The essence of trading psychology in one skill
Why read this?
As any real trader who trades for a living will attest, these are recurring behaviors that can be difficult to eradicate. And the reason is rather simple: the pressure — to perform, to sustain a living, to pay the bills — engineers anxiety, stress, and other limiting states of the mind which precisely affects behavior, and makes trading consistently a battle that is difficult to win.
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The Mental Edge in Trading by Jason Williams
Why read this?
This book bridges the gap between successful trading and personality style and equips you with the necessary tools for using this information to become make smarter trades. You’ll learn how to assess and measure your innate personality traits and align them with your trading strategy for profitable trades on a consistent basis. In simple terms this book is all about “Mind over Markets”.
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Stocks on the Move by Andreas Clenow
Why read this?
If you think that beating the stock market is easy then all the mutual fund houses could have easily made money for their investors. However most MFs consistently fail. The book does a fantastic work by explaining the realities of trading, including how an equity curve can cause traders to abandon long term winning systems due to short term losses. The author uses a 200 day simple moving average on the S&P 500 index as his primary hygiene check before taking a cash position for his momentum stocks. Momentum investing has been one of very few ways of consistently beating the markets. This book is a must have for every traders library collection.
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Following the Trend by Andreas Clenow
Why read this?
The book covers topics such as trend strategies, the importance of accurate data sources, potential markets to trade, entry & exit parameters, managing overall portfolio risk, cash management, position sizing, and other tangible strategy and portfolio considerations. The author explains systems based on breakouts and moving average crossovers. The trend following system examples are a great place for a trader to start to develop their own customized style that fits their risk tolerance levels and return goals. The book is a fantastic read, as it explains the year on year breakdown of system performance as well as covers the emotions that is experienced while taking trades.
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Trade Your Way to Financial Freedom by Van K. Tharp
Why read this?
You cannot make money in trading if you don’t have control on the amount of loss on the trades that don’t go your way. This books explains the process of system development from the basic idea to the final steps of choice of the position sizing model. This book covers aspects of technical analysis, fundamental analysis, human psychology. The author has structured the book in six important elements viz: reliability, risk-reward ratio, trading opportunities, cost of trading, position size and money management. This book does not cover the technical aspects of the market. It focuses on culmination of all the elements viz. trading, tools, methods, and personal characteristics, to develop a trading strategy. A must read for new and old traders.
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Market Wizards by Jack Schwager
Why read this?
This book consists of a series of interviews with some of the best most successful traders in the world. Filled with anecdotes about market experiences of these traders, their philosophy including few interesting real life stories. This book covers a wide variety of trading techniques of different traders who deal in equities, treasuries, futures, commodities, currencies etc, thereby broadening the horizon. However all the traders have few things in common viz. considering trading as a serious business, disciplined risk control approach; working hard; humble enough to accept losses. After each of the interviews, the author summaries what he believes are the key things to be learned from a particular trader. A must read book, if you are interested in trading and want to understand how the stock market works.
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Reminiscences of a Stock Operator – by Edwin Lefèvre
Why read this?
Jesse Livermore is one of the most iconic and greatest stock/commodity traders in U.S. history. He is often cited as the main inspiration for a lot of professional traders. This book is one hell of a ride!
He successfully predicted the 1907 and 1929 market crashes, making huge amounts of wealth each time. At the height of his trading career, he had made $100 million, which is the equivalent of about $1.4 billion in terms of today’s money.
His life is truly an incredible story, having lost his entire wealth on more than one occasion and subsequently making it all back again.
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One Up on Wall Street – Peter Lynch and John Rothchild
Why read this?
A very helpful book for those who want to gain some basic knowledge about how stocks work in the financial market and how to select the best portfolio of securities. Lynch shared his experiences about developing his strategy for success. He shares his past, his victories, and some of his failures. The book is easy to read, and hence anyone, including non-financial background folks, can also understand this.
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The Intelligent Investor – Benjamin Graham
Why read this?
If you are looking for the answer of the question, why to read this book, I guess the first line summarises it. This is the Bible for value investing. The book which was first published in 1949, the methodologies and the approach is relevant till today. According to Mr. Graham, the emphasis on our main goal should be to not LOSE money; hence it becomes important to understand the difference between ‘investing’ and ‘speculating,’ Mr. Graham explains the difference between ‘Price” and “Value”. ‘Price’ is what we pay for getting the stock and ‘Value’ is what we receive.
By contrast, be terrified when the market has gone up far, fast, and RESIST THE URGE TO START buying more stock when the market is up.
Don’t miss out on the real cases that are explained in detail, that will help to understand the whole piece much better.
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The Dhandho Investor: The Low-Risk Value Method to High Returns – Mohnish Pabrai
Why read this?
As an investor, Pabrai says stick to opportunities that have huge return potential with as little risk as possible which makes perfect sense. Unfortunately, we think that higher the risk, higher the returns. Mohnish Pabrai explains the concept of Low risk, high returns with the help of few case studies. He buys the stock and holds it until the company, and its stock price, recover. According to Pabrai, investing, should be treated as a game of probability i.e. invest only when the odds are in your favour, which means the valuations are very attractive. When an investor is faced with such opportunity.
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Security Analysis – Benjamin Graham and David Dodd
Why read this?
Once you read the book Intelligent Investor, and if you are interested to deep dive on the fundamental analysis of securities viz. bonds, stocks, convertibles etc. around page 351 onwards the book focuses on stocks as securities. Here real-life cases of accounting shenanigans are being discussed, and how the Wall Street fails to take cognizance of such accounting misrepresentations, leading in overvaluing such stocks. Part VI covers balance sheet analysis which is useful to identify bargain priced securities. Graham’s concept of purchasing stocks under net current asset value could be used as one of the filters before digging deep into the company. The book’s central theme is that an investment should be made based upon a thorough investigation of the investment’s merits – and not just basis of the maket levels, or interest rates, etc. As Graham himself mentions that it is a boring process but indeed a sure shot process to get your investments right. Further, Graham and Dodd’s theory on Margin of safety principal plus satisfactory return has been time-tested. Expert Tip: Get well versed with the basic financial statement terminologies to absorb this book better.
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Common Stocks and Uncommon Profits – Philip A. Fisher, Kenneth L. Fisher
Why read this?
If you want to understand what makes a company great, and how to distinguish it from the mediocre ones out there. Unlike Graham’s approach which is quantitative, Fisher’s approach is qualitative when it comes to stock selection. Fisher doesn’t get into the details of fundamentals analysis, because his approach is growth investing and he analyses a company by going into the detail as to how the company is actually run and what are its prospects, researching a company’s management, its sale force, its research arm, its employee relations, and other qualitative factors to determine the growth in a company’s earnings over the long term.
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