How I Trade for a Living by Gary Smith

Summary

Gary Smith’s How I Trade for a Living is one of the best in Wiley’s “Online Trading for a Living” series. Although some of the material is dated, his autobiography is inspiring, and his approaches to trading uniquely individualistic. Those who enjoy reading about maverick traders and how they make their money trading should enjoy this book.

Review

After the success of his first book, Smith’s second one goes beyond daytrading S&P futures. In How I Trade for A Living, one of the many books in the Wiley “Online Trading for a Living” series, Smith provides a great deal of new material.

The first chapters are autobiographical, tracing his evolution from long-time breakeven journeyman to persistent profit maker. The middle of the book is the most useful. In his part he explains how he looks for intraday V-bottom reversals. These take place when the market has been down all day and has been in a recent downturn of sorts, and then makes a furious comeback. Similarly, he looks for what he calls late-day upside surges in which the market has been listless for 2-2.5 hours, and then takes off. He sees this pattern as most useful during days/weeks of falling prices, not rising ones. One of his key tenets is this: Extreme strength begets extreme strength, and extreme weakness begets extreme weakness.

In his research, he has discovered that 9-1 up/down volume days [days in which advancing volume is at least nine times that of total declining volume] do not lead to longer term strength, but strong five-day momentum (S&P gains over 7% in 5 days) does tend to precede strong returns over three, six, and twelve months.

He is more willing to short than he was in his 1995 book; he looks for the market first to hit new intraday lows between 10-10:45 and then to consolidate and accept the new lows. If prices tend to hang around intraday lows, they shouldn’t for long. A plus is if the intraday TRIN is over 0.90.

Another change from 1995 is that he has a chapter on trading junk bond funds. He lives solely on his trading income [plus, I guess, some money from book sales]. He takes his daytrading profits and parlays them into junk bond funds, which he sees as having persistent trends that lack the tremendous volatility of stocks [this was written before 2008-09, obviously!].

Smith comes across as a trading eccentric, and that is a good thing. Some of his habits I see as kind of odd, such as taping CNBC after the close if he is gone and going through the videotape to see if he missed anything useful. He does not increase his position sizes either, which one would expect with increased profits. More importantly, he comes across as a hard-working, dedicated trader who has beaten the odds and actually has lived his dream of trading for a living.

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