This book is written about how three mutually reinforcing skills make a complete trader.

1). Pattern Recognition and Discretionary Trading.

Using the Wyckoff method you will see chart representations of how hot growth stocks are accumulated in bases for long periods of time. They eventually have pull backs then break out to new highs and trend. You will also see how they eventually have exhaustion tops on high volume that fail to rally and they begin to break down in distribution with lower lows and lower highs. The author encourages discretionary trading through experience by being able to identify market action through the models from past stocks. This work ties in nicely with the school of thought from legendary traders William J. O’Neil, Jesse Livermore, and Nicolas Darvas.

2). Behavioral finance and systems building.

The book teaches that readers must be flexible in their trading. We are merely a ship on a sea of market participant opinions. Follow the prevailing sentiment during the middle of the the trend, and go contrary to it at the extreme tops and bottoms. Hope, fear, and greed are the dangers and the movers of the market that cause support and resistance,  trends, and chart patterns. The action of the stock market is nothing more than a manifestation of mass crowd psychology in action. The Pruden model shows a chart of how accumulation, mark-up, distribution, and markdown works in the market tied to price, volume, sentiment, and time. It truly explains how the price pattern and charts in growth stocks generally play out historically.

3). The ten tasks of top trading:

Daily self analysis
Daily mental rehearsal
Developing a low risk idea
Stalking
Action
Monitoring
Take profits or abort
Periodic review
Daily briefing
Out

The book covers all the aspects of trading psychology in depth, I found this information to very useful at the time I read it to carry me along in my evolution as a trader. The psychological insights in this book is worth the price of the book alone.

The book also discusses the principle of the “Composite Man”, it is much like Benjamin Graham’s “Mr. Market”. It explains that you must think of the market as one person you are trading against and your job is to understand how he is trading to adjust your trading accordingly to the markets price action.

This book is geared toward traders who rely on trading patterns and other trader’s psychology as their primary edge, and will appeal to traders interested in these styles. This book is a key book for all traders who truly want to be successful.

“The Three Skills of Top Trading: Behavioral Systems Building, Pattern Recognition, and Mental State Management” by Hank Pruden