Trading Book Reviews
Here is the list of books that have shaped the way I see the market. Note some of them are not Forex or market related, but still have had some influence on how I see the market.My intention is only to show you good books, good readings, books that some way or the other I recommend, so I will not write about the books that I have read but saw no real insight on them.
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Reminiscences of a Stock Operator by Edwin Lefevre
The book is a “fictional” biography of Jesse Livermore, a stock trader that started his trading career at the beginning of the last century at a very early age. The writer of the book really catches your attention as Livingston (the fictional character) makes millions, but then he makes a mistake and loses millions. He regroups, came back with a few thousands, makes millions again, makes another mistake, and loses them again.
If no one told you this book was written in the 1920’s you wouldn’t know. This is why I’m surprised that a trader back in the 1920’s makes the exact same mistakes traders make in 2011, 90 years after: we still average down, get out too soon, hold on losers too long, etc. Then why is this book still relevant? Because human nature, we act today in the same way we acted 100 years ago.
If you have some experience trading, you will be like: been there, done that, been there, done that over and over and over. If you are a new trader, this is probably the book that you should have bought yesterday, if you can learn from others experiences, you’ll avoid some of the most costly mistakes traders are likely to make.
The most valuable insight of this book (at least to me) is: trade on the path of least resistance. And that’s exactly what I do, every day I try to find that path on each currency pair, once I find it, I just try to go with the flow.
If you are serious about trading, and haven't read it, you need to get it! I’ve read this one about three or four times, and as soon as finish some other new books that I have on my shelf, I’ll read it again.
Trading in the Zone by Mark Douglas
How do I define a great book? When there is enough insight that results in a change of behavior. And believe me, you’ll find enough insight on this book. Put it on other words, there is the trader I used to be before and another trader (I like to think I am) after reading this book. It completely changed the way I saw the market for good.
This book teaches you how to go about thinking probabilistically. This is more important than you might think. Let me give you one example: what happens when you go long on any currency pair? Most trader tend to ignore all the evidence against their trade, like: other traders going short, an important resistance level that is just above your entry, a double top pattern, etc. Well, almost all traders do. I stopped doing it after reading this book. Once you stop blocking this information, you make yourself available to all the information “available” at the market. You can cut losses short, get out of a trade if you are long and there is a resistance level close to your entry, etc.
Another thing that I changed after reading this book is the way I approach each trade. I no longer think that each trade is important. To be successful you need to trade, that’s out of question, but you are not going to win all your trades, some of them will go against you, so you need to focus on a set of trades, not on each trade individually. You need to get rid of the fear of losing (accepting risk), this way you’ll stop blocking information against your trade.
Basically, Mark Douglas explains that the difference between successful trader and everyone else is not how they trade, but the way they think about how they trade.
Now, if you decide to read this book, read it two or three times, you won't regret it.
Predictably Irrational by Dan Ariely
This book has nothing to do with trading the Forex market or any other market, but it can give you some much insight about how we, human beings make our day to day decisions (including trading decisions).
I have an economics background, and one of the main economic theories (probably the most important one) states that we make rational decisions, based on the information that we have at the moment. The same theory governs what happens on the financial markets, or any other market: supply and demand.
What would you think if I tell you that this theory is all wrong? Well, after you read this book you realize that we not only make irrational decisions, we act sistematically irrational. The author performs real life experiments to state these points about this, and let me tell you, he is right: we are all irrational.
And this also relates to trading any financial market. We like to think we make rational trading decisions, but in fact, most of the time we make irrational trading decisions. What is good though is that by being aware of these irrational decisions, you can make a steady effort to get rid of them (it’s not easy though, but doable).
If you find yourself making the same mistakes over and over again, get this book, you’ll see your trading from a different perspective.
Fooled by Randomness by Nassim Taleb
Turn on your TV and put on your favorite news channel after a sharp move on the market, a currency pair, etc. Wait, you don't have to go that far, just go to Bloomberg or Reuters and you’ll always see an explanation of the “sharp move” it happened because the traders and investors took profits, traders and investors digesting the new info on the global crisis, etc.
All these news sites and channels play the past prophets. This information would be useful ahead of time, unfortunately no one knows how traders and investors are going to react. This is what hits book deeps in.
Should we blame the news channel or news sites about this? Of course not, this is just the way that we are wired, we need an explanation of everything.
Picture this scenario: I just caught a cold!!! Ahh must be because I got my feet wet earlier today. But the reality is that not every time you get your feet wet you get sick! But you just need a reason for it. See what I’m talking about?
Now, I don't fully agree with the author, I think most market movements are not random, therefore we can profit from the markets, if the markets were random, there were no traders or investors. But let me tell you something, I don't need to think like Nasim Taleb to like the book, he has something to say about these matters. And this book opens your mind to new possibilities.
I thought the book was a little dense, and at times the author seems a little arrogant and for some reason he doesn’t like news presenters...
You should consider reading this book! I can’t wait to start reading his other book “The Black Swan”, it’s on my shelf already, but I got others in the line.
