Best trading books

1. Mastering The Trade (by John Carter)

This is the book that inspired me to take trading very seriously. In a way I was very lucky, because had I not come across Carter’s book early in my trading career, I may have well ended up blowing my trading account within months.

John Carter lucidly explains the psychological and tactical challenges that face a trader. What makes this book unique and enjoyable are three things: firstly that it contains several chapters on different high probability trading strategies; secondly that each chapter gives numerous real examples of how the strategy actually works and; thirdly and most importantly, precise entry and exit rules for each strategy including how to protect yourself against risk if you are wrong.

It is not necessary for traders to employ every strategy documented in this book. I personally have adopted one of them and it has since become part of my daily trading routine (more on that in upcoming posts).

What I really love about this book is Carter’s passion for trading. I admire the way he religiously carries out each trade in accordance to his rules and not based on impulse or whim.

This book is not for the beginner. Although, the advice given in the chapters on psychology and risk is absolutely crucial for everyone.

2. Market Wizards & The New Market Wizards (by Jack. D. Schwager)

These two books are a gem whether you are a beginner or an advanced trader. Each chapter is an interview with one of the world’s top traders. It is very easy to read – even a 12 years old could make sense of it.

The personal stories and insights of each individual trader is simply fascinating to read. I won’t spoil any surprises here. One of my favourites from the book is Linda Raschke, one of the few female professional traders out there. Her comment that while we can be good at predicting the direction of a move (up or down), but not so good at predicting the magnitudeof the move (how far a market will move), is a very significant one which has helped me a lot in my own trading.

What I found interesting about this book when I first read it was how some of the world’s best traders have experienced losses in their own trading on a scale that is unimaginable. Readers will also notice that different traders will often disagree on a number of issues.

The major downside with this book is that whilst the traders give very valuable insights to their style of trading, no actual specifics are given as to exactly how they trade. Also, the interviews pre-date the technological age of the internet and widely available charting and trading softwares. Having said that, this book is a must for everyone who wants to learn how real traders think.

3. Volatile Markets Made Easy (by Guy Cohen)

This book is an ideal starter for anyone who wants to grapple with the intricate but lucrative world of options and volatile markets. One reason I am recommending this book above all the other books on options, is that its author, Guy Cohen, is an expert not just in options but very adept at being able to explain how to trade options to the ordinary person.

The first few chapters cover the basics of technical analysis and breakout patterns. Where it gets really interesting (for me) is when he talks about “straddles”.  This is a strategy whereby you can potentially make money no matter which direction the market moves, up or down.

Guy Cohen does not seek to confuse the reader and he does an excellent job of clarifying what can be quite a complex topic. I definitely recommend it.

4. Technical Analysis of the Financial Markets (by John J. Murphy)

This book is the definitive guide to the world of technical analysis (analysis of charts). Fans of fundamental analysis (or “fundamentalist” as we like to call them) will probably scoff at the mere mention of technicals and charts, dismissing it as reading “tea leaves” and not serious trading. Don’t pay any attention. I don’t know of any serious professional trader who does not use some form of technical analysis.

John Murphy does a seriously good job of demonstrating how to analyse charts for the beginner traders. Trendlines, patterns, moving averages are all covered here. You can also check out his brilliant free charting service on StockCharts.com.

5. Trading In The Zone (by Mark Douglas)

If you haven’t started trading yet and you want to save yourself months of anguish and frustration, then do yourself a favour and read this book.

Trading in the Zone is not a book about “strategies” or “systems”. It is about something much more important. Any trader will tell you that 95% of trading is psychology. It is not the trading system that is important, as much as how your own mind will work against you when you do trade.

The most important concepts discussed in this book are: consistency and uncertainty. You need to be consistent in your trading method and you need to have an unshakeable belief in uncertainty – that in the markets anything can happen. Once you accept that, you can give up on the emotions that imprison your mind and learn to be a better trader.