Book Review – Trading in the Footsteps of Sherlock Holmes

If you read a lot of personal finance books, you come across the same points repeatedly.  Certain things are simply good pieces of advice, and tend to be covered again and again, from how to research a company to the intricacies of the stock market.  The difference between the great books and the merely good tends to come down to the style and the approach that the book takes.

Trading in the Footsteps of Sherlock Holmes takes a very unique approach to trading guidance, drawing on the wisdom demonstrated by Sherlock Holmes to illustrate the trading advice given throughout the book.  When I was offered the opportunity to obtain and read through this book, I was naturally quite intrigued.  Does this unique approach make the book easier to follow (or at least more interesting), or does it distract from the advice contained within?  Let’s read on and find out!

Summary

Trading in the Footsteps of Sherlock Holmes (referred to from now on as ‘Trading’, to save some typing) opens by discussing some of the issues that face active traders.  Chapter one covers some of the factors that make trading the market a challenge, while chapter two covers how you can view stock market trading as a challenge.  Chapter three covers some means of preparing yourself mentally for a stock trade, so you can help lock in your profit before you even make the trade.  Chapter four focuses on looking forward, and avoiding hindsight while you trade.

Chapter five covers charting software that you might use to help you trade, and cautions you not to depend too highly on said software.  The sixth chapter cautions against getting carried away with the momentum of the stock market.  The seventh chapter covers information, and how to obtain, manage, and use the information about the financial markets to your advantage.  Chapter eight continues that theme, discussing ways to obtain further information that might otherwise go unnoticed.  Chapter nine looks at the power deduction can have while you are trading.

Chapter ten starts to get into the basics of trading itself, covering some of the basic types of trading.  Chapter eleven helps to flesh those concepts out, covering long and short positions, emphasizing unconventional orders that you can make in the stock market.  Chapter twelve provides a brief introduction to technical analysis, while chapter thirteen is about finding an appropriate trading strategy for your needs.  The fourteenth chapter discusses how you can go about incorporating statistics and other information into your analysis.

Chapter fifteen explains how you can build a strategy based on currently trending data, while chapter sixteen covers how you can monitor the success of your trading system.  The seventeenth chapter provides some notes on how to properly calculate risk and return levels, to ensure that you know just well (or poorly) the companies you are investing in have done.  Chapter eighteen covers the psychology of opening a new trading position, and how to react when you do so.

Chapter nineteen covers taking profits, when and how you should close your positions and take you money out of the investment.  Chapter twenty looks at what to do when a trade goes against you and you end up losing money, including a closer look at some special types of orders that can keep your investment pain to a minimum.  Chapter twenty-one, in turn, looks at what to do if your trading strategy is under-performing, earning less (or losing more) than the market as a whole.  Chapter twenty-two covers how you can try to continually improve your trading skill and make it easier to trade successfully.  Chapter twenty-three rounds out the book with some final advice on successful trading.

Pros

Trading provides some pretty solid advice on improving your stock market  trading skills.  The focus on careful, thoughtful reactions in a field where emotions and energy run high is a good approach.  The liberal use of quotations from Sherlock Holmes stories helps to illustrate the points being made, and also makes the book easier to follow.

Cons

Trading is definitely not focused on the beginner, as it barely covers the process of trading stocks, instead jumping right into improving your stock trading skills.  The focus on active trading is also likely to be inappropriate for many (if not most) individual investors.  The psychological approach in the book is also likely to be a turn off for many would-be traders.

Overall

Trading in the Footsteps of Sherlock Holmes is an interesting book.  While not the best book for beginners, particularly those who are planning to follow a more ‘buy and hold’ approach to their investing, it does provide an interesting insight into trading.  If you are an active trader (and intend on continuing to do so, in spite of the risks associated with active trading), it makes a pretty interesting, and probably helpful, read.