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Diary of a Professional Commodity Trader: Lessons from 21 Weeks of Real Trading
Trading is generally far more difficult in practice than in theory. The reality is that no trade set up or individual trader or system can identify profitable trades in advance with complete certainty. In A Year of Trading, long-time trader Peter Brandt reveals the anxieties and uncertainties of trading in a diary of his 2009 trades. He explains his thought process as he searches for trading opportunities and executes them. Each trade includes charts, an analysis of the trade, and a play-by-play account of how the trade unfolds.
304 pages, Kindle Edition
First published February 2, 2011
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Displaying 1 - 10 of 10 reviews
October 13, 2014
One of RARE gems in trading/speculating literature!
Numerous authors spill the ink about general principles, philosophy, abstract advice or other things related to the topic.
This book is designed around cold numbers: an six-months ex ante experiment in trading, presented in a form of diary. Yes, P. Brandt gives the readers few introductory chapters on his beliefs and principles (they're interesting and important, too!), but majority of the book is in essence a trading diary, explaining in details and numbers entry logic, setups, risk management and exits.
I found this insight extremely interesting and found authors personality likeable, too. His personal trading experience in futures markets also gives this book a lot of respectability: 30+ years in markets with 22+ years actively trading and earning average +68% annual return (average worst drawdown: -15%, worst year: -5%).
He trades classic chart patters, which I always found too arbitrary, but there's a lot to learn from this book about how decision-making process, mentality towards trading and risk management looks like after decade-long honing.
Numerous authors spill the ink about general principles, philosophy, abstract advice or other things related to the topic.
This book is designed around cold numbers: an six-months ex ante experiment in trading, presented in a form of diary. Yes, P. Brandt gives the readers few introductory chapters on his beliefs and principles (they're interesting and important, too!), but majority of the book is in essence a trading diary, explaining in details and numbers entry logic, setups, risk management and exits.
I found this insight extremely interesting and found authors personality likeable, too. His personal trading experience in futures markets also gives this book a lot of respectability: 30+ years in markets with 22+ years actively trading and earning average +68% annual return (average worst drawdown: -15%, worst year: -5%).
He trades classic chart patters, which I always found too arbitrary, but there's a lot to learn from this book about how decision-making process, mentality towards trading and risk management looks like after decade-long honing.
July 16, 2023
Brandt's Diary of a Professional Commodity Trader has the noble goal of demonstrating a play-by-play account of real risk-taking using the author’s technical trading approach.
I believe that the Midwit meme (the one where the left and right side of the bell curve have the same conclusion) exists around technical analysis. I personally think TA can add value to a discretionary trading process, a view shared by many people I respect in the business (see the Market Wizards interviews with Bruce Kovner, or a book like Alpha Trader for a more detailed discussion). An offhand dismissal of TA is a sign that your interlocutor has the closed mind of a midwit; Ted Lasso's quip that one should "be curious, not judgmental" is especially true in markets.
All this said, it does seem to me that the "technical analysis only" approach espoused by Brandt is more reminiscent of the widespread retail use of TA, which generally parts fools with their money, instead of the hybrid style adopted by the Market Wizards. Brandt's analysis can come across as naive, simplistic, and even inconsistent – he doesn't always follow his own rules. Interpreted charitably, this is a feature of the book rather than a bug. It demonstrates that even for an experienced practitioner whose system two brain knows the importance of discipline, it is hard to stop the system one from kicking in during the heat of battle. What confuses me is that despite my criticisms above, Brandt has an enviable track record. This track record, if legitimate, means that he has identified some truths about markets, even if he is not always able to elucidate them in the text.
n conclusion, I think there is wisdom in this Diary. If a trader is able to put their money on the line over many years without blowing up, that alone means there is something to be learned. But I find it difficult to recommend this book generally.
My highlights here.
I believe that the Midwit meme (the one where the left and right side of the bell curve have the same conclusion) exists around technical analysis. I personally think TA can add value to a discretionary trading process, a view shared by many people I respect in the business (see the Market Wizards interviews with Bruce Kovner, or a book like Alpha Trader for a more detailed discussion). An offhand dismissal of TA is a sign that your interlocutor has the closed mind of a midwit; Ted Lasso's quip that one should "be curious, not judgmental" is especially true in markets.
All this said, it does seem to me that the "technical analysis only" approach espoused by Brandt is more reminiscent of the widespread retail use of TA, which generally parts fools with their money, instead of the hybrid style adopted by the Market Wizards. Brandt's analysis can come across as naive, simplistic, and even inconsistent – he doesn't always follow his own rules. Interpreted charitably, this is a feature of the book rather than a bug. It demonstrates that even for an experienced practitioner whose system two brain knows the importance of discipline, it is hard to stop the system one from kicking in during the heat of battle. What confuses me is that despite my criticisms above, Brandt has an enviable track record. This track record, if legitimate, means that he has identified some truths about markets, even if he is not always able to elucidate them in the text.
n conclusion, I think there is wisdom in this Diary. If a trader is able to put their money on the line over many years without blowing up, that alone means there is something to be learned. But I find it difficult to recommend this book generally.
My highlights here.
November 16, 2023
I highly respect the "open kimono" approach taken by the author of "the diary of a professional commodity trader" (2009). Peter Brandt spells out in trade-by-trade detail how he, a technical chart trader, spots and executes his trades over a 5-m0nth period, from Dec-2009 to Mar-2010. To traders that believe that there is an actionable trade strategy to be derived from price action charts, this diary might be a kind of sobering vindication of their beliefs. To people like me, who don't believe in technical analysis / charting, it is a well-supported refutation of the same.
Let me quote some stand-out passages.
First about "buy-and'hold": (quote) "“Like it or not, buy-and-hold strategies are a joke. Every decision you make in life represents a trade-off. Everything is a trade. Everything is a gamble.” (Introduction) Let me note here that "buying and holding" the S&P500 Index ETF from Dec-09 to Mar-10 would have resulted in a 5.5% gain over the period as the index went from 1108 to 1169 points.
About leverage and risk: (quote) "“As a general rule, I will trade no more than a single contract of soybeans per $100,000 of capital. [...] my risk per trade per unit of $100,000 is a maximum of $1,000. My trading assets committed to margin requirements rarely exceed 15 percent. [...] If I risk 1 percent of assets per trade and am wrong eight straight trades at least once each year, it means that I will experience a drawdown of at least 8 percent with certainty, at least on a closed trade basis. A 15 percent drawdown is about as much as I can emotionally handle. I have encountered a drawdown of at least 15 percent in 9 out of every 10 years I have operated a fully implemented trading program.” (Chapter 2). This is a very large capital requirement and narrow stop loss setting: with a million $ in his margin account, author's system would not hold more than 10 futures contract concurrently, and liquidate any position in case of a 1% ($1,000) loss on it. I am not saying this is the wrong thing to do in this system, I trust author's experience, but it does not a seem a very effective way to use your investment capital.
About trading strategy: (quote) "“I am a breakout trader. But I define a breakout in two ways. First, all patterns have boundary lines that define the exact geometry of the patterns. Some traders and market analysts draw boundary lines precisely with a fine-point pen. I draw boundary lines roughly, often cutting through some highs and lows in order to provide the best fit of an area of price activity to a geometric pattern. I also use thick lines, not a fine-point pen, to establish the boundary. Of course, there are instances when I call a breakout too closely—and I often pay the price for doing this. Robert Edwards and John Magee [considered the "fathers of Technical Analysis"] considered a breakout to be a price penetration equal to or greater than 3 percent of the value of a stock. This is far too generous when trading commodities. For example, a 3 percent breakout in $1,000 gold would be $30 per ounce.” (Chapter 3). So basically, Peter uses charts to identify moments in time when certain futures are about to break out (according to his indicators anyway). However, presumably in an effort to increase the number of buy signals, he applies a much more lenient definition of what constitutes a breakout than the "founding fathers" of his discipline did. You know, when people entrust you with their funds to invest and pay you your fees for the pleasure, you will need to show them that you are actively trading with them - not keeping them on ice for months at the time while waiting for the "right signal".
The next few chapters are given to chart pattern recognition, which to me only underline the arbitrary nature of this game. For example, one of the first figures to be discussed is an example of a "false breakout in cocoa" (Figure 3.7) which for all intends and purposes would have looked exactly like a real breakout at the moment it was happening, but only in blessed hindsight proved "false". Suffice to say I flipped through the examples after that one pretty briskly. I do respect and like the author's high conviction and transparency, but I will go along with chartist delusions only so far.
So what about results?
Well, let's first state why most of author's system's trades are actually unsuccesful: (quote) "“If you are unacquainted with futures trading, you may be shocked that I expect to be right only one-third of the time. After all, shouldn’t a trade have at least a 50/50 chance of making money? Remember, I use relatively tight protective stops. I generally enter trades that offer $3 for every $1 risk. With {this] ratio, the 50/50 probability does not apply.” (Chapter 8) I am indeed quite shocked - I am by no means an investment wizard, but fewer than 5% of my trades over the last 20 years have been loss-making (touch wood!). It helps of course that as a private investor I don't need put on a show of feverish activity in all markets, which means that I have time on my side and can ride out bad times into good.
The actual results were (and I am taking this data from Table 13.3 in the book) that the author's system made 68 trades during the 5-month period, resulting in $5,473 profit per $100,000 unit of capital employed. This number is before fees and taxes. This is actually quite a bit below what an investor would have earned from (jokingly!) buying-and-holding the passive S&P500 index in the same period!
In my view, the trading system under discussion failed to impress because: (i) it makes insufficient use of the margin advantage of futures contracts; (ii) its tight stoploss settings result in too many premature stop outs, and (iii) it over-trades based on faint chart signals.
Now, I respect author's obvious experience in trading and surviving the fickle markets, so I will not fight his choices in these matters. The system appears to work for him, although in this example it only manages to provide S&P500-like returns, at a multiple of the risk, fees, and hassle.
In the words of Ironman: "not a good plan".
3 stars because of the great amount of detail added by the author, it really teaches a lesson.
Let me quote some stand-out passages.
First about "buy-and'hold": (quote) "“Like it or not, buy-and-hold strategies are a joke. Every decision you make in life represents a trade-off. Everything is a trade. Everything is a gamble.” (Introduction) Let me note here that "buying and holding" the S&P500 Index ETF from Dec-09 to Mar-10 would have resulted in a 5.5% gain over the period as the index went from 1108 to 1169 points.
About leverage and risk: (quote) "“As a general rule, I will trade no more than a single contract of soybeans per $100,000 of capital. [...] my risk per trade per unit of $100,000 is a maximum of $1,000. My trading assets committed to margin requirements rarely exceed 15 percent. [...] If I risk 1 percent of assets per trade and am wrong eight straight trades at least once each year, it means that I will experience a drawdown of at least 8 percent with certainty, at least on a closed trade basis. A 15 percent drawdown is about as much as I can emotionally handle. I have encountered a drawdown of at least 15 percent in 9 out of every 10 years I have operated a fully implemented trading program.” (Chapter 2). This is a very large capital requirement and narrow stop loss setting: with a million $ in his margin account, author's system would not hold more than 10 futures contract concurrently, and liquidate any position in case of a 1% ($1,000) loss on it. I am not saying this is the wrong thing to do in this system, I trust author's experience, but it does not a seem a very effective way to use your investment capital.
About trading strategy: (quote) "“I am a breakout trader. But I define a breakout in two ways. First, all patterns have boundary lines that define the exact geometry of the patterns. Some traders and market analysts draw boundary lines precisely with a fine-point pen. I draw boundary lines roughly, often cutting through some highs and lows in order to provide the best fit of an area of price activity to a geometric pattern. I also use thick lines, not a fine-point pen, to establish the boundary. Of course, there are instances when I call a breakout too closely—and I often pay the price for doing this. Robert Edwards and John Magee [considered the "fathers of Technical Analysis"] considered a breakout to be a price penetration equal to or greater than 3 percent of the value of a stock. This is far too generous when trading commodities. For example, a 3 percent breakout in $1,000 gold would be $30 per ounce.” (Chapter 3). So basically, Peter uses charts to identify moments in time when certain futures are about to break out (according to his indicators anyway). However, presumably in an effort to increase the number of buy signals, he applies a much more lenient definition of what constitutes a breakout than the "founding fathers" of his discipline did. You know, when people entrust you with their funds to invest and pay you your fees for the pleasure, you will need to show them that you are actively trading with them - not keeping them on ice for months at the time while waiting for the "right signal".
The next few chapters are given to chart pattern recognition, which to me only underline the arbitrary nature of this game. For example, one of the first figures to be discussed is an example of a "false breakout in cocoa" (Figure 3.7) which for all intends and purposes would have looked exactly like a real breakout at the moment it was happening, but only in blessed hindsight proved "false". Suffice to say I flipped through the examples after that one pretty briskly. I do respect and like the author's high conviction and transparency, but I will go along with chartist delusions only so far.
So what about results?
Well, let's first state why most of author's system's trades are actually unsuccesful: (quote) "“If you are unacquainted with futures trading, you may be shocked that I expect to be right only one-third of the time. After all, shouldn’t a trade have at least a 50/50 chance of making money? Remember, I use relatively tight protective stops. I generally enter trades that offer $3 for every $1 risk. With {this] ratio, the 50/50 probability does not apply.” (Chapter 8) I am indeed quite shocked - I am by no means an investment wizard, but fewer than 5% of my trades over the last 20 years have been loss-making (touch wood!). It helps of course that as a private investor I don't need put on a show of feverish activity in all markets, which means that I have time on my side and can ride out bad times into good.
The actual results were (and I am taking this data from Table 13.3 in the book) that the author's system made 68 trades during the 5-month period, resulting in $5,473 profit per $100,000 unit of capital employed. This number is before fees and taxes. This is actually quite a bit below what an investor would have earned from (jokingly!) buying-and-holding the passive S&P500 index in the same period!
In my view, the trading system under discussion failed to impress because: (i) it makes insufficient use of the margin advantage of futures contracts; (ii) its tight stoploss settings result in too many premature stop outs, and (iii) it over-trades based on faint chart signals.
Now, I respect author's obvious experience in trading and surviving the fickle markets, so I will not fight his choices in these matters. The system appears to work for him, although in this example it only manages to provide S&P500-like returns, at a multiple of the risk, fees, and hassle.
In the words of Ironman: "not a good plan".
3 stars because of the great amount of detail added by the author, it really teaches a lesson.
October 1, 2018
Being new in commodities and trading is quite hard, however this book gives good insights of a trading techniques. Filled with selected examples, signals and reviews the book gives sufficient knowledge in a straightforward talking manner. Would definitely recommend to anyone who is starting on their trading path or eager to see what other traders came up with.
July 4, 2013
Would you like to look over the shoulder of a professional futures trader? If no, avoid this book. Yes or maybe? This is a good book to read. The author painstakingly retells his trades over several months. He provides some solid advice along the way.
September 16, 2023
I wanted to give the book 10 stars if I can. One of THE best trading book that I have ever read. It is concise, practical, thorough, and most importantly with real trading experience. I am amazed by how honest and detailed the top trader in the world disclose his trading record, thought process behind his trade, and his routine.
Highly recommend anyone who is serious about trading in any market.
I took some key notes from the book, you can view it from the google doc. https://docs.google.com/document/d/11...
Highly recommend anyone who is serious about trading in any market.
I took some key notes from the book, you can view it from the google doc. https://docs.google.com/document/d/11...
January 3, 2018
This book had some interesting components and may be helpful to some traders (particularly those with a penchant for classical chart patterns) but I found it to be a little tiresome as I think so many of these patterns can only be appreciated after the fact (hindsight bias). But I applaud the author for opening up the inner-workings of his trading enterprise.
July 29, 2018
Overall a good book. However, the author could have written it under 200 pages. A picture is worth thousand words.
July 27, 2022
If you want to learn classical charting in real trading, don’t look elsewhere. This is the must read for chart traders.
August 24, 2024
This book demonstrates how many times chart patterns can fail. How to manage your trades in spite of that. It is useful for traders.
Displaying 1 - 10 of 10 reviews