Book Review of Behavioral Trading

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Review of Behavioral Trading, by Woody Dorsey.

Reviewer: Mark Lamendola, Mensa member, principal of www.mindconnection.com, and author of over 4500 articles.

This book gives you an inside view of one company's philosophy on using market psychology to make money in the market. Dorsey examines various approaches people use toward this end, before describing his own.

He begins by showing us how the market is not rational. Never has been, never will be. I personally experienced this during the dotcom stock bubble. I had shares of stocks that, per rational theory, should have done remarkably well. I did not own shares of Yahoo--which, per rational theory, was a total dog. My stocks stayed flat, while Yahoo soared. So much for rational theory. If you get nothing else from this book, the explanation of that lesson alone makes it worth reading.

Next, Dorsey delves into the three general concepts of psychological trading. All of these seem good on the surface, but results are inconsistent. Maritimers long ago learned how to navigate by triangulation. Dorsey navigates the stock market the same way, with his "triunity" approach. He shows how looking at the intersections of the three general concepts produces consistent results.

You may have read books espousing some "can't miss" philosophy or another. Don't worry--Dorsey lets the reader know his triunity approach still requires judgment. For example, if the indicators are in a certain area, that would be an indication that the market is about to hit a peak.

Dorsey explains that his method might miss the peak. And, it might miss a trough. But if you are not greedy, his method would appear to be a useful tool for profitable investing. Remember, pigs eat well but hogs get slaughtered.