Inner Voice of Trading, The: Eliminate the Noise, and Profit from the Strategies That Are Right for You [ハードカバー]

In the face of 25 five-star glowing reviews as I type this (the majority of which I notice are the only review the person has posted on Amazon), I must stand on the other side and give this two stars.

The premise or theme of this book is that trading is 20% intellectual and 80% psychological (I won't argue with that), and that to be successful in trading a person must know thyself, and to harmonize your trading systems with your emotions. The way I understand what the author is saying is that you have to find a trading system that integrates with your character and personality - a style that fits the way you are (because let's face it, most people are pretty much set when they are still kids and it is really hard to make significant changes after that - hence the reason why self-help books keep selling, over and over and over again to the same people - different titles but similar themes). So that is what I was expecting from this book - to educate the reader on how to know thyself, and to adapt that self to a compatible trading style.

That is not the case. Instead, the author does describe various trading styles, points out how emotions have created unsuccessful trades, and then he tells the reader how they must change to take the emotion out of it, or to look at things in a certain way because it is a more sensible way to trade. In other words, he is doing what countless other books out there do, giving advice on how you should emotionally approach a trade. Yes, there are lots of books that advocate strict methods of trading (such as reading charts, or using certain criteria to trigger a buy or sell order), but there are also lots of books that address the emotional component of trades. The author describes his book in a fairly unique manner, but the actual content belies the description. This turned out to be just another book that advises the reader on how not to let his or her emotions get the better of themselves when engaging in trades.

I also found that the author writes about some subject matter in a very breezy, informal way that assumes the reader is already familiar with the mechanics of those types of transactions. If you are not one of the people who is familiar with that type of transaction then the point of what he is saying may be over your head, as some of them were for me. I thought some things could have been explained better.

As an educational read, this book is average. If you've never read a book about the psychological aspects of investing, then this would be worthwhile because the author covers the topic in a relatively short space. But if you've already read other books on the subject, this one is not going to tell you something you haven't already read somewhere else. It tries to portray the subject from a different angle, but the actual writing is no different than many other books out there.

Several reviewers have claimed that this book does not contain actionable advice. I understand the complaint, the only specific recommendations are generalities like keep a journal, practice yoga and meditation, take satisfaction in small losses, learn from successful practitioners and join a support group for traders. In particular, this book leaves out the very important point that you need some kind of an edge. Your inner voice must speak the truth. While this part is easier than most people think, there are lots of well-known, published techniques to get an edge, it cannot be ignored. My guess is 80% of people fail at trading because they never acquire one. The author's advice is reserved for the other 20%.

Among that group, I agree with the author that failure usually comes from wanting something other than success. Many people want to boast about bold, clever trades. That's an expensive hobby. Focusing on what other people will think steers you down losing paths. The author blames the American educational system for turning out people who value being smart and giving the answer the teacher wants to hear over accomplishing goals and respecting their own idiosyncratic intelligence. I think it's something deeper. Good trading is disruptive. Humans are socialized not to trade well, which is one of the main reasons simple trading techniques work.

The value of this book is its clarity and honesty. It's not an ABC of what to do, it's an expertly-crafted vision of what to be. Someone who wants an ABC has already missed the point. The author tells you how to listen to your inner voice, he's not selling a transcript of what your inner voice says.

The book uses stories about trading and life so show what trading is. If you don't understand that, you cannot make money consistently enough for success. Much more important, you will not be happy even if you do make money.
A trading room is not the place to acquire self-confidence or public acclaim. Trading is not a skill you acquire that once you have it generates money effortlessly. A profitable trade does not quiet your inner demons or make you a better human being. Unless you have rigorous clarity about those things you should find a safer occupation than trader. This book makes these points gently and indirectly, but powerfully nonetheless.

To the extent the author does venture into specifics, he's not always accurate. He praises yoga and meditation, and advises getting away from distractions to hear your inner voice. That's great advice for some people. But I think it's equally possible to find your center in competition, say a poker game or race. Insight can come from immersing yourself with a crowd at a concert or party. Calling your inner voice "quiet" is only a metaphor. You can hear it equally well in a crowd of frenzied, yelling traders as in a sensory deprivation tank, and as clearly when you're pushing yourself to the limit as when you are completely relaxed in an ashram.

He repeatedly emphasizes the important of taking lots of small losses and relying on less frequent but larger gains to generate long-term profit. That is usually right in trading, but it's not a universal rule. There are good strategies that do the reverse, say making 1% every month, except every couple of years losing 10%. The key is to know the type of bet you're making and not to try to force it into the wrong distribution, and not to acquire investors who don't understand your game. The author is very critical of leverage. Leverage is dangerous, of course, but it is essential to many good strategies. In fact, a lot of market opportunities are created by other people's leverage aversion.

The most blatant error is his description of quant traders. He is precise and accurate about traders he knows personally, but he admits his account of quants came from Scott Patterson's book. Unfortunately, he read this too quickly and confuses events from four days in August 2007, which inflicted unexpectedly large but not crippling losses on many quant traders (losses that were quickly recouped), with later events during the financial crisis that happened to different traders. He asserts incorrectly and with no support that quants stuck blindly to models, unable to conceive that the market disagreed. There may be some people who do this, but the author names specific quant traders who have lasted far too long and acquired far too much success to be accused of this rookie error. Among several other howlers in these regrettable three pages, quants are accused of holding illiquid instruments and of failing to react to increases in market volatility. Quants generally want a good price history, which means they tend to trade the most liquid things: equities and listed futures. And a quant thinks about a bet size in volatility terms. Therefore, when market volatility increases, most quants automatically scale back their position sizes in proportion. They don't even think about it as cutting positions. It is qualitative investors like the author who are far more likely to be found in illiquid positions, and sizing in constant notional terms (number of contracts or dollars) rather than volatility. Quants are prone to certain kinds of mistakes, but not these mistakes.

Errors and inaccuracies aside, this is a great book for novice and experienced traders. Soaking up its wisdom distilled from experience and introspection will help you become more successful. And that's true even if it doesn't make you a penny.

Michael Martin hit a home run with the important insights revealed this book. Mr. Martin is an accomplished trader who has the ability to look within himself for answers and gives examples of how you can too. He explains how trading is mostly emotional and you control everything from when to enter or even if you should enter a trade. A quote from the book says, "Your sense of self-awareness is as unique as your fingerprints." He explains that emotional self awareness and being compatible with your trading system are primary to your success because "the act of trading is 20% intellectual and 80% psychological." He explains how ego, volatility, over leverage, and unanticipated events work together to blow up traders. Also, if you don't take your emotions into account, your knowledge about trading systems and what works and doesn't work in trading the markets will make no difference because in the end you still will not know how to trade. The answer is not to seek out more information, it is to study yourself. His chapter on relative value trades outlines some excellent ways to view the market. Listen to your "inner voice", get some awareness into yourself and your trading and read this book.