By Chris Ebert
Ordinarily there is little advice a television evangelist can offer a trader. However, in one such broadcast recently, an evangelist made the following remark.
I paid $90 for a book written by a 70-year old man. Why? Because, what it took him 70 years to learn, I’ll know in three hours.
There are very few professions in which one can practice for a lifetime and still continue to learn. Certainly experience is an asset in any line of work; but it is also true that most occupations have a limited scope that allows one to master the skills of the career over a period of a few years.
Exceptions to the rule are occupations such as law or medicine, for example, in which the scope is so wide that even after a lifetime it is not possible to master every aspect of the field. Trading fits into that category.
Just as a doctor can’t specialize in every aspect of medicine and be expected to be a master of each specialty, neither can a trader be expected to do so. There are just so many products to trade, it is impossible to be an expert in all of them.
It is difficult enough to master the stock market. Then there are currencies, derivatives such as futures and options, and even options on futures. Within the derivatives market there are subsets relating to different facets of the industry, for example commodities or equities, and among those are countless different contracts.
Even if a trader attempts to keep things simple by only trading a single instrument, such as shares of stock, there are different methods of trading. Some traders use technical charts, others trade more by corporate fundamentals. And even among those there are different subsets ranging from day-traders to those who prefer long-term buy-and-hold positions.
It is not inconceivable that there are perhaps a million ways to trade. Therefore it makes sense that if one has a desire to master any one particular aspect of the stock market, the best advice would be to start out by seeking out the wisdom of those who have gone before in that particular area.
Just as there are a million ways to trade the markets, there are likely an equal number of books available on the subject. A trader can be overwhelmed and not know where to start, since it is practically impossible to read a million books. But if a trader chooses one area of focus, it becomes possible to narrow the list of appropriate reading material.
Of course, not all books are valuable. While there are some great authors, there are also those looking to hawk their own services for a fee, and others who are frankly unqualified to offer advice. Certainly there are many reputable traders who solicit fees and give great wisdom to their clients, but a trader needs to be aware that some advice isn’t worth the paper it’s printed on. So, in deciding whether a trading book is of any value it pays to ask oneself:
Is this a book in which I’ll be able to learn in three hours what it took the author a lifetime to learn? Or is this a book it took the author three hours to write?
While experts in any field tend to be those who have been around for a while, experts can lose touch with their field over time. Modern advances in medical knowledge, for example, can put an aged medical doctor out of touch with patients, even if that doctor happened to be a master of diagnosis in his heyday. A master of computer programming using punch cards in the 1970s would likely not stand a chance of imparting knowledge to a 21st century programmer.
But, perhaps unlike any other industry, trading does not change with the passage of time. Trading today is the same as it was 100 years ago. There is an old adage in financial markets: If you think this is the time that things are going to be different, you are wrong!
Except for changes in the manner in which orders are executed, the same rules and techniques that applied in 1916 remain valid in 2016. The same forces that drove prices way back when still do the same today, whether it be everyday actions by traders or major interventions by Central Banks. Thus, also unlike any other industry, the advice of seasoned traders that can be found in some of the great trading books does not lose its relevance with the passage of time.
If one is able to learn in three hours of reading what it took another trader to learn in 70 years, it pays to do so, whether that author lives in 2016 or whether he traded 100 years ago.
The preceding is a post by Christopher Ebert, author of the popular option trading book “Show Me Your Options!” Chris uses his engineering background to mix and match options as a means of preserving portfolio wealth while outpacing inflation. Questions about constructing a specific option trade, or option trading in general, may be entered in the comment section below, or emailed to OptionScientist@zentrader.ca