Adam Grimes - The Art and Science of Trading: Course Workbook

Hunter Hudson Press, New York, New York MMXVII

Copyright 2017 by Adam Grimes. All rights reserved.

Published by Hunter Hudson Press, New York, NY.

No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either written permission.

Requests for permission should be addressed to the author at adam@adamhgrimes.com.

Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.

ISBN-13: 978-1-948101-01-1

ISBN-10: 1-948101-01-7

Printed in the United States of America

10 9 8 7 6 5 4 3 2 1

To my readers:

Your support for my work has touched me.

Your dedication and perseverance have inspired me.

Your questions have challenged me, and Ive learned so much from you.

I am honored to be a part of your journey.

Thank you

Its what you learn after you know it all that counts.

John Wooden

Forward (and how to use this book)

This is not a typical trading book. If youre going to use it most effectively, you need to know a few things about it.

What Is In This Book?

This book is a companion to the trading course, The Art and Science of Trading , available free of charge at MarketLife.com, and also to my first book, The Art and Science of Technical Analysis: Market Structure, Price Action, and Trading Strategies (2012). The content in this book fall in four broad categories:

• Exercises and homework for the trading course, available at MarketLife.com
• Collected blogs and other short pieces of writing relevant to each section and topic.
• More extensive studies in whitepaper format that provide a statistical foundation for this style of trading.
• A reading plan for The Art and Science of Technical Analysis.

A few thoughts on each of these:

Exercises for the Trading Course

One of the things that makes learning to trade difficult is that there has never been a solid curriculum to develop the skills of technical trading. This book includes exercises that have been shown to be effective over years of teaching and coaching traders: chartreading exercises that develop skills from reading inside individual bars to understanding large-scale moves of markets. The ways in which markets trend, and those trends come to an end, are examined in detail, as are other aspects of price action.

There are also some little gems hidden throughout this work: Theres a full history of the Dow Jones Industrial Average in chart format, with performance summaries for each decade, and important geopolitical events marked on the charts. You literally hold in your hands the history of stock trading in North America. There are also charts that explore important and volatile situations in the market, as well as some charts that were specifically chosen to show conflicted and confusing technical patterns.

Effective trading requires much more than looking at chart patterns, and theres material here to help you craft an enduring and effective trading program: exercises aimed at developing a comprehensive trading and business plan, managing various aspects of trader psychology, keeping effective records, and doing statistical analysis and your own market research. Traders at any stage of development should find something of value here, and, for many traders, this information will lay a solid foundation for a lifetime of successful trading.

Developing traders often struggle with an insufficient perspective on market history. Time spent studying these historical examples, deeply, is time well spent. Do not focus too heavily on page count! Some of the most important work in this book occupies only one or two pages for each exercise.

Collected Blogs and Other Shorts

Over the past decade, Ive blogged and written regularly in various formats. This book collects selected blog posts that will give insight on the topics covered. I have made an effort to retain the casual, informal tone of this format; these posts have been only lightly edited to fit into this book, and most posts feature the original graphics which, in some cases, were slightly lower production quality than what you might usually find in a book.

I admit to having some concerns about effectively republishing material I have already shared in another format. As this book started to take shape, those concerns faded because I saw how well the posts addressed the students learning along the way. Also, one of the strengths of a blog is also its weaknessits a living thing. Readers focus on current topics, and blog posts from years past are sometimes overlooked. Writing this book was a good opportunity to collect some of those older, historical blog posts and to connect them to overarching concepts.

Whitepapers

The whitepapers in Part II of the book have never been published in their entirety, though some of the information found its way into various presentations and blog posts I have done over the years. They give some good examples of ways in which we can apply quantitative techniques to market data. Hopefully, Ive communicated some of the nuance involved with this work, and stressed the need for humilitywe never have firm, final answers to most of our questions, and theres always another way to consider the problems involved. The last chapter in this section provides some solid examples of quantitative tendencies that support the style of trading in my first book and the online course.

There are several ways you can use the material in this book most effectively, depending on your experience and objectives.

How to Use this Book

Any book can be read cover to cover, and that might be a good way to familiarize yourself with the contents. After that first read through, there are several other ways you may best use this material:

As the Workbook to the Course

This is how this book started: as a collection of pdf documents and charts that were designed to extend the work in the course. If you are working through the online course, simply use the material in this book as your homework, working through each module consecutively.

If, for whatever reason, you do not have the course material, you can still do many of the homework exercises. Every effort has been made to make the explanations and descriptions as useful as possible without going into unnecessary and redundant detail. Some of these exercises may stand on their own better than others, but they will really shine when you work through them, as intended, with the online course.

The exercises and studies presented here are the result of many years of practical trading, teaching, thinking about markets, and feedback from readers and traders I have worked with. There are no filler or throwaway exerciseseverything is important.

As a Study Guide for My First Book

You may also read my first book, The Art and Science of Technical Analysis (Wiley, 2012), with this book in hand, following the guided reading plan for that book. People who have read the book effectively generally read it more than once, take notes, and create exercises to help them understand the concepts. The online course was originally intended to be a companion to the book, to help people work through it in a structured fashion, and to make sure readers were getting the most out of it.