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- Herausgeber: John Wiley & Sons
- Kategorie: Fachliteratur
- Serie: Wiley Trading Series
- Sprache: Englisch
The Online Trading Cookbook is a unique resource for busy online traders of all levels, addressing the need amongst the growing number of those trading and investing from home for solid, low risk trading strategies which they can incorporate into a busy lifestyle. Suitable for all levels of retail trader and is supplemented by useful advice on the best trading tools, websites and brokers, the different markets available to trade, tips on risk and money management.
The book is divided into sections based on levels of complexity and contains specific strategies used by profitable hedge funds as well as strategies used by other professionals, all of which can be implemented by private investors. The opening chapter discusses the professional tools traders will need, from multi-screen hardware, best websites, trading software, data services, brokers, trading products and the types of traders suited to each type of trading. The following chapters give concise novice, intermediate and advanced strategies for short and long term traders.
The cookbook format is one of the most popular for teaching complicated subjects. Trading skills are presented and learnt as simply as recipes. This book provides exactly that from trading strategies to risk and money management. Each page presents as ingredients what the trader needs to do, the tools and the preparation with successful examples illustrated on the facing page. Both the proven format and its simplicity are compelling and unique in their application to trading.
Written by two celebrated experts in the field, The Online Trading Cookbook is the perfect starting point for anyone wishing to learn to trade or for advanced traders wishing to further their knowledge.
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Seitenzahl: 230
Veröffentlichungsjahr: 2012
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Contents
Cover
Series
Title Page
Copyright
Dedication
Preface
A LIVING BOOK
BUT WHO SAYS WE'RE ANY GOOD?
Acknowledgements
About the Authors
ALPESH PATEL
PARESH KIRI
Introduction
NEVER HAVE SO FEW MADE SO MUCH
BUT SURELY YOU CAN'T TEACH THE COMPLEXITIES OF THE MARKETS IN ONE BOOK?
HOW WE KNOW EXPERTS LET US DOWN
Part I: APERITIF
Recipe 1: Uncle's Favourite
HISTORY OF THE RECIPE
INGREDIENTS
RECIPE
VARIATIONS TO THE RECIPE
HERE'S ONE I MADE EARLIER
Recipe 2: What Good Dishes Taste Like – The Recipe for Trading Success
IT'S NOT JUST ABOUT THE RIGHT STRATEGY
OVER-EGGING THE PUDDING: HOW MUCH SHOULD I PLACE ON ANY ONE TRADE?
IT'S NOT ABOUT THE STOCKS YOU PICK
SUMMARY
Recipe 3: Trend Lines and Channelling: Mind the Bumps
HISTORY OF THE RECIPE
INGREDIENTS
RECIPE
VARIATIONS TO THE RECIPE
MORE ON THE RECIPE
HERE'S ONE I MADE EARLIER
Recipe 4: Japanese as Easy as Sushi: Exotic but not Complicated
HISTORY OF THE RECIPE
INGREDIENTS
RECIPE
VARIATIONS TO THE RECIPE
MORE ON THE RECIPE
HERE'S ONE I MADE EARLIER
Recipe 5: Moving Averages: Decisions Decisions
HISTORY OF THE RECIPE
INGREDIENTS
RECIPE
VARIATIONS TO THE RECIPE
MORE ON THE RECIPE
HERE'S ONE I MADE EARLIER
Recipe 6: Breakfast at 8
HISTORY OF THE RECIPE
INGREDIENTS
RECIPE
VARIATIONS TO THE RECIPE
MORE ON THE RECIPE
HERE'S ONE I MADE EARLIER
Recipe 7: Let's Get a Takeaway!
HISTORY OF THE RECIPE
INGREDIENTS
RECIPE
HERE'S ONE I MADE EARLIER
VARIATIONS ON THE RECIPE
RESOURCES
Part II: HORS D’OEUVRES
Recipe 8: MACD, MA and Stochastic – Mixing Cocktails
HISTORY OF THE RECIPE
INGREDIENTS
RECIPE
VARIATIONS TO THE RECIPE
MORE ON THE RECIPE
HERE'S ONE I MADE EARLIER
Recipe 9: The Breakout
HISTORY OF THE RECIPE
INGREDIENTS
RECIPE
VARIATIONS TO THE RECIPE
HERE'S ONE I MADE EARLIER
SOME RECIPE QUESTIONS
WHAT COULD GO WRONG? HOW MIGHT YOU END UP OVERCOOKING THIS?
Part III: AMUSE-BOUCHE
Recipe 10: Natural Diet: Don't Forget Your Roughage
HISTORY OF THE RECIPE
INGREDIENTS
RECIPE
VARIATIONS TO THE RECIPE
MORE ON THE RECIPE
HERE'S ONE I MADE EARLIER
CONCLUSION
Part IV: ENTREMET
Recipe 11: MACD (Mac-D) and Friends
HISTORY OF THE RECIPE
INGREDIENTS
RECIPE
THE INDICATORS
HERE'S ONE I MADE EARLIER
Recipe 12: Nouvelle Cuisine: New Issues
HISTORY OF THE RECIPE
INGREDIENTS
RECIPE
VARIATIONS TO THE RECIPE
MORE ON THE RECIPE
HERE'S ONE I MADE EARLIER
Recipe 13: Momentum: Short Termism Does Pay!
HISTORY OF THE RECIPE
INGREDIENTS
RECIPE
VARIATIONS TO THE RECIPE
MORE ON THE RECIPE
HERE'S ONE I MADE EARLIER
Recipe 14: Turtle Soup: The Most Famous Trading Recipe of All
HISTORY OF THE RECIPE
INGREDIENTS
RECIPE
VARIATIONS TO THE RECIPE
MORE ON THE RECIPE
HERE'S ONE I MADE EARLIER
Recipe 15: Pairs Trading: One of Your Five a Day!
HISTORY OF THE RECIPE
INGREDIENTS
RECIPE
VARIATIONS TO THE RECIPE
MORE ON THE RECIPE
HERE'S ONE I MADE EARLIER
Recipe 16: Double Big MAC-D
HISTORY OF THE RECIPE
INGREDIENTS
RECIPE
HERE'S ONE I MADE EARLIER
Part V: ENTREE
Recipe 17: English Breakfast or All-Day Lunch
HISTORY OF THE RECIPE
INGREDIENTS
RECIPE
VARIATIONS TO THE RECIPE
MORE ON THE RECIPE
HERE'S ONE I MADE EARLIER
Recipe 18: Surfing the Waves: Fast Food
HISTORY OF THE RECIPE
INGREDIENTS
RECIPE
VARIATIONS TO THE RECIPE
MORE ON THE RECIPE
HERE'S ONE I MADE EARLIER
Part VI: MAIN
Recipe 19: Coffee Options and Spreads
HISTORY OF THE RECIPE
INGREDIENTS
RECIPE
VARIATIONS TO THE RECIPE
MORE ON THE RECIPE
HERE'S ONE I MADE EARLIER
Recipe 20: Bonds: Shaken Not Stirred
HISTORY OF THE RECIPE
INGREDIENTS
RECIPE
VARIATIONS TO THE RECIPE
MORE ON THE RECIPE
HERE'S ONE I MADE EARLIER
Recipe 21: Buffet: Today's Special at McDonald’s
HISTORY OF THE RECIPE
INGREDIENTS
RECIPE
VARIATIONS TO THE RECIPE
MORE ON THE RECIPE
HERE'S ONE I MADE EARLIER
Part VII: DESSERT
Recipe 22: Common Cooking Mistakes and How to Avoid Them
OTHER INVESTING PROBLEMS AND SOLUTIONS YOU WILL NOT FIND IN THE FINANCIAL PRESS
Part VIII: PANTRY
Recipe 23: Utensils and Common Ingredients
CHARTING SOFTWARE
WHAT ALL THOSE CHARTS MEAN
CAN PRIVATE INVESTORS DO IT ANYWAY?
SUMMARY
Recipe 24: If You Can't Stand the Heat: Taking Risks in the Kitchen
TYPES OF TRADER COOKS
THE MIND OF A CHEF: HAVE YOU GOT THE MATHS SMARTS?
EXERCISES – RISK TOLERANCE
SUMMARY
Index
For other titles in the Wiley Trading Series
please see www.wiley.com/finance
This edition first published in 2012 Copyright © 2012 John Wiley & Sons, Ltd
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Library of Congress Cataloging-in-Publication Data
Patel, Alpesh B. The online trading cookbook / Alpesh Patel, Paresh Kiri. p. cm. – (Wiley trading series) Includes bibliographical references and index. ISBN 978-0-470-68445-0 (cloth) 1. Electronic trading of securities. 2. Investments–Computer network resources. I. Kiri, Paresh. II. Title. HG4515.95.P277 2012 332.640285′4678–dc23 2012004086
A catalogue record for this book is available from the British Library.
ISBN 978-0-470-68445-0 (hardback) ISBN 978-0-470-66246-5 (ebk) ISBN 978-0-470-66182-6 (ebk)ISBN 978-0-470-66171-0 (ebk)
Alpesh Patel Dedication
In memory of Sushilabhen R. Patel
Still your mind in me, still yourself in me, and without a doubt you shall be united with me, Lord of Love, dwelling in your heart
(Bhagavad Gita)
Paresh Kiri Dedication
Who better to dedicate my first book than the most important people in my life? The saying ‘behind every great man is a great woman’ should maybe read, ‘Behind every great man is an even greater woman’.
To the two greater than I women in my life – now and forever – my wife – Rajee Kiri, and H.H. Shri Mataji Nirmala Devi, simply known to us as MOTHER.
Not forgetting the children, Mihir, Angelee and Shivam.
And finally, Alpesh B. Patel, a staunch advocate for justice and fairness.
Preface
A LIVING BOOK
We want readers of this book to engage with us as authors, therefore we have provided a Facebook page, a Twitter page, a blog with the latest trading ideas based on our strategies, our monthly market analysis newsletter (about 50 pages each month) and links to our online education, as well as our email at the end of this preface. We genuinely want to have an ongoing teaching relationship with all our readers.
A few years ago Alpesh won a competition in the Financial Times. He correctly forecast the value of the FTSE 100, the UK's main equity index, over a 12-month period. He came within 0.5% of the final value. That was closer than his competitors, who included traders, brokers, analysts, FT journalists and the editor's cat. Some were out by as much as 50%. These were clever people. They were market experts and specialists. Alpesh is one of you, dear reader. Someone who knows they can do it themselves.
The aims of this book are: to teach our own and others' successful strategies; to make this the only trading book you will ever need; to use social networks and YouTube to ensure a critical focus on what troubles and what interests you. We would then suggest that you use Alpesh's weekly appearances on the BBC to double-check what the private investor/trader wants and needs to know. From our experience we realise that it is important to spend some time explaining ‘what the rich and successful traders do’ in simple terms. Too often expert authors forget that unless the reader ‘gets it’ the whole exercise and satisfaction of a book become redundant.
This book covers some of the techniques used, why we can't rely on ‘experts’ and why we should learn to invest ourselves, how trading can be straightforward and, most importantly, how we can do it. These are no-nonsense recipes for trading success from cordon-bleu traders.
A three-sentence summary of the book would be as follows. The cookbook format is one of the most enduring and popular for teaching complicated skills. Trading skills can be learnt and presented as simple recipes. This book provides exactly that from trading strategies to risk and money management.
My essential pitch to you, dear reader, is that this format has never been used. Each recipe presents as ingredients what the trader needs to do, the tools and the preparation. And then illustrates successful examples, and some that didn't work and why. Both the proven format and its simplicity are compelling and unique in their application to trading.
The book is divided into sections appropriately aimed at the novice, intermediate and advanced trader, thereby enabling beginners to learn how to trade or, in the case of advanced traders, to become better traders. The strategies are ranked according to complexity.
So why not simply have one or two strategies? Because, like recipes, traders use different strategies for different purposes. If you want to have a portfolio of short-term and long-term trades, or ones based on equities and others for forex, then you need different recipes. But why different time frames and different asset classes (like stocks and bonds)? Because as the intermediate and advanced trader will tell you, this diversifies your risk and ensures there is always capital working for you.
By having more than one strategy, for example investment A and investment B, the risk is reduced, because the combination of both can smooth out your returns.
This book will help readers:
BUT WHO SAYS WE'RE ANY GOOD?
We've taken three approaches with the strategies in this book. First, we've used personal practical experience. Second, we've back-tested. For instance the illustration below shows how we tested a multitude of strategies over different time frames.
Third, some of the strategies are our trading software. The performance figures are also displayed in the following table. The software is the ‘Alpesh Patel Special Edition of ShareScope’ (www.sharescope.co.uk/alpesh).
Alpesh Performance Figures
YearAPSEFTSE All-Share2004+34.9%+9.2%2005+44.2%+18.1%2006+40.6%+10.8%2007–2.3%+2.3%2008–18.4%–32.4%2009+17.4%+28.0%2010+16.1%+9.1%Total+197.2%+38.0%CAGR+16.8%+4.7%Note: Performance is calculated as the percentage price change between the closing prices of the first and last trading days of the year. Spread and dealing costs have not been included. Source:www.sharescope.co.uk/alpeshWe trust you will enjoy the book and that we achieve our aims. Any questions and you can reach us below:
Acknowledgements
The neural activity of someone whose investments are making money is indistinguishable from that of someone who is high on cocaine or morphine.
—Jason Zweig
I am indebted as is every author to his publishers from commissioning editor, assistant editor to the sub-editor and everyone in between. I thank them for their diligence and enthusiasm. In particular thank you to Caitlin Cornish, Aimee Dibbens, Jennie Kitchin, Samantha Hartley and Viv Wickham. And of course to our copy editor who made sense of everything and presented a polished professional final work of art … thank you Tessa Hanford. Drinks on us for you all.
I am of course also indebted to my tireless co-author and friend, Paresh Kiri. Paresh, like me, co-founded a hedge fund. The one for which he developed strategies went on to become a $2 billion fund. I am pleased to be able to thrash out our thoughts and ideas in this book and publish some of those ‘recipes of trading success’. We know the cake rises when the ingredients are right, but also the oven, that is the environment, has to be right too.
About the Authors
ALPESH PATEL
Alpesh launched asset management company Praefinium Partners in 2004. He is a former Visiting Fellow in Business and Industry at Corpus Christi College, Oxford University. He has written 13 books on trading, translated into 8 languages. For Bloomberg TV he co-presented shows for three years as their in-house online trading specialist. He has had over 200 columns on trading published in the Financial Times through his ‘Diary of an Internet Trader’ column.
Alpesh won the competition in the Financial Times to predict the value of the FTSE 100 over a 12 month period coming within 0.5% of the final value. He is the founder of www.investingbetter.com which is an online trading education company and has his own investment software in partnership with Sharescope, called the ‘Alpesh Patel Special Edition’ of Sharescope.
Alpesh has lectured on trading from Beijing and San Francisco to Guatemala and from Spain to India, Singapore and Hong Kong.
Alpesh is also the founder of www.alpeshpatel.com offering trading education.
PARESH KIRI
Paresh Kiri has vast experience as a floor trader on the world's second largest derivatives exchange – LIFFE – and as a portfolio manager spanning some 18 years. He is an FSA regulated investment manager.
Starting his career on the LIFFE floor in 1993, Paresh was one of the first traders to embrace screen trading, through the LIFFE online trading platform APT (Automated Pit Trading). Making progress under the guidance of legendary LIFFE trader, David Kyte, he was one of the most consistent traders on the largest product on the floor – the Japanese government bond.
After successfully completing the Investment Management Certificate in 1996 he was one of the founders of Kyte Securities. So from trading financial futures and option products, Paresh had his first taste of trading stocks and shares. During the next three years he was instrumental in discovering bespoke strategies for trading equities globally.
In 2000, Kyte Securities became Eden Financial – which is now one of the most respected wealth management companies in the City of London – and the strategies developed were then incorporated as the backbone to the Tomahawk hedge fund, run by Marble Bar Asset Management. That fund went on to manage over $2 billion of assets.
Since leaving Eden Financial in 1999, Paresh has been managing private client and institutional money, and developing very specific operational services going back to Kyte Group to assist with the development of an Index Options Desk, and seeking ways of bringing the strategies he developed to the wider public audience by structuring managed accounts services using online trading platforms.
Paresh regularly coaches and holds private seminars on trading the markets. Paresh sits on the Advisory Board of Sterling Group (www.sterlinggroup.info) which has its HQ in Dubai.
Introduction
Wall Street's favorite scam is pretending luck is skill.
—Ron Ross
NEVER HAVE SO FEW MADE SO MUCH
In the middle of the last decade, money managers, i.e. professional traders, earned a fortune. Never in the history of economic endeavour has so much been earned by so few so quickly. They were led by Long Island fund manager James Simons of Renaissance Technologies who earned $1.5 billion, followed by T. Boone Pickens Jr of Texas with $1.4 billion, and New York investor George Soros with $840 million.
So what is the attitude of the professional trader? The ones who make the big sums. First and foremost, I want to get you investing – successfully. That means I am a pragmatist. I measure the success of this book by the money you make, not by the exams you pass.
Overriding all else, I believe in simplicity, saving time and making money. These are the core principles. If you like lots of equations and complexity and never investing or making money – then this book is not for you.
BUT SURELY YOU CAN'T TEACH THE COMPLEXITIES OF THE MARKETS IN ONE BOOK?
As an experienced trader I have met PhD graduates who make money and people who left school at 16 who make money. You can choose to make money using your academic brilliance, or by some other strategy. We want to get across the simpler strategies. The ones that are based on seeing the profitable wood and missing the trees, avoiding the noise and hearing the music or to carry the book's analogy forward – smelling the sweet aroma of the cooking and not being bogged down in the minutiae of how an oven works.
So you can try to work out how the US dollar/euro will move by studying Figure I.1 but you probably don't need to. We do know that the style used in Figure I.2, which shows the price chart of US dollar versus Norwegian krone, is going to save you a lot of time.
So, would you prefer to analyse the data shown in Figure I.1? (The answer is no.)
Figure I.1 Roadmap to exchange rate determination
Source: Bloomberg and Rosen, Michael R., Currency Forecasting, 1996
OR would you rather use Figure I.2? (The answer is yes.)
Figure I.2 Exchange rate USD/NOK
Source:www.sharescope.co.uk. © ShareScope, reproduced with permission
Or something as simple and clear as shown in Figure I.3?
Figure I.3 A simple strategy based on price breakout
The following explains how an analysis is carried out:
Find a trend, e.g. a downward trend (1)Locate a breakout from that trend to the upside, i.e. where the price moves higher (2) as a purchase pointSet a stop-loss, i.e. know when you are wrong, e.g. price resumes a downward trend (3)Set a profit target based on a reasonable recent price level (4)Ensure reward target (Reward – Entry) is greater than risk (Entry – Stop-loss) ((4 – 2) > (2 – 3))To give you an even better idea of how short-term active traders may spend their time, consider Table I.1 (of course you are not required to be a short-term trader, which is why we include strategies for every hue of trader).
Table I.1 The day trader in Microsoft stock futures
08:00At desk, make sure computer is up and running, data being collected08:05Go through latest headlines on financial websites to check what has happened overnight08:20Make a note of likely pivot points and supports and resistances for the day based on past week's action and yesterday's action08:30Monitor market but as per system do not enter before 10:0010:00View momentum indicators on 3-minute and 5-minute charts of likely buy or short signals10:15Possible buy signal. Ready to click on buy, wait. No, false alarm10:30Still no signal, continue watching10:40Possible signal to short. Confirmed. Click on sell and enter order10:41Five sold. Make note of stop-loss (and print out price chart)10:42While monitoring prices, draw on price chart possible target levels, supports and resistances10:45Price rises. Doubts creeping in10:50Price hits within points of stop-loss. Indicators still suggest holding position11:00Position still open11:02Price now running up quickly, indicators not showing sell, with paper profits eroded. Trailing stop near, get ready to close11:05Price continues dropping11:15Price starts rising. Momentum on 3-minute chart suggests exit11:16Momentum on 3- and 5-minute charts suggest exit, The MACD (moving average convergence divergence), an indicator of price momentum, still suggests in11:17Trailing stop hit. Exit11:18Hit sell order, wait for fill price: five bought and position closed11:19Reconfigure for next trade. Return to screenHOW WE KNOW EXPERTS LET US DOWN
The only way to measure an expert's worth is by the performance of their stock ideas. If you could just as easily put money into an index tracker, which simply follows the performance of the Dow or FTSE, then why waste time and money with an expert? And we know experts don't always perform. Just look at Figure I.4.
Figure I.4 Average returns of market timing newsletters
Source: Hulbert Financial Digest, Businessweek, 3 September 1998, created 25 January 2011. © Index Funds Advisors, Inc
We need to know that it is not all about the right recipe, but also the right mindset.
We would be doing our readers a disservice if we just gave you a load of strategies and left you to it. That does not make for success. We know this because, as any experienced trader will tell you, you need to be able to execute the strategy and not let emotion and indiscipline get in the way. Figures I.5 and I.6 show a common trading problem.
Figure I.5 Average returns of market timing newsletters
Source: Dr Jean-Paul Rodrigue, Department of Economics and Geography, Hofstra University, reproduced with permission
Figure I.6 The cycle of fear and greed
Figure I.7 Market turmoil and the Dow Jones industrial average
Source: Yahoo! Finance, created 28 October 2011. © 2011 Index Funds Advisors, Inc
Figure I.8 Relationship between equity returns and economic freedom rank
Source: Updates and disclosures: ‘What should investors do now?’ DFA presentation by Weston Wellington, Heritage Foundation, created 28 October 2011. © 2011 Index Funds Advisors, Inc
Figure I.9 Equity indexes
Source: Bloomberg
One final question: is it the right time to be even thinking about trading or investing? And that is a fair question, between record budget deficits, sovereign debt defaults, the largest bankruptcies in history and potential collapse of currencies, should we just put our money under the mattress?
Well, most of our strategies do not depend on the markets moving in one direction. That is why we think you are better off handling your own money than stashing it in a safebox. If the markets fall, there are still strategies to profit from. Equally, let's get some perspective here. We hope that Figures I.7–I.9 show that even in the darkest moments the markets rebound, and as long as there is economic freedom, we survive.
Part I
APERITIF
The following strategies are suitable for the beginner trader and investor. They work, are easy to use and, for most people, are the only strategies they may ever need. For others, they comprise part of their armoury of strategies depending on the markets in which they are trading.
The decline of the aperitif may well be one of the most depressing phenomena of our time.
—Luis Buñuel (Spanish film director)
Recipe 1
Uncle's Favourite
Difficulty Level: Beginner
No one in his right mind would walk into the cockpit of an airplane and try to fly it, or into an operating theater and open a belly. And yet they think nothing of managing their retirement assets. I've done all three, and I'm here to tell you that managing money is, in its most critical elements (the quota of emotional discipline and quantitative ability required) even more demanding than the first two.
—William Bernstein
HISTORY OF THE RECIPE
Traders hate having to use their brains. They hate having to predict. They prefer to make things as automated as possible. Who wouldn’t? So wouldn't it be helpful if, when we were trading, we could be pretty sure where a price will go? The essence of this trading strategy is that prices go back to where they were in the recent past.
This strategy is used by professionals and by novices and so should be simple enough for beginners to apply. The principle is ‘mean reverting’ – that is the price 90% of the time does not move in any trend but just back and forth.
Take a look at Figure 1.1. I have chosen the 3-minute chart, where each individual bar represents 3 minutes of price moves. I have taken this one from Sterling-markets.com, a broker that provides charting free as part of its brokerage services and one which I frequently use.
Figure 1.1 GBP/USD 3-minute chart
Source: © Sterlingmarkets.com, reproduced with permission
I have drawn a horizontal line pointing to 1.551, which I estimate to be the average or mean around which the price moves and to which it seems to revert. Some software will do this using a ‘linear regression’, which is a statistician's way of saying ‘the average price over a period of time’. But I find it is accurate enough to do it by eye and in a fast-trading environment saves time anyway.
I could have looked at different time frames and then of course the mean would have been different and so would our trades. So who uses the 3-minute chart? Well, certainly someone who is trading actively during the day. They may even trade on the 1-minute chart. They do this because it gives them lots of trades and allows them to deploy their capital and get a return on it.
Figure 1.2 illustrates the daily chart, where each bar represents one whole day of price moves in GBP/USD. The average or mean I have drawn comes to around 1.58. Again the idea is that the price, even if it extends far away from this number, either above or below, tends to move back to this mean value.
Figure 1.2 GBP/USD daily chart
Source: © Sterlingmarkets.com, reproduced with permission
Figure 1.3 GBP/USD daily chart showing 1.62 as an area around which the price seems to be mean reverting
Does the price actually revert to the mean? Very often yes. But given that we could lose lots of money if it didn’t, we must as part of this strategy put in stop-losses to protect our capital.
