Trading Realities: The Truth, the Lies, and the Hype In-Between

This book gives a very helpful overview of the market place. The author, Jeff Augen, points out the pitfalls and realities a trader is faced with. As an authority on options trading he includes trading from that perspective. I would reccommend this book as a must read for the serious trader.

This book shows how retail investors are fighting against supercomputers and large institutions. It was very insightful in that regard and shows how we need to be well-armed for the battle. In reviewing books like this, I give great weight to whether I think the book can help me make money or avoid losing money. The book, while not perfect, gives some great ideas. As some have said, the book contains a fair amount of “fluff.” It does a good job of making the case that options should be used to mitigate risk, but there are better books if you are solely interested in the mechanics of options trading. That said, the explanation and trading ideas for the VIX are alone worth the price of the book. I would highly recommend the book for that reason alone.

This is a good book in the exercise of retrospective review. This seems to be the premise of this particular text. Unfortunately, for a novice investor, I find the book less useful since it seems to state what is obvious. Unless you are in a media vaccum, you will understand the correlation between the world economy and the stock market.

It is a decent book.

Are stocks a reasonable tool for the average retail investor to be playing with? There are hints that the market is against us and may even be rigged. The general info available for us to research stocks does not give us an advantage and the strategy of outright buying stocks is less efficient than dealing with options. There is more smart info that we are missing and we are basically lazy investors. I thought the above general themes were smart and important, but the author did not bring up enough data or references to back up his points. A key question is how much information is really needed to invest? How come so many smart people/Hedge funds don’t always do so well? He gave an example that most of us see: a friend of his researched a stock and put “stops”, the stock suddenedly turned against him, he was stopped out, and then in a short time, the stock went north. He lost about 8% on the transaction, and lost out on the upward trend. Something devious must be going on was his response. Another point: Some companies just don’t “excite” the market, and later are rediscovered. We are all aware of the emotions of the market and Mr. Market can be insane. According to Augen, stocks only go up or down based on News, Information. You need sophisticated trading programs to win in this market. Smart investing is devoid of emotion. He gave a strong point for us foolish and lazy retail investors that we are missing out. He made a case for collars, put, to lower risk. Lowering risk is the key issue. Many of us are investing not to get suddenly rich. We may be saving for retirement. Should we even be investing in the market?

Mr. Augen’s book is not a primer for beginners nor a comprehensive “how to” guide to the more experienced trader. It is a series of observations and ideas based on his considerable experience in the industry which will yield perspective and assistance to studious amateur traders. He cautions against over-reliance on traditional technical analysis, suggesting the trader needs to pay close attention to external events which drive the market and the growing dominance of lightning-fast computer-driven trading. His studies which distinguish between seemingly random stock charts and truly random number series is fascinating. The book has excellent comparison studies of alternative trading strategies, such as long stock vs. long call vs. short in the money puts. Different readers will take away different valuable messages. While traders need to have sensible rules and follow them, the book seems to remind us that there are really no golden rules or infallible guidelines (the bedrock “trading reality”?), and consisently successful traders need to maintain a broad perspective and think critically about all the factors which influence markets. Consistent with this admonition, “Trading Realities” is more attuned to provoking the reader to think than telling the reader what to believe.

The first half of the book was great — the author clearly has thought about many of the issues plaguing modern-day finance, and his explanations for some of the inexplicable moves in the market are fascinating, and have an air of truth. The point the author keeps emphasizing is that you should not play the market if you don’t have an advantage (be it a new statistical or algorithmic idea or a better understanding of the underlying macro- or micro- fundamentals). The second half of the book completely reverses this: make money for free by using options! Well, if you don’t know what you are doing, you will make LESS money by trading options, since you will be killed by transaction costs, which are VERY high for options (and especially if you roll them every month or every week, as the author suggests). Transaction costs are way lower if you trade in volume (and so can call the broker’s trading desk to execute your order), but this is not accessible to most retail investor. Using options (as the author suggests) to get more leverage is either (a) very dangerous [most people have all they can handle with usual Reg-T margin accounts] and (b) not very effective, since you can now open a portfolio margin account, which will give you more than enough leverage to hang yourself with, usually with a $100K minimum (a word of advice: if you have less than that to play with, you probably should adopt a buy-and-hold strategy, since transaction costs are very high for small investors).

Great book. I have all of Augen’s books and always look forward to what he has to say. This is a very interesting read. As the markets have changed its important to get fresh ideas and I believe Augen is the best at doing just that.
Thank you