAL copies of the book. So here's what we'll do -- The two closest guessers will receive the final edition from Tim. I hate to let a book go to waste, I'm gonna give my uncorrected proof to the bronze medalist.

So here's the deal. Leave a comment guessing tomorrow's (Friday's) closing price of the Nasdaq. The person who's the closest gets the book -- U.S. addresses only.

Note: your guess must be entered by 9 PM EST today

I'm really looking forward to reading Kedrick Brown's book, Trend Trading: Timing Market Tides. It's been near the top of my reading list for several weeks now. (I really need to carve out more reading time!). I've only skimmed through it thus far but it looks like a very good read. Kedrick just informed me about an interview he recently did with Tavis Smiley which you can listen to below:

Financial wiz Kedrick Brown says certain aspects of an “unpredictable” market can be predicted with good investment strategy in his book, Trend Trading: Timing Market Tides.

[audio:KedrickBrown_01192007.mp3]

For a bit more detail on the book, check out Kedrick's self-review:

Somehow, between writing for his own site, his TraderFeed Blog, TradingMarkets.com and various presentaions Dr. Steenbarger found the time to write a new book, Enhancing Trader Performance. I just got my hands on a copy and am looking forward to reading it. Dr. Brett wrote a little bit about the book yesterday in his post entitled 'Finding Your Performance Niche'. In that post he provided a link to a PDF of the first chapter of the book. So have at it.

More details about the book are below...

Michelle B submits: A daytrader I knew who had a very high-percentage win rate, around ninety-five percent, when faced with a loss, would let it run. He was capitalized enough to do what he called "pouring on the gasoline." This activity of his would involve "lining up cans of gasoline as far as the eye could see." What he would do was to buy furiously all the way down at various support levels to reduce his cost basis. Sometimes, this took days, even weeks. Most of the time, after tying up his buying power and only focusing on his special kind of arson while missing many other opportunities, he would be able to get out with a small loss--the amount he could have booked in the first place. Every once in awhile, his account would get burned by his own arson. Because of his high win rate and trading skill, he would make up the losses fairly soon. Eventually, he would be faced with a loss, and he would turn arsonist once again.

He knew what he was doing was contrary to everything he knew about trading discipline. He referred to this crazy reaction being done by the 'nut within'. At the same time, I was also doing battle with myself. Taking my clue from him, I went a step further, and identified my 'nuts within'. I had three of them! The one that wanted to control every tick in the market. The one that had to be immediately gratified by the market. Last but least, the one that lived only to be entertained by the market. These 'nuts' managed my trading turret. Every once in awhile, the sane trader would make an appearance and trade well, but not for long. The 'nuts' were too potent and too numerous.

I then recalled a book that I read a long time ago, called, Taming your Gremlin, written by Rich Carson. I no longer had a copy, but I remembered one aspect of the approach to dealing with self-sabotage. That aspect was to identify the gremlin, to be conscious of its existence, while not trying to banish it. If you try to stop your nonsense all at once, it won't work. Maybe for awhile, you will trade like a sane person, but then the self-sabotage will appear once again.

I remember the British singer, Marianne Faithfull, when asked why she almost destroyed herself through drug addiction, responding the why did not matter, only that she knew she could stop taking drugs. Do not reason with yourself, nor scold yourself, or go into deep analysis why you trade like an idiot at times, just identify the kind of sabotage you do. Shine the light of recognition on the beast--chase that thing from the shadows. Don't yell at it, don't try to destroy it, just know it is there and see it in all its beastliness. Its power lies in it being secret, hidden, and vaque. Name it by name.

Gremlins scuttle back to their hiding places when exposed to light. They don't mind popping out into the light of your consciousness disguised as the greatest trader ever known and make you trade like a jerk. But, that is their choice. However, they have no tolerance when you decide to shine the light on them. They don't appreciate that. After awhile, they just don't bother to come out. If they do manage to come out, they don't stay long. But, they are always there, they never go away. You have just tamed them, so you can function in a positive manner.

Of all of my gremlins, the control freak was the hardest and took the longest to tame. However, if it does appears now, and says, do not honor your stop loss because you have planned the trade PERFECTLY, you have researched EVERYTHING to ensure the trade will work, so if it does not work, just IGNORE that fact, my response is laughter. I know I cannot structure the market, I can only structure my interaction with it, and that my trading plan just has a probability of working. The control freak scuttles back under its rock, and the stop loss stays.

When the gremlin which wants to be immediately gratified pokes its head out, and insists I book a profit earlier than my target, I review the reasons why I have decided on such a target, and if the reasons are still there, the trade stays on, and that gremlin slinks away.

The silly gremlin which thinks the market is a show, and want to get its kicks from being entertained in exciting ways, still visits, and screams in its frenzied voice, hey, why don't you jump aboard that hot stock to just see how far it goes? I check out the support and resistance on various timeframes, and if I cannot perceive an opportunity, I decline the urge to trade without an edge. That gremlin slithers away also.

Depending on the ferocity and different kinds of self-sabotage, it can take quite awhile to tame these inner beasts. At first, the self-saboteur will hate what you are doing, and will raise a fuss, making the gremlin appear stronger and even more powerful. Don't argue with the beast, just keep shining the light of recognition upon it, enabling you, the trader, with your knowledge and skill to rise to the occasion and manage your trading turret.

Michelle B submits: The Disciplined Trader by Mark Douglas sits near my trading turret in a place of honor. Following rules is very problematical for traders. Having rules, and some traders have many, is not the same as being disciplined. A disciplined trader follows his rules, while a trader who has rules may not necessarily be disciplined enough to follow them. Trading without controlling emotions often takes the form of a vicious circle--the trader becomes ensnared in a trap of his own making, and it can be nearly impossible to break this viciousness. Sometimes, in extreme cases, the only solution is to take an extended sabbatical from trading. It can take a long time to heal the psychological damage resulting from trading without discipline, so it is much better to try to prevent this damage from happening in the first place.

After reading some of John Carter's articles in Stocks, Futures and Options Magazine I was looking forward to reading his then upcoming book "Mastering the Trade: Proven Techniques for Profiting from Intraday and Swing Trading Setups". It was obvious from his articles that John had some good insights into how the markets work and that comes across even more so in the book. "Mastering the Trade" covers a lot of ground including writing a business plan (something that too few books cover), how to choose the proper hardware and software, an introduction to futures and currency trading (Forex) , an overview of trader psychology, a premarket checklist, a variety of trading setups and seven key internals to monitor in order to gauge intraday market strength & direction.

Some of you may be interested in the new book "The Quants: How a New Breed of Math Whizzes Conquered Wall Street and Nearly Destroyed It". Here's a short description (as if the title doesn't say it all):

In March 2006, the worldrs"s richest men sipped champagne in an opulent New York hotel. They were preparing to compete in a poker tournament with shy;million-dollar stakes. At the card table that night was Peter Muller, who managed a fabulously successful hedge fund called PDT. With him was Ken Griffin, who was the tough-as-nails head of Citadel Investment Group. There, too, were Cliff Asness, the sharp-tongued, mercurial founder of the hedge fund AQR Capital Management, and Boaz Weinstein, chess "life master" and king of the credit-default swap. Muller, Griffin, Asness, and Weinstein were among the best and brightest of a new breed, the quants. Over the past twenty years, this species of math whiz had usurped the testosterone-fueled, kill-or-be-killed risk takers whors"d long been the alpha males of the worldrs"s largest casino. The quants believed that a cocktail of differential calculus, quantum physics, and advanced geometry held the key to reaping riches from the financial markets. And they helped create a digitized money-trading machine that could shift shy;billions around the globe with the click of a mouse. Few realized that night, though, that in creating this extraordinary system, men like Muller, Griffin, Asness, and Weinstein had sown the seeds for historyrs"s greatest financial disaster.

You can listen to a discussion about it on yesterday's NPR 'Fresh Air' show. There's also an excerpt of the book posted on that NPR page.

So the bulls barely gave up any ground to end the week and that leaves the indices very extended. I think that it's going to take some great earnings releases to drive the market much higher without at least a few days of sideways movement. The Nasdaq actually punched out a new 2009 high last week but it did so on below average volume. That makes me the move suspect in my mind. If we start to get some big names reporting weak earnings I wouldn't be surprised to see the Nasdaq fill Wednesday's gap.

It's a similar story for the S&P 500 except that it hasn't made a new high for the year. It's perched right below resistance from its 2009 high. The short-term stochastic is very overbought, which isn't surprising after a 7% move in four days. I'd like to see stochastic cool off before thinking about putting new money to work.

I was mildly amused by Friday's Worden report, especially the part about the "true" author of Technical Analysis of Stock Trends. I envision him being the Little Richard of technical analysis had he lived to see the popularity of later works...

Having shattered a perfectly good head&shoulders top, demonstrating an obvious zeal in the process, the market is now once again showing signs of confusion and trepidation. Now what is it supposed to do? The sky is one big resistance zone.

My email reveals what appears to be a fairly wide lack of understanding of H&S tops, despite the fact it is probably the most widely recognized picture pattern on a chart. It probably is that, since it is so recognizable, it has become the most famous picture pattern used by technicians. Considering the American propensity to admire the rich and famous, the H&S stands out as a celebrity of sorts. The pattern presents such a clear picture--a lineup of a left shoulder, then a head, then a right shoulder.

None of the other picture patterns are as unambiguous. However, the artistic merit of an H&S should not be construed as the key to its accuracy as a forecasting tool. It is a good tool, but most picture patterns are just as good. You'll never find one that is perfect or that will do your thinking for you, whether it be a rising wedge, an ascending triangle, a double top or a W bottom. Try doing some Google searches on specific patterns. You may be surprised at the amount of free information you can pick up on the Internet.

These are patterns that technicians have been spotting for decades. All the famous ones are described in what is sometimes referred to as "the bible of technical analysis:" Technical Analysis of Stock Trends is the name of the book. I won't mention the authors' names, since the real author of the important parts of the book was named Richard Schabacker. They didn't even include his name among the supposed authors. Schabacker, who died quite young, was the master chartist. His charting section has been published under another name: Technical Analysis and Stock Market Profits. The Real Bible of Technical Analysis.  It's available from Amazon. I believe every technician should have a copy of this book.

Now that the H&S has been dissipated, a new picture pattern may develop. I see possible early signs of what is called "a Broadening Top." It is sometimes called a Megaphone Pattern, because it is in the shape of a megaphone with higher highs AND lower lows as the pattern progresses from left to right. It is a bearish pattern. There are other possibilities, some bullish.

As it stands, I think the short-term uptrend has moved up impetuously and may require some kind of a setback to regain its confidence. That is, if it is intent on moving up. There are quite a few important earnings reports that will come out soon. They will have an effect--especially now that almost nobody knows how to evaluate the market based on anything that hasn't actually happened.

No changes

Howard Lindzon's new book, "The Wallstrip Edge: Using Trends to Make Money -- Find Them, Ride Them, and Get Off" is out this month. If you are a fan of the WallStrip show and/or trend following you should check it out. I haven't read it yet but here's the product description from Amazon:

It's been often observed that anyone who invests in the stock market needs to have a very strong sense of humor....indeed; no truer words were ever spoken.

And the truth is, Howard Lindzon took that observation quite literally. Indeed, Howard's creation -- Wallstrip.com -- has become just that - a total melding of humor and investing, or as the New York Times observed about Wallstrip - "It's Squawk Box meets Saturday Night Live." Wallstrip.com pulls in between 5 and 7 million visitors a year, and the show's rabid following includes stock market enthusiasts, venture capitalists, traders, and others who tune in to hear, see, and talk about what's happening in the markets.

If you haven't been to Wallstrip.com, well, you're in for a real treat. Lindzon's parodies are priceless. And in THE WALLSTRIP EDGE, Howard captures his most unusual (but very smart) approach to how he picks winners, and you can too.

In THE WALLSTRIP EDGE, Howard Lindzon shows readers how to profit from his straightforward investment philosophy -- a unique trend watching philosophy that makes Wallstrip.com such an amazing phenomenon, including how to look at trends from a different perspective, knowing when to buy a certain stock, how to hold it, and of course when to sell. It's all done using the power of the Internet and your own instincts. It's a surprisingly simple (and fun) strategy that works, and best of all, you don't need to be a financial genius to make it work for you.

A comment by Andrew on Barry's post about the SEC wanting to ban all short selling sent me to my copy of Michael Panzner's book Financial Armageddon. Andrew stated that "tonight's event draws me to the last paragraph of ch.7 in Michael Panzer's Financial Armageddon". When I read that paragraph I was reminded of how I felt while reading the book back in March 2007. The scenarios that Panzner laid out were nothing short of chilling. I kept wondering if he really believed all those dire things would actually happen or if they were just a worst case scenario. In flipping through a few chapters tonight it's scary to see just how much of what Panzner wrote has come to pass. Here are the last two paragraph from chapter 7 ("Depression") which Andrew was talking about (hopefully Michael won't mind me posting so much of his text):

Eventually, with a decades-long orgy of credit expansion unraveling fast; the meltdown of stock, bond, commodity, and other markets; a cratering economy; and more of the nation's largest financial institutions precariously on the edge, the Federal Reserve and Washington as a whole will have reached a critical juncture. There will be widespread pressure, bordering perhaps on hysteria, for somebody, somewhere to take action and stem the rapidly rising tide of disaster.

Only then, after being unwilling to react quickly and forcefully enough early on, the Federal Reserve will abruptly shift gears, no longer fearing the consequences of an aggressive monetary response. In a sense, they will have nothing to lose. With immediate effect, they will give up their self-imposed yoke of restraint and move wholeheartedly into money-creation mode. That will mark the beginning of the second phase of the great unraveling.

Sound familiar? Here's some more from Chapter 6 ("Systemic Crisis")

No doubt a systemic meltdown will provoke a similar response. For the financial system and the markets, however, the fallout will likely be worse than any downturn in many decades, owing to a unique combination of modern developments and incendiary circumstances. The explosive growth of derivatives trading and leveraged hedge fund investing, hidden behind a shroud of lightly regulated secrecy, means that few people will have a handle on where dangerous risk is concentrated or overall levels of exposure -- not until it's too late...

-SNIP-

Simply put, people will find it difficult to react in timely, logical or focused fashion to the unfolding calamity...

-SNIP-

Despite increased levels of sophistication and the broad use of modern risk management systems, no one can be sure how new or exotic instruments and markets will behave when conditions take an ominous turn. The sheer scale of the unfolding financial crisis—in terms of the number of participants, firms, regulators, products, countries, and markets—will make it difficult to penetrate the problems...

-SNIP-

This time, however, a vast and efficient global communications network will ensure that destructive energies are rapidly transmitted to billions of people. So, too, will trading technology that facilitates and encourages traders and investors to act on their impulses. Many will find it too easy to shoot first -- or point and click -- and ask questions later in a 21st-century rush for the exits.. Not only will the fastest or sharpest operators look to get out. Firms that have come to depend on leverage, including hedge funds, brokers, and even banks, will also face immediate and rapidly growing pressure to scale back positions because of demands for additional cash collateral or reduced access to financing. Meanwhile, those who still have the wherewithal to initiate fresh positions or act independently will look to dive in and take advantage of the stampede.

-SNIP-

A constant global ripple effect will occur as positions are adjusted to take account of risk management strategies or cash-raising demands. The widespread use of flawed models will further aggravate the situation.

-SNIP-

By the time the systemic crisis is full-blown, there will almost certainly have been a domino-like collapse of more than a few large intermediaries and allegedly sophisticated global financial firms, including hedge funds, insurers, and brokers. As the number of failures grows, concerns over counterparty risk will take center stage. Lenders, investors, and risk managers will fret and gossip about which institution is next. Worries about fraud and chicanery will boost anxiety to a fever pitch. Even firms not in dire straits may suddenly find themselves at risk. In times of upheaval, a lack of information and concern about the ability of others to manage their exposure often spurs a self-fulfilling prophecy, where idle chatter alone leads to institutions being squeezed or cut off—just when they need access to financing most.

-SNIP-

Few areas of the financial system will be unaffected when the meltdown rages. In the insurance sector, for example, debt downgrades and defaults will occur at a quickening pace... At least some of the $2 trillion held in money market funds will anxiously flee to safer pastures as the prices of one or more pools fall below par -- "breaks the buck" -- because of shaky markets and holdings that turn out to be much riskier than expected.

Pretty much all of this has taken place over the last few weeks. Kudos to Michael Panzner for nailing all of this. And somehow I still have hope that much of the other stuff in the book is worst case scenario and won't come to pass. But I'm losing hope by the day.

Unfortunately I haven't had a chance to read my review copy of Timothy Sykes' new book 'An American Hedge Fund: How I Made $2 Million as a Stock Operator & Created a Hedge Fund'. But since you all read financial blogs I'm sure you've seen at least one of the many rave reviews across the net. The book was officially released this week and Tim was nice enough to send me the final edition as well. Since I now have two unread copies I'm going to give away my review copy, which is an uncorrected proof version.

Update: Timothy has offered two signed FINAL copies of the book. So here's what we'll do -- The two closest guessers will receive the final edition from Tim. I hate to let a book go to waste, I'm gonna give my uncorrected proof to the bronze medalist.

So here's the deal. Leave a comment guessing tomorrow's (Friday's) closing price of the Nasdaq. The person who's the closest gets the book -- U.S. addresses only.

Note: your guess must be entered by 9 PM EST today

I'm really looking forward to reading Kedrick Brown's book, Trend Trading: Timing Market Tides. It's been near the top of my reading list for several weeks now. (I really need to carve out more reading time!). I've only skimmed through it thus far but it looks like a very good read. Kedrick just informed me about an interview he recently did with Tavis Smiley which you can listen to below:

Financial wiz Kedrick Brown says certain aspects of an “unpredictable” market can be predicted with good investment strategy in his book, Trend Trading: Timing Market Tides.

[audio:KedrickBrown_01192007.mp3]

For a bit more detail on the book, check out Kedrick's self-review:

Somehow, between writing for his own site, his TraderFeed Blog, TradingMarkets.com and various presentaions Dr. Steenbarger found the time to write a new book, Enhancing Trader Performance. I just got my hands on a copy and am looking forward to reading it. Dr. Brett wrote a little bit about the book yesterday in his post entitled 'Finding Your Performance Niche'. In that post he provided a link to a PDF of the first chapter of the book. So have at it.

More details about the book are below...

Michelle B submits: A daytrader I knew who had a very high-percentage win rate, around ninety-five percent, when faced with a loss, would let it run. He was capitalized enough to do what he called "pouring on the gasoline." This activity of his would involve "lining up cans of gasoline as far as the eye could see." What he would do was to buy furiously all the way down at various support levels to reduce his cost basis. Sometimes, this took days, even weeks. Most of the time, after tying up his buying power and only focusing on his special kind of arson while missing many other opportunities, he would be able to get out with a small loss--the amount he could have booked in the first place. Every once in awhile, his account would get burned by his own arson. Because of his high win rate and trading skill, he would make up the losses fairly soon. Eventually, he would be faced with a loss, and he would turn arsonist once again.

He knew what he was doing was contrary to everything he knew about trading discipline. He referred to this crazy reaction being done by the 'nut within'. At the same time, I was also doing battle with myself. Taking my clue from him, I went a step further, and identified my 'nuts within'. I had three of them! The one that wanted to control every tick in the market. The one that had to be immediately gratified by the market. Last but least, the one that lived only to be entertained by the market. These 'nuts' managed my trading turret. Every once in awhile, the sane trader would make an appearance and trade well, but not for long. The 'nuts' were too potent and too numerous.

I then recalled a book that I read a long time ago, called, Taming your Gremlin, written by Rich Carson. I no longer had a copy, but I remembered one aspect of the approach to dealing with self-sabotage. That aspect was to identify the gremlin, to be conscious of its existence, while not trying to banish it. If you try to stop your nonsense all at once, it won't work. Maybe for awhile, you will trade like a sane person, but then the self-sabotage will appear once again.

I remember the British singer, Marianne Faithfull, when asked why she almost destroyed herself through drug addiction, responding the why did not matter, only that she knew she could stop taking drugs. Do not reason with yourself, nor scold yourself, or go into deep analysis why you trade like an idiot at times, just identify the kind of sabotage you do. Shine the light of recognition on the beast--chase that thing from the shadows. Don't yell at it, don't try to destroy it, just know it is there and see it in all its beastliness. Its power lies in it being secret, hidden, and vaque. Name it by name.

Gremlins scuttle back to their hiding places when exposed to light. They don't mind popping out into the light of your consciousness disguised as the greatest trader ever known and make you trade like a jerk. But, that is their choice. However, they have no tolerance when you decide to shine the light on them. They don't appreciate that. After awhile, they just don't bother to come out. If they do manage to come out, they don't stay long. But, they are always there, they never go away. You have just tamed them, so you can function in a positive manner.

Of all of my gremlins, the control freak was the hardest and took the longest to tame. However, if it does appears now, and says, do not honor your stop loss because you have planned the trade PERFECTLY, you have researched EVERYTHING to ensure the trade will work, so if it does not work, just IGNORE that fact, my response is laughter. I know I cannot structure the market, I can only structure my interaction with it, and that my trading plan just has a probability of working. The control freak scuttles back under its rock, and the stop loss stays.

When the gremlin which wants to be immediately gratified pokes its head out, and insists I book a profit earlier than my target, I review the reasons why I have decided on such a target, and if the reasons are still there, the trade stays on, and that gremlin slinks away.

The silly gremlin which thinks the market is a show, and want to get its kicks from being entertained in exciting ways, still visits, and screams in its frenzied voice, hey, why don't you jump aboard that hot stock to just see how far it goes? I check out the support and resistance on various timeframes, and if I cannot perceive an opportunity, I decline the urge to trade without an edge. That gremlin slithers away also.

Depending on the ferocity and different kinds of self-sabotage, it can take quite awhile to tame these inner beasts. At first, the self-saboteur will hate what you are doing, and will raise a fuss, making the gremlin appear stronger and even more powerful. Don't argue with the beast, just keep shining the light of recognition upon it, enabling you, the trader, with your knowledge and skill to rise to the occasion and manage your trading turret.

Michelle B submits: The Disciplined Trader by Mark Douglas sits near my trading turret in a place of honor. Following rules is very problematical for traders. Having rules, and some traders have many, is not the same as being disciplined. A disciplined trader follows his rules, while a trader who has rules may not necessarily be disciplined enough to follow them. Trading without controlling emotions often takes the form of a vicious circle--the trader becomes ensnared in a trap of his own making, and it can be nearly impossible to break this viciousness. Sometimes, in extreme cases, the only solution is to take an extended sabbatical from trading. It can take a long time to heal the psychological damage resulting from trading without discipline, so it is much better to try to prevent this damage from happening in the first place.

After reading some of John Carter's articles in Stocks, Futures and Options Magazine I was looking forward to reading his then upcoming book "Mastering the Trade: Proven Techniques for Profiting from Intraday and Swing Trading Setups". It was obvious from his articles that John had some good insights into how the markets work and that comes across even more so in the book. "Mastering the Trade" covers a lot of ground including writing a business plan (something that too few books cover), how to choose the proper hardware and software, an introduction to futures and currency trading (Forex) , an overview of trader psychology, a premarket checklist, a variety of trading setups and seven key internals to monitor in order to gauge intraday market strength & direction.

Some of you may be interested in the new book "The Quants: How a New Breed of Math Whizzes Conquered Wall Street and Nearly Destroyed It". Here's a short description (as if the title doesn't say it all):

In March 2006, the worldrs"s richest men sipped champagne in an opulent New York hotel. They were preparing to compete in a poker tournament with shy;million-dollar stakes. At the card table that night was Peter Muller, who managed a fabulously successful hedge fund called PDT. With him was Ken Griffin, who was the tough-as-nails head of Citadel Investment Group. There, too, were Cliff Asness, the sharp-tongued, mercurial founder of the hedge fund AQR Capital Management, and Boaz Weinstein, chess "life master" and king of the credit-default swap. Muller, Griffin, Asness, and Weinstein were among the best and brightest of a new breed, the quants. Over the past twenty years, this species of math whiz had usurped the testosterone-fueled, kill-or-be-killed risk takers whors"d long been the alpha males of the worldrs"s largest casino. The quants believed that a cocktail of differential calculus, quantum physics, and advanced geometry held the key to reaping riches from the financial markets. And they helped create a digitized money-trading machine that could shift shy;billions around the globe with the click of a mouse. Few realized that night, though, that in creating this extraordinary system, men like Muller, Griffin, Asness, and Weinstein had sown the seeds for historyrs"s greatest financial disaster.

You can listen to a discussion about it on yesterday's NPR 'Fresh Air' show. There's also an excerpt of the book posted on that NPR page.

So the bulls barely gave up any ground to end the week and that leaves the indices very extended. I think that it's going to take some great earnings releases to drive the market much higher without at least a few days of sideways movement. The Nasdaq actually punched out a new 2009 high last week but it did so on below average volume. That makes me the move suspect in my mind. If we start to get some big names reporting weak earnings I wouldn't be surprised to see the Nasdaq fill Wednesday's gap.

It's a similar story for the S&P 500 except that it hasn't made a new high for the year. It's perched right below resistance from its 2009 high. The short-term stochastic is very overbought, which isn't surprising after a 7% move in four days. I'd like to see stochastic cool off before thinking about putting new money to work.

I was mildly amused by Friday's Worden report, especially the part about the "true" author of Technical Analysis of Stock Trends. I envision him being the Little Richard of technical analysis had he lived to see the popularity of later works...

Having shattered a perfectly good head&shoulders top, demonstrating an obvious zeal in the process, the market is now once again showing signs of confusion and trepidation. Now what is it supposed to do? The sky is one big resistance zone.

My email reveals what appears to be a fairly wide lack of understanding of H&S tops, despite the fact it is probably the most widely recognized picture pattern on a chart. It probably is that, since it is so recognizable, it has become the most famous picture pattern used by technicians. Considering the American propensity to admire the rich and famous, the H&S stands out as a celebrity of sorts. The pattern presents such a clear picture--a lineup of a left shoulder, then a head, then a right shoulder.

None of the other picture patterns are as unambiguous. However, the artistic merit of an H&S should not be construed as the key to its accuracy as a forecasting tool. It is a good tool, but most picture patterns are just as good. You'll never find one that is perfect or that will do your thinking for you, whether it be a rising wedge, an ascending triangle, a double top or a W bottom. Try doing some Google searches on specific patterns. You may be surprised at the amount of free information you can pick up on the Internet.

These are patterns that technicians have been spotting for decades. All the famous ones are described in what is sometimes referred to as "the bible of technical analysis:" Technical Analysis of Stock Trends is the name of the book. I won't mention the authors' names, since the real author of the important parts of the book was named Richard Schabacker. They didn't even include his name among the supposed authors. Schabacker, who died quite young, was the master chartist. His charting section has been published under another name: Technical Analysis and Stock Market Profits. The Real Bible of Technical Analysis.  It's available from Amazon. I believe every technician should have a copy of this book.

Now that the H&S has been dissipated, a new picture pattern may develop. I see possible early signs of what is called "a Broadening Top." It is sometimes called a Megaphone Pattern, because it is in the shape of a megaphone with higher highs AND lower lows as the pattern progresses from left to right. It is a bearish pattern. There are other possibilities, some bullish.

As it stands, I think the short-term uptrend has moved up impetuously and may require some kind of a setback to regain its confidence. That is, if it is intent on moving up. There are quite a few important earnings reports that will come out soon. They will have an effect--especially now that almost nobody knows how to evaluate the market based on anything that hasn't actually happened.

No changes

Howard Lindzon's new book, "The Wallstrip Edge: Using Trends to Make Money -- Find Them, Ride Them, and Get Off" is out this month. If you are a fan of the WallStrip show and/or trend following you should check it out. I haven't read it yet but here's the product description from Amazon:

It's been often observed that anyone who invests in the stock market needs to have a very strong sense of humor....indeed; no truer words were ever spoken.

And the truth is, Howard Lindzon took that observation quite literally. Indeed, Howard's creation -- Wallstrip.com -- has become just that - a total melding of humor and investing, or as the New York Times observed about Wallstrip - "It's Squawk Box meets Saturday Night Live." Wallstrip.com pulls in between 5 and 7 million visitors a year, and the show's rabid following includes stock market enthusiasts, venture capitalists, traders, and others who tune in to hear, see, and talk about what's happening in the markets.

If you haven't been to Wallstrip.com, well, you're in for a real treat. Lindzon's parodies are priceless. And in THE WALLSTRIP EDGE, Howard captures his most unusual (but very smart) approach to how he picks winners, and you can too.

In THE WALLSTRIP EDGE, Howard Lindzon shows readers how to profit from his straightforward investment philosophy -- a unique trend watching philosophy that makes Wallstrip.com such an amazing phenomenon, including how to look at trends from a different perspective, knowing when to buy a certain stock, how to hold it, and of course when to sell. It's all done using the power of the Internet and your own instincts. It's a surprisingly simple (and fun) strategy that works, and best of all, you don't need to be a financial genius to make it work for you.

A comment by Andrew on Barry's post about the SEC wanting to ban all short selling sent me to my copy of Michael Panzner's book Financial Armageddon. Andrew stated that "tonight's event draws me to the last paragraph of ch.7 in Michael Panzer's Financial Armageddon". When I read that paragraph I was reminded of how I felt while reading the book back in March 2007. The scenarios that Panzner laid out were nothing short of chilling. I kept wondering if he really believed all those dire things would actually happen or if they were just a worst case scenario. In flipping through a few chapters tonight it's scary to see just how much of what Panzner wrote has come to pass. Here are the last two paragraph from chapter 7 ("Depression") which Andrew was talking about (hopefully Michael won't mind me posting so much of his text):

Eventually, with a decades-long orgy of credit expansion unraveling fast; the meltdown of stock, bond, commodity, and other markets; a cratering economy; and more of the nation's largest financial institutions precariously on the edge, the Federal Reserve and Washington as a whole will have reached a critical juncture. There will be widespread pressure, bordering perhaps on hysteria, for somebody, somewhere to take action and stem the rapidly rising tide of disaster.

Only then, after being unwilling to react quickly and forcefully enough early on, the Federal Reserve will abruptly shift gears, no longer fearing the consequences of an aggressive monetary response. In a sense, they will have nothing to lose. With immediate effect, they will give up their self-imposed yoke of restraint and move wholeheartedly into money-creation mode. That will mark the beginning of the second phase of the great unraveling.

Sound familiar? Here's some more from Chapter 6 ("Systemic Crisis")

No doubt a systemic meltdown will provoke a similar response. For the financial system and the markets, however, the fallout will likely be worse than any downturn in many decades, owing to a unique combination of modern developments and incendiary circumstances. The explosive growth of derivatives trading and leveraged hedge fund investing, hidden behind a shroud of lightly regulated secrecy, means that few people will have a handle on where dangerous risk is concentrated or overall levels of exposure -- not until it's too late...

-SNIP-

Simply put, people will find it difficult to react in timely, logical or focused fashion to the unfolding calamity...

-SNIP-

Despite increased levels of sophistication and the broad use of modern risk management systems, no one can be sure how new or exotic instruments and markets will behave when conditions take an ominous turn. The sheer scale of the unfolding financial crisis—in terms of the number of participants, firms, regulators, products, countries, and markets—will make it difficult to penetrate the problems...

-SNIP-

This time, however, a vast and efficient global communications network will ensure that destructive energies are rapidly transmitted to billions of people. So, too, will trading technology that facilitates and encourages traders and investors to act on their impulses. Many will find it too easy to shoot first -- or point and click -- and ask questions later in a 21st-century rush for the exits.. Not only will the fastest or sharpest operators look to get out. Firms that have come to depend on leverage, including hedge funds, brokers, and even banks, will also face immediate and rapidly growing pressure to scale back positions because of demands for additional cash collateral or reduced access to financing. Meanwhile, those who still have the wherewithal to initiate fresh positions or act independently will look to dive in and take advantage of the stampede.

-SNIP-

A constant global ripple effect will occur as positions are adjusted to take account of risk management strategies or cash-raising demands. The widespread use of flawed models will further aggravate the situation.

-SNIP-

By the time the systemic crisis is full-blown, there will almost certainly have been a domino-like collapse of more than a few large intermediaries and allegedly sophisticated global financial firms, including hedge funds, insurers, and brokers. As the number of failures grows, concerns over counterparty risk will take center stage. Lenders, investors, and risk managers will fret and gossip about which institution is next. Worries about fraud and chicanery will boost anxiety to a fever pitch. Even firms not in dire straits may suddenly find themselves at risk. In times of upheaval, a lack of information and concern about the ability of others to manage their exposure often spurs a self-fulfilling prophecy, where idle chatter alone leads to institutions being squeezed or cut off—just when they need access to financing most.

-SNIP-

Few areas of the financial system will be unaffected when the meltdown rages. In the insurance sector, for example, debt downgrades and defaults will occur at a quickening pace... At least some of the $2 trillion held in money market funds will anxiously flee to safer pastures as the prices of one or more pools fall below par -- "breaks the buck" -- because of shaky markets and holdings that turn out to be much riskier than expected.

Pretty much all of this has taken place over the last few weeks. Kudos to Michael Panzner for nailing all of this. And somehow I still have hope that much of the other stuff in the book is worst case scenario and won't come to pass. But I'm losing hope by the day.

Unfortunately I haven't had a chance to read my review copy of Timothy Sykes' new book 'An American Hedge Fund: How I Made $2 Million as a Stock Operator & Created a Hedge Fund'. But since you all read financial blogs I'm sure you've seen at least one of the many rave reviews across the net. The book was officially released this week and Tim was nice enough to send me the final edition as well. Since I now have two unread copies I'm going to give away my review copy, which is an uncorrected proof version.

Update: Timothy has offered two signed FINAL copies of the book. So here's what we'll do -- The two closest guessers will receive the final edition from Tim. I hate to let a book go to waste, I'm gonna give my uncorrected proof to the bronze medalist.

So here's the deal. Leave a comment guessing tomorrow's (Friday's) closing price of the Nasdaq. The person who's the closest gets the book -- U.S. addresses only.

Note: your guess must be entered by 9 PM EST today

I'm really looking forward to reading Kedrick Brown's book, Trend Trading: Timing Market Tides. It's been near the top of my reading list for several weeks now. (I really need to carve out more reading time!). I've only skimmed through it thus far but it looks like a very good read. Kedrick just informed me about an interview he recently did with Tavis Smiley which you can listen to below:

Financial wiz Kedrick Brown says certain aspects of an “unpredictable” market can be predicted with good investment strategy in his book, Trend Trading: Timing Market Tides.

[audio:KedrickBrown_01192007.mp3]

For a bit more detail on the book, check out Kedrick's self-review:

Somehow, between writing for his own site, his TraderFeed Blog, TradingMarkets.com and various presentaions Dr. Steenbarger found the time to write a new book, Enhancing Trader Performance. I just got my hands on a copy and am looking forward to reading it. Dr. Brett wrote a little bit about the book yesterday in his post entitled 'Finding Your Performance Niche'. In that post he provided a link to a PDF of the first chapter of the book. So have at it.

More details about the book are below...

Michelle B submits: A daytrader I knew who had a very high-percentage win rate, around ninety-five percent, when faced with a loss, would let it run. He was capitalized enough to do what he called "pouring on the gasoline." This activity of his would involve "lining up cans of gasoline as far as the eye could see." What he would do was to buy furiously all the way down at various support levels to reduce his cost basis. Sometimes, this took days, even weeks. Most of the time, after tying up his buying power and only focusing on his special kind of arson while missing many other opportunities, he would be able to get out with a small loss--the amount he could have booked in the first place. Every once in awhile, his account would get burned by his own arson. Because of his high win rate and trading skill, he would make up the losses fairly soon. Eventually, he would be faced with a loss, and he would turn arsonist once again.

He knew what he was doing was contrary to everything he knew about trading discipline. He referred to this crazy reaction being done by the 'nut within'. At the same time, I was also doing battle with myself. Taking my clue from him, I went a step further, and identified my 'nuts within'. I had three of them! The one that wanted to control every tick in the market. The one that had to be immediately gratified by the market. Last but least, the one that lived only to be entertained by the market. These 'nuts' managed my trading turret. Every once in awhile, the sane trader would make an appearance and trade well, but not for long. The 'nuts' were too potent and too numerous.

I then recalled a book that I read a long time ago, called, Taming your Gremlin, written by Rich Carson. I no longer had a copy, but I remembered one aspect of the approach to dealing with self-sabotage. That aspect was to identify the gremlin, to be conscious of its existence, while not trying to banish it. If you try to stop your nonsense all at once, it won't work. Maybe for awhile, you will trade like a sane person, but then the self-sabotage will appear once again.

I remember the British singer, Marianne Faithfull, when asked why she almost destroyed herself through drug addiction, responding the why did not matter, only that she knew she could stop taking drugs. Do not reason with yourself, nor scold yourself, or go into deep analysis why you trade like an idiot at times, just identify the kind of sabotage you do. Shine the light of recognition on the beast--chase that thing from the shadows. Don't yell at it, don't try to destroy it, just know it is there and see it in all its beastliness. Its power lies in it being secret, hidden, and vaque. Name it by name.

Gremlins scuttle back to their hiding places when exposed to light. They don't mind popping out into the light of your consciousness disguised as the greatest trader ever known and make you trade like a jerk. But, that is their choice. However, they have no tolerance when you decide to shine the light on them. They don't appreciate that. After awhile, they just don't bother to come out. If they do manage to come out, they don't stay long. But, they are always there, they never go away. You have just tamed them, so you can function in a positive manner.

Of all of my gremlins, the control freak was the hardest and took the longest to tame. However, if it does appears now, and says, do not honor your stop loss because you have planned the trade PERFECTLY, you have researched EVERYTHING to ensure the trade will work, so if it does not work, just IGNORE that fact, my response is laughter. I know I cannot structure the market, I can only structure my interaction with it, and that my trading plan just has a probability of working. The control freak scuttles back under its rock, and the stop loss stays.

When the gremlin which wants to be immediately gratified pokes its head out, and insists I book a profit earlier than my target, I review the reasons why I have decided on such a target, and if the reasons are still there, the trade stays on, and that gremlin slinks away.

The silly gremlin which thinks the market is a show, and want to get its kicks from being entertained in exciting ways, still visits, and screams in its frenzied voice, hey, why don't you jump aboard that hot stock to just see how far it goes? I check out the support and resistance on various timeframes, and if I cannot perceive an opportunity, I decline the urge to trade without an edge. That gremlin slithers away also.

Depending on the ferocity and different kinds of self-sabotage, it can take quite awhile to tame these inner beasts. At first, the self-saboteur will hate what you are doing, and will raise a fuss, making the gremlin appear stronger and even more powerful. Don't argue with the beast, just keep shining the light of recognition upon it, enabling you, the trader, with your knowledge and skill to rise to the occasion and manage your trading turret.

Michelle B submits: The Disciplined Trader by Mark Douglas sits near my trading turret in a place of honor. Following rules is very problematical for traders. Having rules, and some traders have many, is not the same as being disciplined. A disciplined trader follows his rules, while a trader who has rules may not necessarily be disciplined enough to follow them. Trading without controlling emotions often takes the form of a vicious circle--the trader becomes ensnared in a trap of his own making, and it can be nearly impossible to break this viciousness. Sometimes, in extreme cases, the only solution is to take an extended sabbatical from trading. It can take a long time to heal the psychological damage resulting from trading without discipline, so it is much better to try to prevent this damage from happening in the first place.

After reading some of John Carter's articles in Stocks, Futures and Options Magazine I was looking forward to reading his then upcoming book "Mastering the Trade: Proven Techniques for Profiting from Intraday and Swing Trading Setups". It was obvious from his articles that John had some good insights into how the markets work and that comes across even more so in the book. "Mastering the Trade" covers a lot of ground including writing a business plan (something that too few books cover), how to choose the proper hardware and software, an introduction to futures and currency trading (Forex) , an overview of trader psychology, a premarket checklist, a variety of trading setups and seven key internals to monitor in order to gauge intraday market strength & direction.