Book Reviews

Brent Penfold – The Universal Principles of Successful Trading – Review

Brent Penfold - The Universal Principles of Successful Trading - ReviewI hadn’t come across Brent Penfold’s work until I heard him speak on a podcast. His content felt professional and was enjoyable to listen to. It felt I needed to get a hold of his book The Universal Principles of Successful Trading that was published in 2010. In the introduction Brent writes about the fact that successful trading does not depend on the markets, instruments or time frames one trades. This is all secondary. There are universal principles that a trader trading any style or financial instrument first needs to understand to be able to compete in this field. This is what the book is all about. Furthermore, there is one piece of advice from many known successful traders each at the end of the book.

Why 90% of traders lose money

The first chapter starts with a reality check – most traders are not successful because they are bad losers and hate to be wrong. The author explains it so anyone not profitable in trading could understand. Over 90% of all traders lose! The main reason is ignorance. Everyone’s looking for a simple path to riches. Brent describes the first three years of a beginning trader and the main mistakes along the way. Having started my fifth year in the markets recently, his description somewhat matches myself, though I had understood many of the third year errors a bit earlier due to starting out with active study. The author lays out the path to becoming successful in trading.

Six universal principles

The first one is preparation. A trader needs to get prepared for maximum adversity, emotions, random markets etc. I like the author’s view on this: “The market will do what it has to do to disappoint most traders.”

The second principle is enlightenment which is about managing risk, validating expectancy etc. to survive in the markets. This is the most important principle for the author. Risk of ruin is a statistical measure most traders are not aware of and that’s why it’s only a matter of time until they blow up.

The third principle is trading style. Here the author brings up an interesting fact that markets trend only 15% of the time and bounce up and down in a trading range 85% of the time. Something to consider, though it doesn’t mean that trend trading is less attractive, it does offer bigger average wins.

The fourth principle is about selecting appropriate markets. Brent lays out some good suggestions how to decide on the markets to trade.

The fifth universal principle of successful trading is the biggest and consists of three pillars: money management, methodology, psychology. The money management part is very thorough and eye-opening. Brent introduces seven different money management systems and explains why choosing one is critical for survival and success in the markets. He then gives his thoughts on how to start designing one’s very own trading methodology. Brent encourages to go with a simple mechanical trend system that is objective in nature. He suggests avoiding subjective indicators with many variables that will randomize the outcome and not let the trading system be robust enough to survive. A trader needs to test his method and have faith in it. There is a good point in discussing psychology: “If you’re ever feeling stressed about your trading you should stop.” Well, but what to do next? It’s discussed in the book how to gain confidence in your trading and reduce stress level. He lays out so many reasons why trading is painful, why it should be and always will be.

The final sixth principle is trading which is about accumulating all the five previous principles together.

Advice from Market Masters

The last chapter with advice from many well-known successful traders like Larry Williams, Nick Radge, Michael Cook, Kevin Davey, Andrea Unger and others includes time-tested truths about trading: start small, respect risk, keep methodology simple, be humble, have realistic expectations and discipline.

I know I recommend most of the books reviewed here to my readers. But I do some homework before I start to read a book. There’s so many out there that I can’t risk wasting my time by picking it randomly. With all honesty, I must say this is another great book on trading. There is no magical entry signal presented, nor does it give any quick path to riches, but Brent does a great job visualizing the necessary steps to take to become a successful trader. I don’t mean there’s many graphical illustrations but the author makes the visualization with his extraordinary explanations. Very detailed but simple thought process to make readers understand the qualitative traits one needs to be a successful trader. I definitely recommend to read the book.

The Universal Principles of Successful Trading by Brent Penfold book link

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