Posted by: Bevan | June 4, 2010

Winner Takes All – William R. Gallacher

I first came across this book when it was mentioned by Alexander Elder in one of his books, and was also recommended by Van Tharp.  Although slightly dated now in terms of some items of discussion (commission rates for instance were a lot higher in 1994) it is surprisingly relevant and an interesting read.  William had been trading for twenty years at time of writing and has a no nonsense view of the market which I enjoyed.  He thoroughly debunks ‘chartism’ and technical analysis, and promotes fundamental trading using sound trade management principles.

Although the book certainly isn’t a neutral summation of futures trading in the way that The Futures Game or the Schwager on Futures series are, it does teach a lot about the markets right from the basics.  The sections I most enjoyed reading were the debunking chapters.  Gallacher holds no punches with chartists, forecasters, trading system vendors and dishonest gurus.  I would imagine the book ruffled a few feathers when it came out.  As well as being entertaining its healthy to read logical and challenging material like this as it ensures that those who don’t deserve to be on their pedistals are knocked down, or at the very least that traders challenge their own thinking.  I’ve gradually moved away from pure technical analysis and using many of its tools, such as chart patterns, for a while and this book certainly provided good reasons to support the conclusions I had come to myself.  I can’t say I disagreed with most of the roastings Gallacher gives.

I was a little surprised by the amount of credence he gave to systematic trading (the technique I use).  Although he gives a couple of experts a hard time (Bruce Babcock and Welles Wilder) and doesn’t think it is the best approach to the markets, he acknowledges that it can be profitable.  He uses a systematic idea to prove his hypothesis that the markets aren’t random, and I found his discussion of the drawbacks of systematic trading and backtested results helpful.

The thrust of the book is towards showing that fundamentally based trading, based on research and most importantly imagination is the way to superior profits.  I would agree and say that all money managers who provide really superior returns do so because they are able to come up with good ideas which stack up (people like George Soros, Jim Rogers and Hugh Hendry).  Gallacher correctly identifies however that this takes a great talent, experience, and good money and trade management principles (which borrow from systematic trading).  He highlights the need to limit initial risk, persist after an initial setback, and get out and stay out when the trade is over.  I think this is a winning blend.  Although I continue to trade my mechanical system and find that the sound expectancy and trading principles it holds me to (cut losses short, let profits run etc) let me win at this game, I continue to explore fundamental ideas.  I’m seeking to learn more about the economy, about the ideas of money managers (good and bad) and observe the market in the context of world events.  In time I hope to use my knowledge and ideas, in conjunction with sound trading principles, to generate even better returns.

Its a challenging journey, and one that Gallacher doesn’t underplay.  As well as the usual advice about persistance and confidence, I was particularly struck by his emphasis on ideas and imagination, something I will put increased emphasis on developing.

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