Reviewed by: Jo Martin, March 2012
This book was first published in 2001 and has had three editions since then. No wonder! It is a really good read. It is easy to understand and everything you need to know about trading is logically set out. It is a book for everyone, from the newbie through to the more experienced trader who wants a revision and an annual ‘tune up’.
I have been investing now for ten years but trading for only six and will admit that I have become ‘sloppy’ in following my Trading Plan over the past few years.Because I ‘knew it off by heart’ I just have assumed that I was still following it but after reading Stuart’s book have quickly realized that important parts of my Trading Plan have dropped off somewhere along the journey. So, it was a great wake up call for me. I am now going to go back and review my plan and take on board many of Stuart’s words of wisdom.
This book encourages the reader to create a trading plan to suit their lifestyle and personality – a trading plan is not a ‘one style fits all’ project. The book also goes into great depth about position sizing and managing risk – how to protect your capital by maximizing profits and cutting losses, the latter being the hardest decision most of us have to make. Stuart shows what mind set to have to enable the trader to do this mechanically and therefore unemotionally. Trading is all about decision making. He says that the key to successful trading is making the right decisions for YOU – consistently.
He believes that Technical Analysis is less about trading and more about the study of mass psychology and you should trade what you see and not what you think. By remembering these two points the reader is well on his way to learning how to be a successful trader.
He discusses charts, patterns, indicators, developing a trading strategy, the exit decision, your trade execution and of course money management and risk.
At the beginning of each chapter he has bullet points neatly set out so that you know what you have to look forward to in the chapter you are about to read. Hence the title “Trading in a Nutshell’
Towards the end of the book he has a 40 page chapter on interviews with different well known and successful traders from around the world. Some include Van Tharpe, Mark Cook and Greg Morris. They all have their own method of trading but what they all have in common and name as one, if not the most important rule of trading is their money management and risk rule. Protect your capital is the message.
The only negative I found in this book was the use of overseas charts. It is really nitpicking but as Stuart is an Australian and the book is obviously aimed more for Australian traders I fail to see the reason why we should be studying US or Asian charts. Showing the price action, RSI, volume, MACD etc on a chart of BHP or CBA would have more relevance and interest for me than seeing it on a Wing Tai Holdings Ltd chart. I’m sure enough ASX charts with good, clear patterns can be found. Yes, there are many ASX chart patterns shown in the book and I know that many traders do trade overseas markets but the majority of newbie’s would only have knowledge of the Aussie market and I for one found the other charts off putting. This is not a book for the extremely advanced trader who trades global markets rather one for the newcomer or those needing a refresher course and that means looking at charts one has an affinity to.
After finishing Stuart’s book I was interested to learn more about him as I have to confess that although I had heard his name I was in the dark as to who he actually was. So, it was to his website I went www.tradingasxshares.com and found days’ worth of reading, MP3 listening and video watching. All very informative and cleanly laid out. I would suggest you browse the site and absorb all what is there on offer.
So, to conclude, I would recommend this book to anyone either starting out who does not want their mind cluttered with a million rules and regulations or for the more experienced trader who occasionally wanders off the beaten track and needs a bit of a wake-up call to get back on the straight and narrow and to put their Plan back into practice.
Stuart McPhee’s last chapter is headed ‘Getting Started’ and is a real gem. He sums everything up beautifully. Simplicity is the key. Follow a few rules, have a realistic and simple trading plan, don’t procrastinate over decisions and be disciplined and you are half way there.
And there is a saying in the book which I have now typed out and stuck onto my notice board. I don’t know if it is Stuart’s own saying or where it has originated from.
“ There are three types of people in this world.
Those who make things happen.
Those who watch what happens,
and those who wonder, ‘What happened’ “