Change of pace this weekend with a book review. Devil Take the Hindmost: A History of Financial Speculation by Edward Chancellor.

I don’t know about you but I haven’t read a decent trading book in over a year. These days I can’t stand to read any trading book that doesn’t incorporate volume analysis – how can you possibly use price alone to predict price?

As a case in point, I’ve had Robert Miner’s latest book, High Probability Trading Strategies, beside my bed for 2 months. I’ll read a couple of pages and look at the charts and say to myself "but what about the volume?". His charts don’t even include a volume histogram!

So instead of trading methodology books I’ve been seeking out trading history and Great Depression books. Which brings me to Devil Take the Hindmost: A History of Financial Speculation by Edward Chancellor.

A spectacular book about stock market bubbles from Tulip mania in 1637 to the Long Term Capital Management hedge fund fiasco in 2000. I couldn’t put this book down – it is a triumph. There are two reasons why I highly recommend this book.

You are part of a long tradition of financial speculators

If you’re a futures trader, you’re a financial speculator. You’re different from a buy-and-hold, long-only investor. You recognize that markets go up and markets go down – and you can make money in both directions.

Markets are driven by fear and greed. The Professionals sucker the public in, convincing them to buy at the top and sell at the bottom. It happens over and over again, and this has been going on for centuries!

Reading Devil Take the Hindmost made me feel like I was part of a long tradition of market speculators. Speculators that took advantage of market volatility, didn’t believe that markets had to be rational and honed their craft.

Being a good trader is not an accident – it takes dedication and practice. Being a financial speculator is a worthy goal to aspire to and will only be achieved by those few that dedicate their lives to it.

We are making history right now

Devil Take the Hindmost spends a chapter on each major stock market bubble:

• Tulip mania (1637)
• South Sea Bubble (1720)
• Canal Mania (1792)
• South American Mining Bubble (1825)
• Railway Mania (1845)
• Western Blizard Crash (1857)
• US Civil War Boom (1861-1873)
• The Great Crash (1929)
• Black Monday (1987)

As you read the history behind each of these bubbles and crashes you start to see patterns emerge. There is almost always a new technology involved (canals, railways, radios, automobiles – even Tulips where this was the start of the "cut flower" market). And there is almost always too much debt involved. I was surprised to read how trading on margin has been around since the 1700s!

And these same patterns are visible today with the Tech Wreck of 2000 and the Sub-Prime Collapse of 2007. We are witnessing history – history that will be written about in decades to come and as important as the Great Depression. We are witnessing history in the making and as speculators we are uniquely priviledged in being able to see the day-to-day gyrations of the futures market.

Just two criticisms

Edward Chancellor draws heavily from original material and quotes extensively from newspapers, diarists, etc. This is great and gives a real feeling of authenticity. But because the language of the 1600s is difficult to relate to, the first chapter is very hard going. After the first chapter though, things get much easier.

Second criticism. There are no stock market charts in the book. My solution was to photocopy a long term chart (1700 to 2000) from Robert Prechter’s At the Crest of the Tidal Wave. This allowed me to "follow along" with the history and see the ups and downs of the stock market.

So if you’re looking for something different to read, I highly recommend Edward Chancellor’s "Devil Take the Hindmost".

Just in case anyone missed it, I posted a long article on Friday – Easter Chart Bonanza. The article has 10 charts, including the latest Commitment of Traders results, that illustrate my current Emini medium-term forecast.

This weekend I’d like to do something different and review the latest book by John Crane – Unlocking Wealth: Secret to Market Timing.

This is the follow up to John Crane’s first book "Advanced Swing Trading". I thought the first book was great but this one is even better. Unlike other traders-come-authors, John Crane does not switch tack with this book and discuss some new and different ways of analyzing the market. No, he sticks to his original theories, expands on the methodology and does a much better job of explaining and illustrating it. The only thing I didn’t like was the title – too "get rich quick" for me.

John Crane’s market timing approach is one of the most elegant futures trading methodologies I’ve seen. It focuses on market structure and using impulse and reaction swings to identify entry and exit points.

Reaction Swing C-D (July 2004 Silver)

The chart above illustrates a basic component of the methodology. The Reaction Swing (C-D) is a counter-trend move that is used to confirm the new down trend and then identify a low risk entry point. Not revolutionary, but then John Crane uses the count back to swing point A to forecast the turning point E. Now that is new!

So the Reaction Swing gives you a trend continuation entry point. The count back gives you an projected exit time. John Crane then goes on to show how the exit can be further refined with price projections. Lastly, a methodology for identifying and entering at trend reversal is discussed. This last part was missing in the original book "Advanced Swing Trading" and now with this, the methodology is complete.

The book is packed full of swing and day trading examples from both the futures and stock markets – and the accuracy of this timing technique is uncanny. His website has another 50 videos that further illustrate the methodology.

As I read the book I couldn’t help think that the rules could be programmed in TradeStation EasyLanguage or any other charting platform. However, instead of creating charting software John Crane has decided to provide a web-based, end-of-day signal service (Reversal Tracker) for the futures, equities and FX markets. Open trades are accompanied by an annotated chart to explain the setup.

The Reversal Tracker results appear solid with a steadily rising equity curve and profit factor of 1.69 for all futures markets over the last 18 months. The system is designed to catch large trend moves and, therefore, needs to be traded with a basket of futures. Percent profitable is 46% and average winner to loser is 1.97 times. You can check out the Reversal Tracker details here.

Good luck next week with your Emini trading.