Parness, The Art of Trend Trading
Michael Parness’s claim to fame is having turned “a relatively small amount of money into over $4 million” in 1999/2000 and roughly $13,000 into $3.8 million in 2008/2009 using mostly options and some futures and taking pretty big risks. Less publicized is the fact, to which he admits in this book, that he blew up his account on more than one occasion. The Art of Trend Trading: Animal Spirits and Your Path to Profits suggests a more “modest” goal for the reader, making about 1% a day. Compounded, that’s about a 500% annual return on your investment. Move over, all you hedge fund billionaires!
Michele Ragazzi's Giano Capital returned 1.9% for March, taking the fund's year-to-date performance to 1.7%. Since its inception, Ragazzi's flagship fund has produced a compound annual return of 7.8%. According to a copy of the €10 million fund's March update, a copy of which ValueWalk has been able to review, Giano's most significant investment at Read More
Parness outlines several paths to potential profit, most involving intraday trading. His model is the power trader , “someone who is capable of trading the market successfully throughout the entire day, and when desired, before and after regular market hours as well.” (p. 26)
His favorite plays, which he describes in some detail and from various perspectives, are gap fades, earnings runs, earnings straddles (long), FOMC fades, and the 10 a.m. rule (if a stock gaps up you should not buy it unless it makes a new high after 10 a.m.; if it gaps down, you should not short it unless it makes a new low after 10 a.m.).
Parness is at heart a trend trader because “trading in harmony with current trends rather than against them provides an additional edge that can result in a higher percentage of winning trades.” (p. 194) And so, although he often closes out all his trading positions at the end of each day, trading only intraday trends, “when a good reason justifies it,” he will “hold a stock or option position over a longer period of time.” (p. 40) Trends, he explains, are psychologically driven, which is why he hasn’t read very many books on the stock market but reads psychology books instead.
Although Parness’s firm, Affinity Trading, not only offers trader education but also sells stock and option plays of the week, this book is not an infomercial. And it’s evidence that reports of the death of day trading have been greatly exaggerated.