Book Review > Trade My Way

Introduction

Alan Hull is well known in the investing community and is a second generation investor. His view is that as an investor he doesn’t want to sit eight hours a day in front of a computer trading shares. In fact he wants a simple system that delivers results. His original system, called Active Investing has been available from his website for many years and was successful in the bullish period up to the crash in early 2008. Since then he has developed a short term system called Active Trading and this style of investing is the subject of his new book. He openly states that this system is difficult to implement in downtrending or sideways markets. Basically the system is to identify a strong uptrend and follow it. This book explains this system in detail and also discusses the basics of investing and some of the psychology involved in successful trading.

The book is divided into the following Parts: I) A few things you should know; II) Active trading; III) Breakout trading; IV) In conclusion. It also includes appendices on standard formulae’s to use in Metastock (a recommended charting package) and a pro-forma for Trading Performance and Strategy review.

Details of Parts I to IV

Part I) includes introductory information on share trading, charting, technical analysis, risk management and the anatomy of a trade. This information is fairly basic and would be well known to anyone who has bought and sold a few shares or attended education courses such as those run by AIA. The chapter does set the scene well in the basics of share trading (how to actually buy and sell), charting (candles, trend lines, penants), the risks involved (2% risk, stop losses, secular risks, capital maintenance) and the basics of filtering for upward trending stock using Metastock as well as entry and exit strategies.

Part II) introduces the Hull trading system known as Active Trading which was introduced by the author in 2004 through his newsletter and is based on the cliché “The trend is your friend”. The author identifies uptrends, downtrends and sideways markets. He then introduces the Multiple Moving Average (MMA) concept and how this can be used to identify these trends. This and a Rate of Return (RoR) indicator are combined to be used as the trigger to consider buying shares in a company. This is followed by several historical examples taken from previously published data in the authors’ newsletter.

Part III) then goes on to introduce Breakout Trading which is a system to identify the end of a sideways trading share and the beginning of a trend. This includes some detailed descriptions of momentum indicators, penants as a determination of a market Point of Agreement and then entry and exit strategies. Again there are numerous examples of Breakout Trading using data from the author’s newsletter.

Part IV) is interesting in that it delves into the psychology of investing and discusses fear, confidence, greed, ego and many other factors that influence how individuals make decisions to buy and sell shares.  Hull suggests experience and networking as good ways to get to know your own strengths and weaknesses. He also gives a warning on the dangers of derivative trading.

Reviewers Comment

I see this book as a good introduction to investing generally and share trading in particular. It is not technical in nature but does cover the mechanics of the system in detail and with plenty of examples. As indicated in later chapters the author sees value in gaining experience and networking to become competent and confident with share trading. In general it gives a balanced approach to the positives as well as the risks of share trading.

This book will be good for those taking their first steps away from financial advisers and educating themselves about their own money and how to invest it. It is not for anyone with significant experience in share trading or who is interested in the details of fundamental or technical analysis.