Statistics show that new stock traders will lose 65% – 95% of their initial investment within four to six months. The best books on trading stocks is a list that is compiled that attempts to allow the stock trader to develop a well-rounded mindset and perspective on the subject matter. Through the study of books, courses, and other resources the stock trader may equip themselves in a better position that will potentially help them overcome the detrimental statistics that keep many investors away.
In this article, we will cover the following topics
What is Stock Trading?
A stock trader may be synonymous with a share trader and equity trader. Essentially a stock trader is an individual or organization that trades equity securities. That is, the stock trader buys and sells shares of publicly traded organizations. Many of the popular stocks may include Microsoft (MSFT), Google (GOOGL), Apple (AAPL), etc.
The stock market essential is based on supply and demand. When you buy 1 share of stock, someone will sell that 1 share of stock. When you sell that 1 share, someone else must buy that 1 share. If there are more buyers than sellers then the stock price will go up causing a demand on the stock. If there are more sellers than buyers on the stock, the stock price will go down cause too much supply.
The Best Books on Trading Stocks
1 – Inside the Black Box | By Rishi Narang
Rishi Narang is a hedge fund manager who is set out to climb Mount Everest by bringing light to this area of investing – high-frequency trading and quantitative strategies – that many call that black box. In this book, Inside the Black Box: A Simple Guide to Quantitative and High-Frequency Trading Narang explains to the layperson to complex and often misunderstood topic on this side of investing. Narang has an entertaining writing style and brings a live mixture of helpful real-life examples and analogies. Narang demonstrates how and what quantitative strategy funds look like and he debunks many of the myths associated with quantitative trading. This book is useful for anyone who desires to invest or understand what is “quant” funds. For many, the fear of technology has discouraged many from diving into this sector of investing, but as time moves forward quantitative trading will become mainstream. Inside the Black Box will help you to not get left behind.
Some of the things in this book, you’ll learn; that “quants” use computer science and mathematics that implements ideas on investment; computer technology is powerful, yet, worthless without the instructions of people; investors must address and perform their due diligence on quant manager; studies show that high-frequency trading increases liquidity for markets, and even understand quantitative trading strategies essentially are “clear boxes” that just about anyone can understand.
Quotes from the book;
“These strategies are…systematic implementations of the kinds of things that human traders and investors have always done.”
“Quantitative trading strategies are…clear boxes that are far easier to understand in most respects than the caprice inherent to most human decision making.”
“Most of the argument against HFT strikes me as being arguments made by people who are either ignorant of the facts or motivated by self-interest to present biased and flawed information to the public.”
“There are already examples of hybrid quant-discretionary strategies, which utilize quant systems to screen for opportunities while allowing discretion to rule the rest of the process.”
2 – Trading Options at Expiration | By Jeff Augen
Traders use formulas and pricing models to discover the fair value of options to purchase stock and to sell the stock. But formulas do not always account for all the possible pricing dynamics that impact options towards the expiration date. In Trading Options at Expiration: Strategies and Models for Winning the Endgame, author Jeff Augen discusses why the price of an expiring option separates itself from fair value. This creates a pattern of contortion that allows for opportunities for the options market that are more rewarding and less risky. Augen book details strategies for the options trading for the third Thursday and Friday of every month, before the options expire on that Saturday. Augen examines why traders need to be aware of collateral funding needs, minimum of investments, and regulatory requirements. Augen writes in a way that assumes that the reader obtains a substantial background in this subject area, demonstrating that professional traders may gain the biggest impact of this book.
This book includes information on; the time remaining to sell an option; the time decay of an expiring option; buying and selling options; how investors structure trades in the options market; and how purchasing and selling options take minute-by-minute attention.
Quotes from the book;
“Exploiting expiration-related price distortions is an excellent way to generate profit without suffering the risks associated with constant exposure to the equity markets.”
“End of cycle price distortions represent a market inefficiency that cannot easily be exploited by large institutions for reasons related to liquidity and executive efficiency. The trading strategies…in this book scale to hundreds, but not thousands, of contracts.”
“Time decay is the overriding dynamic that characterizes the final days before expiration.”
“For options traders, the days preceding expiration represent the very best opportunity.”
3 – Way of the Turtle | By Curtis Fait
In the Way of the Turtle: The Secret Methods that Turned Ordinary People into Legendary Traders is recommended for investors that seek to gain an advantage and for those who want to watch the experts beat the odds in stock trading. Author Curtis Faith discusses a trading-room memoir whom experts recruited back in the 1980s, to fulfill a bet, to train investors to become traders. According to Faith, the training worked! Faith’s memoir tells us that there is no secret and that successful investors examine the market to find the edge, then become disciplined to pursue that edge, even when their heart and stomach want to overrule their brain. Faith assures that there is no secret formula, but time-tested wisdom that needs to be applied. Faith’s tone is interesting because it allows you to gain insight into someone who has made $30 million as a stock trader.
Some of the concepts in this book include; the Turtles were recruited in the 1980s to settle a bet between two top traders, William Eckhardt, and Richard Dennis; Eckhardt believed trading skills were innate and Dennis believed anyone can learn; Dennis taught precise rules in his training; that rules include, finding an edge, control risk, be consistent, and cherish simplicity.
Quotes from the book;
“Human emotion is both the source of opportunity in trading and the greatest challenge. Master it and you will succeed. Ignore it at your peril.”
“Good traders don’t try to predict what the market will do; instead they look at the indications of what the market is doing.”
“Trading is not a sprint; it’s boxing. The market will beat you up, screw with your head and do anything it can to defeat you.”
“Turtles do not care about being right. They care about making money. Turtles do not pretend to be able to predict the future.”
4 – The Psychology of Trading | By Brett Steenbarger
Psychologist, trader, and author Brett Steenbarger discusses the emotional and cognitive risks that impact many traders. In The Psychology of Trading: Tools and Techniques for Minding the Markets, Steenbarger, focuses on explaining to traders to observe their psychological patterns and emotions and to correlate their patterns with their trading failures and success. Once their emotions and patterns are identified, then to take the necessary actions. This book is a book for any stock trader that takes their trading seriously and explores the stock trading from psychological research that allows the trader to connect their habits and break bad habits.
Some of the concepts you’ll learn from this book include; that the most successful stock traders are conscientious and steady; stock traders depend mostly on tacit than knowledge; stock traders must learn to be their own coaches and therapists; learn to keep a stock trading journal and review it frequently; learn how the best trades come with the stock trader is thinking about the market and the worst trades develop when the stock trader is thinking about how the trade will do.
Quotes from the book;
“Identify your greatest fears and face them as directly as possible, so that you can find out they are not as powerful as they seemed.”
“If you create the desired state and enter it with sufficient frequency, always in the same manner, it will crystallize and become part of you.”
“Any techniques that you use in trading – whether for money management, self-control or pattern recognition – require frequent repetition before they will become an ongoing part of your repertoire.”
“One of the problems I continually find with traders is that the frame of mind in which they analyze markets is different from the one in which they are actually making trading decisions.”
5 – Lesson from the Greatest Stock Traders of All Time | By John Boi
Can average people make money in the stock market? In the Lesson from the Greatest Stock Traders of All Time: Proven Strategies Active Traders Can Use Today to Beat the Markets, author John Boik profiles five famous stock traders who would answer the question without any doubt as a “Yes.” Boik discusses that beating the market requires much more than analyzing a formula, and the stories that these traders live make it perfectly clear. That, to win the game of trading stocks, a stock trader must learn by experience and spend hours and hours of studying. This book does explain the formulas and strategies, but many of them require the experience and judgment calls that can only be made by the daily patterns of the market. The book of these famous traders expands over a century, their personalities, characteristics, and strategies are uniquely similar. Boik suggests that these similarities may need to be born with this high-risk tolerance, however, nothing beats a strong work ethic and a never give up mentality.
Some concepts in this book include; people who play the game to get rich quick are in for a rude awakening; stock trading can’t be done on a part-time basis, it requires full-time commitment; Gerald Loeb, rode out the crash of 1929; Nicolas Darvas spend eight hours per day studying to make $2 million from his own research; William O’Neal founded Investor’s Business Daily.
Quotes from the book;
“Stock trading attracts many people because it’s easy to try…but as the majority learn, most the hard way, it’s not as easy as it seems.”
“O’Neil views the best investors as decisive individuals without huge egos. To be successful in the market rarely has to do with intelligence. Humility and common sense provide the necessary balance.”
“For Livermore, the stock market was the greatest, most complex challenge in the world…Livermore believed that stock speculation was more an art form than pure scientific reason.”
“It simply is not worth it to get angry with the market. Instead, these traders learned that the key to reducing losses and getting on the road to profits is to constantly analyze the trades one makes, and then learn from the mistakes.”
6 – Trend Following | By Michael Covel
In the book Trend Following: How Great Traders Make Millions in Up or Down Markets, the author Michael Covel interviews great traders and attempts to paint a picture of the essence of each stock trader’s strategy to trading. Covel does a great job demonstrating the principles of trend following. However, Covel doesn’t present much of anything new who is accustom to trading stock literature, but his quotations from other authors is a gem in itself. Perhaps, the reader may want to purchase this book only for the quotations.
Covel explores concepts in this book that includes; trend following is the strategy that is most successful; trend followers do not capture the end or the beginning of a trend but the middle; trend followers follow their models and systems; prices can only do one of three things, go up, go down, and remain the same; and even trend followers are very diverse, ranging from Boston Red Sox owner John W. Henry to Zen-like Ed Seykota.
Quotes from the book;
“Some experience losses and then wait for gains, which they hope will come soon..But sometimes they don’t come soon and sometimes they don’t come at all. And the traders perish.”
“Trend following is based on simple universal laws we can all learn.”
“The idea of searching for some secret of trading success misses the point.”
“The buy-and-hold dream as a retirement solution is toast.”
7 – Trading from Your Gut | By Curtis Faith
Here’s another gem by Curtis Faith. In Trading from Your Gut: How to Use Right Brain Instinct & Left Brain Smarts to Become a Master Trader, author Curtis Faith offers evidence about the power of intuitive thinking in trading. Further, using personal testimonies, Faith demonstrates that investment instincts arise from gut feelings from the right-brain thoughts. However, traders dismiss instinctive feelings from left-side brain thoughts. Faith explains that for a more balanced approach and to use rationality, use the left-brain test to the right-brain ideas.
A few concepts to explore in this book include; humans analyze facts with the left brains and use the right brain for possible creativity; smart investors bring a balance of the right-side brain and left-side brain; “master traders” equip themselves in such a way to block these cognitive biases; investors use intuition to become aware of price patterns.
Quotes from the book;
“The left brain is good at building and understanding models for how the world of trading works and the right brain is good at generating ideas and recognizing opportunities.”
“Trading styles generally fall on a continuum between the purely intuitive discretionary trader and the purely rule-oriented system trader.”
“Whole-brain trading involves both hemispheres and is a balancing act between the brain’s two primary types of cognitive function: logical reasoning, and intuitive feelings and impressions.”
“So if you find yourself relying on your logic and analysis in your trading, I encourage you to consider the possibility that you are selling yourself short.”
8 – Profiting from Clean Energy | By Richard Asplund
Profiting from Clean Energy: A Complete Guide to Trading Green in Solar, Wind, Ethanol, Fuel Cell, Carbon Credit Industries, and More is a book whose time has come. The push and help of former President Barack Obama’s administration who encouraged communities worldwide to seek out and develop renewable resources had sparked a revolution within an industry that has become one of the hottest topics in today’s market. Author Richard Asplund teaches a scholarly guide to investors on the facts that drive these clean energy businesses and helps you identify the resources and major companies associated with it.
Some of the concepts in this book will include; how the clean energy industry may see double-digit growth over the next few decades; U.S. wind power is growing faster than any other utility energy source in the market; companies who are successful focus on the use of technology; the technology burst is accelerating society’s clean energy; the world’s largest coal reserve is held in the U.S. and should be prioritized to develop clean coal technologies.
Quotes from the book;
“While the oceans of the world contain a huge amount of energy, systems to harness the energy and convert it into power are still in the early stages of development.”
“There are presently 800 million vehicles on the world’s roads, with more than 200 million of those vehicles operating in the United States.”
“Pressure on Washington to implement a stronger push for clean energy is coming not only from the public, but also from the state and city levels, and even from big business.”
“Products and services succeed in the marketplace if they can solve buyers’ problems.”
9 – Tom Dorsey’s Trading Tips
This is a solid book and recommended for any serious investor trading stocks. Tom Dorsey’s Trading Tips: A Playbook for Stock Market Success is detailed, mind-boggling, and full of wisdom, and full of charts that can be used and bring value to the investor. Tom Dorsey likens the investment advice to a sports playbook that a coach may use to guide the twists and turns in a game. These strategies, methods, and plays will guide every beginning investor and challenge veteran investors. Dorsey urges the investor to learn the basics of trading stocks, understand your psychology and emotional behavior, and avoid the common trading stock mistakes.
In this book you will learn; that your emotions influence trading stock decisions; in order to make profits, you must understand market psychology; learn research methodologies, figures, and charts; learn the common mistakes made by investors and avoid them; short-term trading is different than other investments and has its own rules; learn fundamental and technical analysis.
Quotes from the book
“When to seel is probably the hardest part of investing.”
“The one thing all winners of a Nascar race will tell you is that they drove a straighter line than anybody else. Investing is the same way. Try to make as few lane changes as possible.”
“Volatility is the price you pay for higher returns.”
“Remember that the person who is wildly promoting or recommending a particular stock more than likely already owns it.”
10 – Behavioral Trading | By Woody Dorsey
Author Woody Dorsey brings many interesting concepts together in Behavioral Trading: Methods for Measuring Investor Confidence, Expectations, and Market Trends. Dorsey is the theorist behind market semiotics and is a long-time market commentator. This book focuses on people’s motivation and how they trade. He explores concepts like how he analysis a newspaper, which is should be memorized and put to use by any investor, and he discusses the explanation of the Triunity Theory. The key to this book is how and why people behave and how it impacts the market and your money.
Here are a few take-aways from this book; investors who trade based on behavior finance will find charted trends helpful; body, mood, and mind work together; behavior and psychological factors influence the market greatly; people do not behave rationally when they invest; published information is disinformation.
Quotes from the book;
“Cognitive science concurs with what the ancient thinkers have told us.”
“History, from Plato to the Pope, shows that spin pervades all culture.”
“At the price bottom, there is a sentiment impulse followed by a steeply rising sentiment slope.”
“The stock market is illogical.”
11 – Trading to Win | By Ari Kiev
Trading to Win: The Psychology of Mastering the Markets is recommended to stock traders and to those who are considering trading stock. In this 1998 classic, Ari Kiev correlates yoga, Zen Buddhism, and single-minded discipline to trading stock from a psychiatric perspective. Kiev offers practical, solid, and insightful advice on these concepts. Written from a simple reading style, short and precise. Kiev uses checklists and profiles of traders. Discussing topics that are in finance and creates an emotional dialogue of ideas.
Things you can expect to learn in Trading to Win includes; learning to never fight the market; learn to think positively and visualize positive images; understand that money is just a way to keep score; the key characteristics of great traders is concentration, and even learn to develop your own trading style, and keep an open-minded to others success.
Quotes from the book;
“At the heart of both playing tennis and trading on a world-class level is concentration – the ability to stand back from your emotional responses and to focus only on what is before you.”
“The best traders have certain characteristics, measurable trading patterns. The largest percentage of their profitability comes from a small percentage of their trades.”
“Most successful traders…pay close attention to going past their psychological stopping points…Rather than retreating from uncertainty, they view a loss as an opportunity.”
“Read the market tape, and follow it rather than your ego, needs, life principles, and notions about what you deserve or don’t deserve.”
12 – Trading in the Zone | By Mark Douglas
Author of Trading in the Zone: Master the Market with Confidence, Discipline, and a Winning Attitude compares a successful stock trader to a world-class athlete. Both have the reflexes, will, instinct, and skills. Both have reached a level of performance where winning becomes natural and automatic. They are in the zone. To obtain this high level, stock traders must have self-discipline unlike anything other. By consistently and maintaining a strict trading system, Douglas advocates that anyone can learn to make money from trading stock. The fundamental principle of this book is that traders are made, developed, and created. Not born!
A few concepts and principles in this book include; skills of trading can be taught and learned; learn how successful traders embrace the swings of the market; the great traders are not afraid; learn to take responsibility is the core of a trait for a trader; learn how traders have faith in trends, and even learn how the market is neither good nor bad.
Quotes from the book;
“Even though you cannot will yourself into a zone, you can set up the kind of mental conditions that are most conducive to experiencing the zone, by developing a positive winning attitude.”
“You cannot expect the collective actions of everyone participating in the market to make the market act in a way that gives you what you want. You have to learn for yourself how to get what you want out of the markets.”
“If you have ever found yourself blaming the market or feeling betrayed by it, then you have not given enough consideration to the implications of what it means to play a zero-sum game.”
“To even start this process, you have to want consistency so much that you would be willing to give up all the other reasons, motivations or agendas you have for trading that aren’t consistent with the process of integrating the beliefs that create consistency.”
13 – The 21 Irrefutable Truths of Trading | By John Hayden
John Hayden is a veteran trader who traded gold, U.S. Treasuries, and stocks since 1976. He tells it like it is, in that, there is no quick way to short the system of success. In The 21 Irrefutable Truths of Trading, Hayden demonstrates that trading offers great rewards and can lure in many beginner investors. The first part of this book concentrates on the mental aspect of investing, the attitude of the mind, and self-improvement that is needed to become successful. The second part concentrates on the technical side of trading, which caters to the intermediate or advanced trader.
Some of the concepts you’ll learn in this book include; beginners in trade will lose 65% to 95% of their initial investments; there is no such thing as a computer model that leads to great success; learn to control fear, doubt, and anger; risk-control strategies are essential; traders need a belief mindset of empowerment, not negativity; and even learn how to tone down the ego.
Quotes from the book;
“There is no newsletter, fax, or e-mail service that will make you millions. There is no computer program that will open secret doors. Forget about the overnight e-mail advisory line or the Internet chat room. Neither will make you rich.”
“Money management or risk control strategies are the most critical requirement for a successful trader. Without exception, every outstanding trader will tell you that it is the most important factor that determines your success.”
“The reason professional traders are able to interpret information so they can profit and the novice remains totally ignorant is that professional traders have mastered their beliefs and virtues. In addition, professional traders have mastered their ability to think.”
“Without mastery of your ego and your beliefs, you are building your trading success on sand.”
14 – The Five Rules for Successful Stock Investing | Pat Dorsey and Joe Mansueto
The Five Rules for Successful Stock Investing: Morningstar’s Guide to Building Wealth and Winning in the Market is a practical guide on the best investing principles. The author’s straightforwardness presents the solid wisdom of the markets. This book is well organized and clearly examines an industry-by-industry perspective. The title of the book is simply a
marketing tool and does the content a disservice. The content in the book is about stock investing. This book is highly recommended to any novice or any investor that wants an impactful and helpful read.
Furthermore, in this book you’ll learn concepts that include; that investing is a business; investing in the long-haul; that nothing really changes in the market; don’t just learn about the business or companies of those stocks, become an expert in the industry of those businesses; and even great and successful investing takes self-discipline, study, and preparation.
Final Thoughts on the Best Books on Trading Stocks
The best book on trading stocks is a list that is compiled based on the author’s opinion. The list is compiled based on research, thought, study, and experience on the subject matter. However, the author recommends that any well-rounded list on a topic must be conducted with due diligence and thorough study. Therefore, the best books on trading stocks are most useful when the reader studies, takes action, and implements a winning strategy.