If You’re Going to Trade Stocks …

then I may just have the book for you.  But I’ll let you decide that after you read this review.  I came across the Stikky book series a couple of years ago when I was shopping for gifts at my local B&N.   The book that caught my eye was called Stikky Night Skies and I knew almost immediately upon opening it that I wanted it.   Learn how to read the stars.  What kid hasn’t wished for that skill?   But I didn’t know it was one of a series that used a similar learning approach until I went online to see if I could find a more frugal price.

It was there that I found that there were four books in the series and decided to buy this one, too.   Stikky Stock Charts was written in 2004 and proposes to teach the reader “the 8 major chart patterns used by professionals and how to interpret them to trade smart – in one hour, guaranteed.”  Since I had already completed reading the Stars book by the time Stikky Charts arrived, I had little doubt that this claim would turn out to be true.

Lets take a look first at how the book is arranged because that is definitely a part of the learning technique that Lawrence Holt books uses.  There are four main sections.  In Sequence One you are shown how to work with trends, draw trendlines, support lines, and resistance lines and how to place an order.  In Sequence Two you are shown several charting patterns, shown how to interpret a volume chart, and you meet the idea of protecting your investment by setting up a stop loss.  In the Epilogue you are given the opportunity to reinforce what you’ve learned by facing some new and unfamiliar stock situations.  And in the last section, Next Steps you are given reference material locations, charting web site info, a list of software package sources, an overview of the wide field of stock charting, and technical analysis, and several short definitions of the types of instruments that are considered securities and thus something that can be bought or sold.

What makes this book stand out for me though is the teaching strategy it employs.  First and foremost is the fact that it is visual.  Right from the start you are asked to look at a chart and to see it with the goal of “finding patterns on a piece of paper.”  So even though there is text to guide you, you are really looking at a picture all the way through.    Pacing is also important in the Stikky approach.  Each section takes about 30 minutes but you can take as long as you want.  The only caveat is that “you promise yourself that, when asked a question in the text, you will not flip ahead until you have tried to answer it.”  In addition to this direction they suggest that you pause between reading each section to digest the material before moving on.   So when they say you will learn it in one hour they mean spread out over a couple of days.

As we begin Sequence One, we see our first chart and in few short pages we are looking at the daily bars that tell us the high and low price of a stock, high mark inside, low mark outside.  The point here seems to be to get you to look closely so that as you begin to look for patterns you will remember the details that make them up.  As you learn to see short term patterns (one that develops within a month) and then medium term patterns (one spread over several months), you are asked to make decisions about buying, selling or holding a stock.  Simple, look at a chart, see a pattern, learn what the significance of a pattern’s direction may be and then make a decision.  This sequence of events is repeated as you work through learning what a trendline is, what upper and lower ones are, how the daily bar’s touches form the basis for your chart pattern, how many touches (3 at least) count, and finally what usually happens when a bounce occurs off of the resistance line or the support line.  Yes, I sound like I really know what I’m talking about, don’t I?

A cute little role play game at the end of this section is really a very practical reminder that you need to remember how to take care of your money even as you begin actual trading.  What’s fun is realizing that in the shortness of the dialogue is the clue that brief and accurate is the key to successful communication in this field, too.

In Sequence Two we get a little history – from Charles Dow’s work in 1900 to the work of MIT’s Andrew Lo in 2000 – to start us off and then we are given a slightly different chart to look at – one that shows the daily volume of trades for a particular stock.  At this point we have already learned that the market is driven by sentiment and that patterns and charts can be useful in reaching a decision but that there are occasions when additional info is needed.  How much stock is being traded on given day can tell us the strength (if a lot is being traded) or the weakness (if the amount is small) of a trend. 

This section of the book also introduces us to several pattern shapes that begin to suggest that this charting thing might be a bit more complex.  Megaphones shapes and symetrical or ascending or descending triangles are used to let us see the direction of a trend and whether it indicates a bearish (selling) or bullish (buying) market.  We learn to set a stop loss and to wait for the breakout.   Patterns called Double Top and Head and Shoulders are used to demonstrate the idea of no top no drop.   My partner T.  tells me that shapes like these have other names like M for murder and W for win.  Just remember, she reminds me, set that stop loss to cement your gains or limit your losses.

In the Epilogue section we get our final review.  New charts are used to study trends and patterns.  We are reminded by one exercise that if the only pattern we can see is a horizontal line then think stop loss and if we are looking for a breakout clue then check out the volume chart.  One final example points out that in the real world the news travels faster than the stock market can sometimes react.  I really like the tone of this section because it is clear that authors want us to think before we act and to keep on learning.

Which is what the last section of the book, Next Steps, is all about.  It provides a list of resources such as,  prophet.net, signalwatch.com, and nirvanasystems.com omnitrader.   Recommends two texts as being seminal:  one in its eighth edition since 1948 is Technical Analysis of Stock Trends by Robert D Edwards and John Magee, and the other is Essential Technical Analysis by Leigh Stevens.  And provides a set of eight steps to follow if we decide to pursue stock trading.  After analyzing the different types of brokers available, the book suggests we pick the one that fits our purpose.  It then recommends that we use one of the online trading simulation games to further hone our skill before we go real.  Get tax advice.  Learn about the types of orders you can place.  Develop a crash plan to take care of emergencies.  Think stop loss.  Now, start trading.  And finally, with experience on your side, educate yourself about options, short sales, and how to use puts or calls.

Should you invest in this text, by all means.   If you plan to trade on the stock market it will give you a basic understanding of the complex task you have set for yourself.  And if you just want an entertaining and educational way to gain more knowledge about the world of finance, then that is a good reason too. 

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6 Comments »

  1. […] presents If You?re Going to Trade Stocks ? posted at Finance is Fun, saying, “This book provides a clear, concise, basic education in […]

  2. This is a very valuable advise to the amateur Trader and to some extend even most seasoned Traders.

    The techniques used may sound simple but I can testify the effectiveness.

    I would recommend anyone who follow the techniques to form a check list and to make the qualification valid.

    Alfred Chew
    http://mylevel2quotes.com

  3. […] plans about 9,000 layoffs) turns into good news for the stock market.  So here’s the deal.  Stocks rise and fall on the tide of buyer interest.  If a stock falls in value, buy low sell high rules apply.  So if a stock’s chart shows […]

  4. Shelly Lennon said

    have you seen the stocknewsGame.com? think this is of any good way to practice market directions?

  5. rhbee said

    Shelley,

    Thanks for dropping by. I checked out the site you mentioned and I’m going to give it a try. I’ll let you know how that turns out.

  6. […] reader introduced me to this site after reading book review I wrote elsewhere.  She seems to think that the market is still a viable place to do business and […]

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