(CC Image by Samantha Marx on Flickr)
In today’s world, opening up a book may seem like an old-fashioned way to learn. However, despite the popularity of virtual webinars and other online learning tools (like our free trading podcast, live stream, and YouTube channel), books remain a critical resource for professional traders and investors. You’d be hard-pressed to find one pro that couldn’t name at least a couple books they read that taught him or her fundamental skills or inspired a new strategy.
For me, books were the first place I turned when I started my investing journey over a decade ago. Over the years, my collection has expanded through regular purchases as well as inheriting a collection of classic trading books from my uncle.
In the spirit of the holiday shopping season, I’d like to share my list of the ten most essential books for anyone who wants to become a better trader or investor. Every book on this list is one I personally endorse because it influenced my growth and development as a trader.
These are foundational books that will give you a strong base of knowledge that you’ll be able to apply right away, without overwhelming you with technical mumbo-jumbo. Many of these books have a practical focus with plenty of examples to illustrate the concepts shown. That said, I couldn’t resist including one textbook (Derivatives Markets) on the list so those who are mathematically inclined like myself will have something to sink their teeth into.
Without further ado…
Technical Analysis Explained, Fifth Edition: The Successful Investor’s Guide to Spotting Investment Trends and Turning Points, by Martin J. Pring
Pring introduces all the commonly-used technical analysis concepts and indicators in this book. It’s a great reference book to have on hand and a solid introduction to technical analysis.
The Layman’s Guide to Trading Stocks, by Dave Landry
This accessible and slightly irreverent book is a fun place to start for the beginning trader. Landry covers several basic yet fundamentally important trading strategies here, along with good coverage of the mental aspects of trading.
Intermarket Analysis: Profiting from Global Market Relationships, by John J. Murphy
John Murphy has written several books on intermarket analysis, all of which are classics that continue to stand the test of time. Murphy’s excellent analysis of the connections between global stock, bond, currency, and commodity markets had a tremendous influence on the technical strategies I’ve developed.
Tragedy & Hope, by Carroll Quigley
What, a history book? Yes – a 1300+ page history book, no less. And I honestly believe it may the most valuable book on this list for investors. Quigley’s magnum opus, first published in 1966, is an unparalleled study of 20th century history. Social and political trends have been a major influence on the financial markets since markets were invented, and they always will be. Reading this book will help you ensure your investments are aligned with these trends. The book is freely available in PDF form here, although you’ll be missing out on the pride you’d have if this beast was on your bookshelf for all to admire.
Derivatives Markets, by Robert L. McDonald
This comprehensive textbook teaches important theoretical concepts related to the pricing of futures, forwards, swaps, and options. This textbook is part of the syllabus for the Society of Actuaries’ MFE Exam. When I took the actuarial exams I learned from a similar book, Financial Economics by Harry H. Panjer. The Panjer text, published in 1998, is out of print but used copies are still available.
The Volatility Edge in Options Trading: New Technical Strategies for Investing in Unstable Markets, by Jeff Augen
Every trader must understand the concept of volatility, because trading is all about managing risk. Augen does a great job of explaining volatility in this book in a way that is understandable for newer investors. He also introduces strategies to take advantage of mean reversion and other concepts related to volatility.
Harmonic Trading, Volume One: Profiting from the Natural Order of the Financial Markets, by Scott M. Carney
Carney introduces several harmonic patterns which are composed of four price waves each, with all the waves related to each other by Fibonacci ratios. These patterns don’t appear tremendously often, but they are reliable when they occur. You’ll want to have harmonic pattern analysis as part of your technical toolbox.
High Probability Trading Strategies: Entry to Exit Tactics for the Forex, Futures, and Stock Markets, by Robert Miner
Miner provides a thorough yet accessible framework for successfully trading all markets and all timeframes. One of the biggest mistakes I see traders making is having too narrow of a focus. Miner covers all the bases with his four-part framework consisting of price, pattern, momentum and time. His writing style can be a little abrasive at times, but it’s clear he knows what he is talking about.
Forecasting Financial Markets: Technical Analysis and the Dynamics of Price, by Tony Plummer
This little-known gem is now out of print, but used copies can still be found. Plummer’s writing style can be hard to decipher, hence the mixed reviews, but patience is rewarded here. I have read it several times and unlocked new secrets each time through. Fibonacci ratios are at the core of Plummer’s ideas. The 2010 book, linked above, shares the emphasis on theory over practice. It’s not the place to start for a new trader, but it contains quality insights I’ve yet to find anywhere else.
The Education of a Speculator, by Vic Niederhoffer
This is the most enjoyable book I’ve read about trading, hands-down. Vic experienced more than his share of ups and downs in the markets, and his writing provides a lot of insight into how he managed through those experiences. You won’t get charts or trading strategies in this one, just an entertaining glimpse into how the trader’s mind works.
I’ve tried to include a mix of easy and challenging books here, with a variety of subject matter, so traders of all experience levels will find something to enjoy. Now get started!