Update 8th Feb 2014
My doesn’t time fly etc. blah, blah and so on… Non-trading books that have really helped.
In fact if you’re going to learn anything at all, any sort of skill that’s more complex than breathing then read both of these. I’m still convinced reading books on trading and psychology are a waste of time/money.
Stepping through these two books above will show you why.
Updated 18th Feb 2012
So I’ve read a LOT of books about trading from the ones you pick up at the beginning to attempt to learn from to the ones you realise may actually have useful information in.
Before writing about specific titles there are some general points that I need to make.
- You can’t learn to trade by reading books about it. Sadly this is true and I really wish it wasn’t… because by now I’d be an awesome trader. You can read a lot more about the reasons for this here as to why it’s faster and more effective to learn from a real person.
- Books about specific trading strategies are generally useless to you as a trader and I’ve largely ignored them. If I do find something useful then I’ll post it here but I’m not using anything I’ve found in any books other than the very basics.
- However – Books about trading psychology are extremely useful. I’ve included some of the best ones I’ve found here. This also includes some books that don’t mention trading at all but will help you see things clearly – they’ve certainly helped me.
There’s still another problem with trading and books that I’ll go into in more detail at the bottom of this page but in the meantime here are some reviews 😉
The Disciplined Trader – Mark Douglas
This is the book Mark wrote before the one everyone talks about (Trading in the Zone) which I have not read so I’m not going to compare them. I love the way Mark writes about the market and the relationship you need to develop with it to not get knocked about.
There’s reference to the market having the ability to reflect your own issues and beliefs back at you. There’s a lot about intuition and developing as a person as well as a lot of talk about having to master fear. The interesting thing Mark does is explode the myth that you have to ‘trade without emotion’.
This is a book of great depth although like all Americans writing about trading he does make the same mistake. Why are books about trading so damn wordy – get to the point already! (sorry, just something that I’ve noticed) However the effort is worth it since Marks book is entirely awesome and filled with useful ideas to help improve your performance.
The Daily Trading Coach – Brett N. Steenbarger
I think this may be one of the most practical books about solving common issues (and some not so common) that traders face. My own copy is completely ruined by highlighters and notes. If you’ve started trading and keep screwing up then it’s definitely worth a read because you absolutely will find ways to improve.
Brett’s book covers everything you need to know to sort out the bit between your ears – possibly the most practical book on this out there. I need to re-read it.
Financial Risk Taking – Mike Elvin
This book references all the other sources on trading psychology and brings in some new ones I’d not heard about. Hugely authoritative, very practical and you can tell the author put an awful lot of work and trading experience into it. Impressive.
Zen in the Markets (confessions of a Samurai trader) – Edward Allen Toppel
It’s a really honest book about how your mind can screw you over when you’re trading and some deceptively simple things that you can do about it. Thanks to Mike (@FtseDay) on the twitter for the heads up about this one.
Now here’s my main problem with this page and why the reviews have gotten shorter and shorter as I’ve gotten down here… When you are actually trading you’re going to forget 99% of the stuff you’ve read in any of the above. Why? ‘Cause it’s hard to act in a rational way and remember information that you need when you’re under stress and the trade is all going to rat-s**t… You are absolutely not going to remember what you read on page 42 which will help you deal with the specific situation you’ve got yourself into.
Just like driving a car or doing any sort of sport well you will only achieve the high level of performance required through repeated practice. Think about driving as an example. You have three pedals, mirrors, rules, lights, nobs and a steering wheel. Now get in a car and make it all work seamlessly without any practice… No? So you will forget everything you read when it comes into contact with the real world.
So here’s my advice if you’ve just read a trading book of any kind but especially one related to psychology. In relative terms entering a trade is easy but managing it well once it’s out in the world is the difficult bit. Anyway do the following…
- Think of one and only one thing you do wrong when in a trade.
- Come up with a strategy to deal with this one thing and write it down as a ‘rule’
- Concentrate on keeping to this rule for every trade until it becomes a habit or you realise the solution you decided to try doesn’t work. Find another solution till you find one that works.
- Keep the rule and look for the next trading problem you have
- Rinse and repeat.
I’ll give you an example to get started. A few weeks ago I realised I was cutting all my trades way too early. The trade would be correct (i.e. I’d picked the right direction) but it would take maybe 90 minutes for this to really work out and I’d cut the trade in less than 20 minutes…
So I’ve adopted two strategies. First I don’t cut till after 25 minutes at least and secondly I try very hard to wait for the best price I possibly can.
An example of the last point. Say that price goes up parabolic towards a level and I want to sell it. I am not, absolutely not going to go short at the top of the first 5 minute bar, or the second, or even the third ’cause I’m waiting to see that the price has properly stalled…
What goes up does not immediately reverse – ever… or hardly ever. Why not wait till it looks like it may well go back down rather than being all impatient and getting in ’cause you’ll go through all that pain sitting through maybe an hour before there’s a drop.
Off the cuff rules I try to keep in mind
- There’s always a better price – patience always pays
- Price will go higher or drop lower than you think possible
- Don’t exit out of fear – always have a reason – preferably related to why you got in
- Do not look at your P&L while a trade is on
See, that’s only 4 rules and I have trouble with them – or I will have till they’re all habits. Then I’ll have the mental capacity to address another set of trading issues that I have.
Interesting to note that all these rules are about managing exits eh?