Books - Are there any good ones worth reading?

I’m speaking, of course, about books on trading and specifically, forex trading. Are there any books out there that you would recommend?

Hey Jason,

“Trading in the Zone” by Mark Douglas. It was the defining read for me as it deals with how to manage your mind when trading. I have found for myself that trading is 90% psychology and 10% technique. Having a great strategy without proper mind management is akin to the death of an account. Check it out. Much cheaper on amazon than buying at book store.

I just want to come in to share this book, but surprise that someone intro this book before me.

Absolutely agree on 90% of mindset with 10% of strategy.

Maybe you will like Dr. Andrew Menaker as well. Just google on youtube for his webinar, very helpful.

You need to understand commodities, bonds, stocks and cycles before you can trade fx on the long term. Fx just don’t make sense on its own. If you want short term knowledge try “Beat The Forex Dealer” by Agustin Silvani. Then go on with “Counquer the Crash” by R. Prechter, this book is much more than just an Elliott book. I can also suggest Jim Rogers’ books.

I believe that you’ll find some trading books and learn something from them. I just want to suggest you to do some practicing on a life account and try to develop your own strategy there. This means you will make some mistakes and hopefully will learn from them.

The Zurich Axioms.

Thank me later.

Wow, I looked this up in Amazon…the preview looks good! I might get it. Thanks for the suggestion.

look it up in google…

[trust me ;)]

Thanking you now (which is “[I]later[/I]”). I just ordered it on Amazon today. Looking forward to a good read! Cheers!

this is not about forex specifically but is perhaps the best book about trading, it is the story of Jesse Livermore, the trader who at one time was blamed for the 1929 stock market crash.

Thanks for the feedback so far guys. Keep it coming.

So far I have read three of Michael Covel’s books: Complete Turtle Trader, Trending Following and Trend Commandments.

The first two were good. The last just okay.

But my favorite so far has been The Little Book of Behavioral Investing. While not a trading book per se, it is a great look into human psychology.

Being an algo trader, my favourite trading books lean in that direction. The standouts in my opinion:

Pardo, [I]The Evaluation and Optimization of Trading Strategies[/I]
Aronson, [I]Evidence Based Technical Analysis[/I]
Vince, [I]The Handbook of Portfolio Mathematics[/I]

These are also good:

Jaekle and Tomasini, [I]Trading Systems[/I]
Chan, [I]Quantitative Trading[/I]

John Ehlers’ work is very useful and provides a different approach to ‘traditional’ technical analysis.

Fitschen’s [I]Building Reliable Trading Systems[/I] is also a good read. Even if you’re not an algorithmic or mechanical trader, Fitschen’s research on the ‘path of least resistance’ in the forex markets may surprise and enlighten you. It did for me anyway.

Can’t help myself here, I have to throw in my two cents worth about Mark Douglas’ [I]Trading in the Zone[/I] that was mentioned in earlier posts. Yes, a very good book (a copy sits on my bookshelf). However, in conversation with other traders, I’ve noticed that many think that mastering psychology is the key to success in the markets. Not true in my opinion. The key to success in the markets is having an edge (that is, a positive mathematical expectancy). If you don’t have an edge, you will eventually fail, even if your psychology is second to none. This is a mathematical fact. Psychology is one part of the puzzle, but it isn’t the key to it all, as many I’ve spoken to believe it to be.

I’m not trying to shoot down anyone who suggested Douglas. Just passing on some observations regarding what most people seem to take away from it, and how that can be misleading and dangerous to one’s trading account. When used properly and as intended, Douglas’ work is indeed very useful.

Great thread! I’m still a newbie and wanna learn as much as I can regarding forex trading. RobotCapital, what do you mean about having an edge? English isn’t my native language, and I have never heard a phrase like that.

Hey kongdaff

‘Having an edge’ means having a positive mathematical expectancy in the long run. A simple example of an edge is a casino with a roulette wheel. The odds of spinning up any number are 36-1, but the casino only pays 35-1 if you guess correctly. So in the long run, the casino has a positive mathematical expectancy, or an edge. Given enough spins, the probability of the casino winning approaches 1.

Applied to trading, we can calculate expectancy as the sum of the probabilities of each outcome multiplied by the amount won or lost for the corresponding outcome. Obviously there are almost infinite outcomes for any individual trade, and this is where statistics comes into play. Given a large enough number of trades, we can calculate our fraction of winning trades and our fraction of losing trades. We also calculate the average amount won from our winners and the average amount lost on our losers. The expectancy then is simply calculated as such:

(fraction winning trades x average winning trade value) + (fraction losing trades x average losing trade value)

Note that your average losing trade value is negative in the calculation. Also note that for this to have any validity, you need a large enough sample size. How large? The answer to that question could have its own thread entirely. I’ve seen the figure 30 bandied about, but I feel more comfortable around 100.

The point of all this is that without a positive result in the above calculation, no amount of market psychology, position sizing or anything else will save your account. Given enough trades, the probability of losing all your money approaches 1. Success in trading firstly requires finding an edge, and then using all the other stuff to exploit it successfully.

Let me know if this isn’t clear - I’d be happy to explain further.

Hi RobotCapital

Thanks for the detailed explanation. I think I get it now. Your first post makes more sense now, when I read it again. Do you know of any books that take up this subject? In more detail and with more examples?

There is no edge to be gained from the market because of 1. The spread and 2. The market is a random walk, it is chaos.

I believe there is an edge to be gained from analysing your own results of trades which involves a progressive staking system.

I believe there is a very small number out there who are profitable but I doubt they post on babypips or have a website telling the whole world how they trade. If I found the holy grail I would keep my trap shut.

I have moved from unsuccessfully trading forex to successfully betting on football matches for the reason given above: analysis of results rather than analysis of market. Plus with soccer my risk is fixed and much lower.

Hey Kongdaff

Dive into Ralph Vince’s [I]The Handbook of Portfolio Mathematics[/I]. You will find plenty of detail there, as well as numerous examples. In addition to an exhaustive description of the applications of probability to trading, you’ll also find a very handy position sizing approach.

Also check out Edward Thorp’s material. You’ll find an exhaustive exploration of probability applied to trading, as well as a very entertaining story!

Useless23, I’m sorry to say it, but I couldn’t disagree with you more. There most definitely are many inefficiencies in the market which are systematically exploited on a daily basis by many successful traders. The spread will certainly render some otherwise sound strategies disastrously unprofitable. But there are many other strategies whose profitability far outstrips the cost of the spread.

Also, you seem to be equating a random walk with a chaotic system. They are actually not the same thing. A random walk is system in which the previous state of the system has no effect on the future state, other than being a starting point. On the other hand, classifying a system as chaotic implies an underlying order. Your statement “the market is a random walk, it is chaos” therefore doesn’t make sense.

Can you expand on your system that analyses its own results to find an edge? This would be very interesting, since an edge that comes from your own results implies a system that exhibits dependency of the result of a specific trade on previous trade results. In my experience, this is extremely rare in trading systems. In fact, 100% of the systems that I have developed (the many unsuccessful and the few successful) have exhibited randomness in the sequence of trade results, but non-randomness in the long term statistical distribution of trade results - which is completely at odds with your system.

Also, what is a ‘progressive staking system’? Is it something akin to a Martingale system?

I think you are correct in your assertion that there are few profitable traders out there, particularly on the retail side. You are also correct in that they wouldn’t be posting their successful systems for all and sundry to see. I believe that there is sometimes something to be gained by sharing a successful strategy with a limited number of traders, however if too many work out how to exploit the particularly inefficiency from which the strategy draws its profit, then the inefficiency disappears. But just because no one posts their successful systems doesn’t mean they aren’t out there. At the risk of bragging, I am currently trading two successful algorithmic systems, and have a few more in the final stages of development and testing. I certainly am not going to advertise the particular inefficiencies they exploit. However, I have recently begun posting on Babypips for a few reasons - it makes me feel good if I can lend a hand to others who are trying to turn a profit, it is an opportunity to brain storm ideas in the hope of finding more inefficiencies to profitably exploit, and finally its a chance to showcase what I can do to potential investors. The point is, there are successful traders posting on Babypips, and therefore something of value to be learned.

To the OP - sorry to hijack your thread, but I felt the need to respond to some of the potentially dangerous misinformation that gets bandied around.

Market is ur best teacher!

Just try it on a real account, even if small money. U can just start from $50 and 0.01 each time. Keep yourself evolved. Practice, practice, practice!! Don’t practice on a demo one, that will only harm u.

Reading is also indispensable. If u r a full time trader, if u really wanna succeed, just spend all ur time apart from trading time reading! And thinking

Reading without thinking is no good for u. And then make it for yourself, put it into practice, and revise it, and read, and think, and practice, until u find a way to succeed.

Even u r a successful trader, u have to keep ur self updated.

Last year, I’ve read 50+ books. I’m a long-term trader, don’t need to keep watching the screen.

The most important thing is just starting to read from nest second, even worry about the good book. Read what u can get.
After u read 10+ or 20+ books, u have ability to select the good books. U can see the title and the catalogue and decide if it’s a good book.

After reading 50+ books, ull find those books about on technism are just similar, and they r not as useful as u thought. Simplest is the best. At that time, u should read something about psychology and philosophy.

Finally., good luck to u.