Tensile Trading: The 10 Essential Stages of Stock Market Mastery by the father-son team of Gatis N. Roze and Grayson D. Roze (Wiley, 2016) is a wide-ranging book that will be of particular value to those who are fairly new to active investing. Or those who have not been as successful as they would have liked and want to start over.
The book is organized around a ten-step process: money management, the business of investing, the investor self, market analysis, routines, stalking your trade, buying, monitoring, selling, and—finally—revisit, retune, refine.
One imperative that gets repeated in many contexts is: Put it in writing! The authors stress that in business (and investing should be treated as a business) “documentation is the centerpiece of effective organization and operation.” The investor should document and regularly update his business plan. He should also keep a daily journal. Another suggestion is to take observational notes (on notepads or via smartphone). “Opportunities surround us in abundance if we open ourselves up to them…. [S]mall, brilliant little gems present themselves in the most unlikely situations. It is uncanny how often these observations translate into profitable investment decisions somewhere down the line.”
Hedge fund managers go about finding investment ideas in a variety of different ways. Some target stocks with low multiples, while others look for growth names, and still others combine growth and value when looking for ideas. Some active fund managers use themes to look for ideas, and Owen Fitzpatrick of Aristotle Atlantic Partners is Read More
Once an investor has identified a stock in which he is interested (and the authors suggest a process for making this identification) and is prepared to execute a buy order, he should not go all in. Rather, he should use the strategy of pyramid trading, buying only a percentage of the desired total investment and letting the market prove him right before he buys more. The authors’ recommendation is to pyramid into long positions using 25%-35%-40% progression and to pyramid out using a reversed 40-35-25 sequence, “which reflects the fact that prices tend to fall faster than they rise.” Using this buy strength, sell weakness method, “if the trend pushes higher, the market has reinforced your good judgment and handed you some profit as a reward. If the trend reverses, your stop is executed, your risk is limited, and you book a small loss on only 25 percent of your full intended position rather than a larger loss on its entirety.”
Tensile Trading frequently drills down into specifics. For instance, it describes a personal selling paradigm that monitors price relative, trend, volume, momentum, bearish patterns, and personal money management rules and that is illustrated with color charts from StockCharts.com, where Grayson Roze serves as business manager.
But at its core Tensile Trading: The 10 Essential Stages of Stock Market Mastery sets out to delineate a framework in which to thrive as an active investor, no matter what particular strategies and tactics the investor develops and pursues. And this it does very well.