Books for Trading

On Twitter, I was talking with Swoon about the market. Swoon wondered what books were good to read to help you understand the market.

I am quite sure that any one book will make you money. There are books that you can read to help you at least understand what you are doing and to have confidence in a particular strategy. Realize this, there are many ways to attack a market. No one strategy wins all the time. If you find something that is working, have discipline, use it. But always be on the lookout for when it’s going to break down because it most surely will.

In the late 1980’s, a lot of $CME Eurodollar and Treasury traders followed the Japanese Yen. If the Yen rallied, the Euros surely would break. You could scalp a few ticks by doing that for a long period of time. The ploy worked like clockwork. ($ZB_F, $ZT_F, $GE_F)

Then one day it broke down.

Some traders stubbornly refused to change. They aren’t trading anymore.

Keeping that in mind, here are some books I would recommend and why.

Options as a Strategic Investment

Why this book? Because in a world that is increasingly dominated by high frequency trading, knowing how to do some options instead of taking an outright position in the futures or cash equities can allow you to hold a good position when the market takes a “noisy” turn against you. Options also give you good strategies for both volatile and dead markets. If you position yourself correctly, you can use leverage to make a lot of money.

This book won’t tell you how to trade options. It will tell you technically what they are about. But you better know the devil before you dance with him.

A couple of books on Technical Analysis
Japanese Candlestick Charting Techniques
and
Technical Analysis and Options Strategies

Why? Even if you don’t believe in Technical Analysis there are enough players out there that do. You need to understand what they are looking at to make their decisions, program their algos. It can help you with short term swing trading. Sometimes it works, sometimes it doesn’t. Knowing the reasons behind technical analysis will make you a better trader. But, I wouldn’t treat it like a religion.

A Random Walk Down Wall Street

This explains how prices move in a random walk and why you can’t beat the market. It dispels the notion of the active money manager making money for their clients by trading in and out every day. Over the short term, you can make money trading if you either have more information than the market, or are quicker than the market. However, over the long term you can’t. It’s the antithesis of technical analysis.

Monetary History of the United States and a companion book Price Theory.

Why? It gives you some good insight into US Macroeconomic policy, and monetary policy. It’s written by Milton Friedman who along with the rest of the Chicago boys debunked Keynesian economic theory. It’s good to have a macro view of the marketplace, and understand the macro effects of why things are happening. This book is a primer on that kind of thinking.

The companion book because at it’s core, all a market is trying to derive is a price. How does it do it? What is a price? Price Theory is the best microeconomics book ever written. While macro is a good way to look at broad markets, micro is what happens in individual markets.

They aren’t trading books per se, but will sharpen your analytical skills to give you the chance to make money.

The other book I would throw in there is a book on psychology. You will struggle daily with your inner self when you trade. How to deal with fear, greed, failure and success are important. After all, you are not a machine. You are human and recognizing the things that are going on with your head and emotion sometimes is more important than seeing what’s on your screen in the market.

What books do you find useful? Put them in the comments. Have a good day trading.

  • Tom Hearden

    Extraordinary Delusions and the Madness of Crowds… (see gold T-3)

  • Jeff, may I throw in just one more? Oldie but goodie, and became quite a common recommendation, but still, quite an enlightening (and ever fascinating) read for newer traders: Reminiscences of a Stock Operator… Sure, there is no single chart in the book so it’s not a trading book in a strict sense, I guess 🙂 But the way it speaks of market basics and human psychology creates solid foundation for understanding the markets

  • dmp

    I’ve just read Stocktwits edge, I enjoyed the viewpoints of the traders. Irrational Exuberance by Shiller, Manias, Panics & Crashes by Kindleberger, Beyond Candlesticks by Nison, Technical Analysis by Murphy, Market Momentum by Pring, Trade your Way to..by Tharp. These are my old stand by’s. Oh, and the Stock Traders Almanac. 

  • I like that you mentioned adding a straight psychology book. I think that often gets overlooked. I would also add some trader interview books like Market Wizards for some early inspiration. 

  • Alexander

    Great list, Jeff (and nice add-ons in comments too), thank you for sharing it. Speaking of psychology books, “Trading in the Zone” by Mark Douglas is a good one on trading psychology. As for purely trading (technical) books, there is a little hidden gem by Al Brooks – it’s hard to read and follow, but offers interesting logic.