The remaining chapters discuss the following topics:
- Chapter 2, “Five Simple Questions.” This chapter raises five simple questions associated with any trading catalyst (asking which markets?, which direction?, how much?, how long?, how risky?) and illustrates answers with real-life market examples. It also raises a sixth question—namely, whether the price action in one market will spread to other markets—and discusses the implications of such moves. Through detailed examples, you will discover how to implement trades and profit from the answers to these five questions for future catalysts.
- Chapter 3, “Fads, Fashions, and Bubbles.” This chapter starts off with an example of how markets sometimes get it wrong and then discusses some apparent market bubbles and their trading implications. This chapter discusses several cases of blatant mispricing and irrational rallies. Seeing how some traders attempt to ride bubbles is instructive; from it you can see how to profit and protect yourself during a bubble, and why some observers believe that some of history’s most famous bubbles might not have been bubbles at all.
- Chapter 4, “Earnings and Corporate Announcements.” This chapter discusses market shocks originating from earnings announcements, lawsuits, executive-level changes, merger announcements, among others. Not surprisingly, these announcements can induce sudden shocks in stock prices. Perhaps surprisingly, there are also many instances of the delayed incorporation of information into a stock’s price, which leaves plenty of opportunity for alert traders to prepare for subsequent rallies or breaks.
- Chapter 5, “Rumor Has It.” Rumors affect market prices. This chapter provides lessons for trading off of and protecting yourself from rumors. A case of “buy the rumor, sell the news,” is examined in detail and the ramifications of market shocks caused by rumors and uncertain information are discussed.
- Chapter 6, “Political Economy.” This chapter discusses how elections, expropriations, regulatory actions, and macroeconomic announcements impact financial market prices. Several examples are given and the trading lessons assessed. This chapter also details how central banks precipitate changes in interest rates, exchange rates, and stock prices. Long-term trends created by government action and trading opportunities from government action are also discussed.
- Chapter 7, “Predatory and Insider Trading.” This chapter discusses instances of predatory and insider trading in financial markets. The dangers of both are discussed and the lessons for traders assessed. Understanding the real threat that predatory and insider trading present helps you to better understand the dynamics of the market and how to protect your wealth.
- Chapter 8, “Crashes, Trading Glitches, and Fat-Finger Trades.” This chapter discusses stock market crashes with particular focus on the flash crash in U.S. stock prices on May 6, 2010 and the lesser-known but similar flash crashes in commodity markets during 2011. It also discusses instances of trading glitches and fat-finger trades and assesses the lessons for traders.
- Chapter 9, “Man Versus Machine.” Machines increasingly dominate trading in financial markets. However, individuals can still make money trading. This chapter analyzes common HFT strategies and discusses several strategies for humans to trade successfully in today’s machine-driven markets.
- Chapter 10, “Flight to Safety.” This chapter discusses various flights to safety and how well they perform during turbulent markets and financial crises. There is an extensive analysis of gold, and whether it actually lives up to its reputation as a store of value. Which assets are actually safe? Is investing in “safe” assets really as safe as it seems?
- Chapter 11, “Why Most Traders Lose Money.” Most traders lose money. There are ways for you to avoid succumbing to these mistakes. Several examples are included to illustrate these rules. The importance of loss minimization and prevention is emphasized.
- Chapter 12, “Developing a Trading Game Plan.” One of the reasons why many traders lose is the failure to develop and follow a viable trading game plan. This chapter discusses how individuals can develop a viable trading game plan and provides points of overall strategy, a five-step plan, and trading maxims to live by.