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Book Review

Learning from the Old School and the New School

By GS Early, on Sep. 20, 2013

Before you buy Trading Commodities and Financial Futures: A Step-by-Step guide to Mastering the Markets (March 2013, FT Press), go to your local bookstore and read the first four pages.

George Kleinman is a throwback in a world where securities and futures change virtual hands rapidly in a manner of seconds. Kleinman is a real trader, one that has been around since the good old days, when trading commodities required more than a computer and a financial model.

But he also has successfully navigated the transition from the noisy pit to the relative calmness of the trading room. 

Readers will benefit from Kleinman’s wealth of knowledge, which he disperses generously throughout his book, now in its fourth edition.

Kleinman begins with the basics, explaining how futures and options trading works today, how psychology impacts commodity markets, and how to avoid common pitfalls.

He offers extensive coverage of electronic trading, today’s contracts, and advanced trading techniques–including his own exclusive Pivot Indicator approach.

The latter is one of the book’s unique value propositions. It allows readers to familiarize themselves with a real trading method that has endured the test of time. In this excerpt, Kleinman introduces this strategy:

When it comes to making money trading commodities, there’s no holy grail—no single methodology that’s correct. There are numerous paths to profitability, and plenty more lead to loss. You’ll need to identify a method that fits your personality.

You might feel more comfortable using a longer-term time horizon, but going down this path means you have to accept higher risks to get higher rewards. Or you might be short-term oriented and consider day trading with zero ‘overnight’ risk but lower average rewards.

What I present in this chapter is a fairly simple setup and trigger that I believe will enhance your trading performance. It’s not the total answer (reread the risk disclaimer in the beginning of this book since it applies), and this method requires monitoring and active management. It can be utilized for longer and/or shorter term horizons. I use it, and perhaps it could help you too.

Kleinman’s indicator is designed to help you find a clear entry and exit point in a variety of asset classes. The pivot indicator method works because the major moves will be profitable enough to offset the inevitable smaller losses. The odds of catching major moves increase with diversification; however, the markets in which you use this method should be unrelated.

At the same time, traders should be aware that big winners don’t come often. As Kleinman notes, “The truth is that you won’t have many trades that turn into big movers. The big movers are rare. For me, it’s just one or two trades that make a big year. Capitalizing on only two or three major trading campaigns could mean a lifetime of difference for you!”

Finally, the appendix should be of great interest and value to aspiring traders. In this section, the author outlines 25 secrets that all investors should keep in mind if they can ever hope to be successful in this business.

Previous editions of Trading Commodities and Financial Futures earned a deserved reputation among traders as a solid guide to these volatile markets. Kleinman’s 30 years of experience as a trader and real-life stories make the book a great read.

Will the book make you a better trader? That depends. But the tools are all there. The reader needs to remember this classic line from Fyodor Dostoyevsky’s The Gambler: “The point is whether, having grasped the secret, a man knows how to make use of it and is fit to do so.” 

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