On this page, I’ll give a brief description of what I think are the best trading books I have read so far. Like seemingly everyone else on the planet, I am an amazon affiliate. So, if you choose to buy one of these via my links, you can sleep extra well at night knowing you have given something back (at no extra cost to yourself!).
I’ll be adding to this list over time… check back often! Topics covered so far are:
Technical Analysis
My favorite book on technical analysis is: Technical Analysis of the Financial Markets: A Comprehensive Guide to Trading Methods and Applications, by John Murphy. They don’t call it comprehensive for nothing! Here, you get an overview of just about every common technical analysis method. Techniques for finding trends, reversal patterns and continuation patterns are covered. You’ll see candlesticks, bar charts, point and figure charts, and types of equivolume charting. There’s coverage of elliot wave and major market cycles. A variety of technical indicators are described, with a helpful discussion of the differences between trend-following indicators, oscillators, and market indicators. Toward the end there’s some material on money management and building a trading system, but that’s really tangential to the point of the book, and I could have done without those sections.
Trader Biographies
Two of my favorite trader biographies were Jim Cramer’s Confessions of a Street Addict and Marty Schwartz’s Pit Bull: Lessons from Wall Street’s Champion Day Trader. Of course, everyone should read Reminiscences of a Stock Operator, too, but everyone seems to know that already, so I’m not reviewing it here.
The Cramer and Schwartz books are interesting to read as a pair because they both are short-term traders, and they traded over an overlapping time period. A weird coincidence was that both books managed to mention the movie Reversal of Fortune. Further, Cramer mentions it on page 16, and Schwartz on 216 (in the paperbacks I have, anyway).
Anyway, both books were entertaining, and well-written. The accounts of big events like market crashes were well done… made me tense just reading about all that cash in jeopardy! Cramer’s book has a lot more biographical information, while Marty focused more on his trading (or, perhaps there was just a lot less going on in Marty’s life). Marty includes little sections with trading wisdom and advice. Cramer doesn’t, although he has other books dedicated to investing.
Their Trading Styles. Both traders were short-term profit-takers. So, from that perspective they were very similar. However, Marty focused on S&P futures, and options more than stocks. Cramer was primarily in stocks and options (at least, as far as I could tell from the text).
Cramer did (does!) a lot of research on companies, and worked within the financial “system.” Early on, the main play seemed to be looking for differences in the feel they got from company management and professional analysts. That way, they could step in on the right side of the bet when a company was about to be upgraded or downgraded. In the late 90’s, the behavior of the markets changed, and after major losses, Cramer regrouped and started milking dot-com IPOs.
Marty was a technician, focused on indicators. Other than buying seats at exchanges, he was not part of the same game Cramer was in. Never got involved with analysts or extensive fundamental research, or interviewing executives. He claims he was the first to discover the correlation between bond futures and S&P futures.
Eventually, both started a hedge fund.
The 1987 Crash.Cramer says he thought something was wrong, just before the Monday, October 19th, 1987 crash. Analyst recommendations weren’t working as well as before. There were more sellers than buyers at the end of the day. He wasn’t making as much money. At his future wife’s suggestion, he took his hedge fund completely to cash, and further made big short bets on several industries.
Marty was still trading for himself at this point, with $8 million in play. He agreed with many market watchers that Black Friday was likely the bottom, and that Monday would look up. So, he actually beefed up his positions on Friday. The description of the crash was fascinating, because he says his positions were dropping so fast that he froze up… couldn’t make himself execute his mental stops. Apparently at 10:30 there was a pause, and a little bounce, and he got out at that point. Lost $2 million.
Another fascinating thing about Marty is that he kept a large stockpile of gold in safe-deposit boxes at banks. And twice in the book, he rushed to banks to retrieve the gold and keep it with him in case the economy collapsed, and the banks didn’t open. 1987 was one of those times.
Desert Storm: Both Cramer and Schwartz understood that the Iraq war would boost stocks, and went long just before. Marty made $1.2 million the day the US started Desert Storm. Unfortunately, Cramer didn’t give a dollar figure… that would have been fun to compare.
Schwartz, in addition to going long on stocks, also played with Bonds, and planned to short gold and oil futures. He didn’t have the right accounts set up to fully act on his plan on gold and oil, or presumably he would have made even more money.
Running a Hedge Fund: Apparently, running a hedge fund is a seriously stressful job, as both guys eventually had to quit their funds. It was seriously damaging both their lives, and their health. Also, in both books, we see parallel accounts of a losing streak causing an exodus of partners from the funds, and the extra stress that caused them.
Personal Well-Being
I am a long-time meditator. I have said before, and see others claim, that meditation is great because of the way the peaceful quiet mind allows them to get reset, refreshed, and re-centered. Well, why partition your time so that you only have that for a few minutes a day? Why not just have a peaceful, quiet mind all the time? Why not just be centered, rather than have to periodically get re-centered? It seems kind of obvious to me now.
Two books that really helped me understand these concepts are Practicing the Power of Now and the rather unfortunately named Complete Idiot’s Guide to Zen Living. Of the two, the guide is more comprehensive, so it might make sense to read it first. On the other hand, I read Practicing the Power of Now first, and found it to be the more inspirational and exciting book. You might say, inspirational and exciting enough to make you want to read more books on the subject. I originally approached this material as an aid to meditation. Now, I am approaching it as a way to be at all times.