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Recommended Books for Traders

As Jesse Livermore said: “Trading is not a game for the stupid, the mentally lazy, the person of inferior emotional balance, or for the get-rich-quick adventurer.” In other words, to excel in the stock market, you have to work hard, have emotional control, and develop confidence in your strategy. I constantly get asked to recommend books that can help with these areas of trading. There are so many good ones out there, but here are a few that I suggest.
(If you click on the titles, you can get a more detailed description from Amazon.com).
How to Make Money in Stocks (4th Edition), William O’Neil
How to Trade in Stocks, Jesse Livermore
Reminiscences of a Stock Operator, Edwin Lefevre
The Disciplined Trader, Mark Douglas
Trading in the Zone, Mark Douglas
Trader Vic-Methods of a Wall Street Master, Victor Sperandeo
Trader Vic II-Principles of Professional Speculation, Victor Sperandeo
How I Made $2,000,000 in the Stock Market, Nicolas Darvas
The Battle for Investment Survival, Gerald Loeb
Confessions of a Street Addict, James Cramer
There are 3 Market Wizards books all written by Jack Schwager:
Market Wizards
The New Market Wizards
Stock Market Wizards
Confidence and emotional control are extremely important in order to become a successful trader. I believe the ideas taught in the following “self-help” books can help develop that “mental toughness” that’s needed. The concepts learned can also be applied to many areas of our lives:
Think and Grow Rich, Napoleon Hill
You’ll See It When You Believe It, Dr. Wayne Dyer
The Power of Positive Thinking, Norman Vincent Peale
The Magic of Thinking Big, David Schwartz
Awaken the Giant Within, Anthony Robbins

Trading Thoughts

To truly become a proactive trader, you need to believe that your trade WILL go the direction you thought. This shows that you have belief in your system that finds your trade setups in the first place. If you put your trade on and the first thing you do is mark your stop or think “I hope this goes well”, then you are bound to fail as a trader. Successful traders do not hope. They do the research and use their system to find good candidates and enter the trades. It is at that point that they manage risk. They know exactly how much they have at risk and are perfectly fine if they lose that much. Why? Because it is baked into their system, and every trade does not go the way they thought. You need to be the same way in your trading.

You need to have the courage to fail, step off the curb, and enter the trade. Expect that the trade will go your way and use the power of positive thinking. Set your target, entry and your stop and then you know, at any point during the life of the trade, where you stand. If your target gets hit and you see the stock continue to go the same direction, you can’t get mad. You simply put the positive trade aside and evaluate it in a couple weeks to figure out why it continued to go beyond your target. It is at that point that perhaps you make an adjustment to your system. Perhaps you find out that it was a news item that caused the surge and then you know that it was atypical, rather than the norm, and no adjustment is needed.

In going through this thought process, you prepare yourself emotionally and as a result remove the chance of trading on emotion once in the trade. As an example, you need to be fully prepared to lose the amount invested in a single trade if your stop is triggered. If you aren’t fully prepared to take that risk, then you need to adjust the size of your trade or move on to another trade. If you prepare and emotionally accept the fact that you could be wrong, your trading becomes more mechanical and less emotional. Take some time to role-play the different scenarios and see what your reactions would be.

Trading Thoughts

To truly become a proactive trader, you need to believe that your trade WILL go the direction you thought. This shows that you have belief in your system that finds your trade setups in the first place. If you put your trade on and the first thing you do is mark your stop or think “I hope this goes well”, then you are bound to fail as a trader. Successful traders do not hope. They do the research and use their system to find good candidates and enter the trades. It is at that point that they manage risk. They know exactly how much they have at risk and are perfectly fine if they lose that much. Why? Because it is baked into their system, and every trade does not go the way they thought.

You need to be the same way in your trading.You need to have the courage to fail, step off the curb, and enter the trade. Expect that the trade will go your way and use the power of positive thinking. Set your target, entry and your stop and then you know, at any point during the life of the trade, where you stand. If your target gets hit and you see the stock continue to go the same direction, you can’t get mad. You simply put the positive trade aside and evaluate it in a couple weeks to figure out why it continued to go beyond your target. It is at that point that perhaps you make an adjustment to your system. Perhaps you find out that it was a news item that caused the surge and then you know that it was atypical, rather than the norm, and no adjustment is needed.

In going through this thought process, you prepare yourself emotionally and as a result remove the chance of trading on emotion once in the trade. As an example, you need to be fully prepared to lose the amount invested in a single trade if your stop is triggered. If you aren’t fully prepared to take that risk, then you need to adjust the size of your trade or move on to another trade. If you prepare and emotionally accept the fact that you could be wrong, your trading becomes more mechanical and less emotional. Take some time to role-play the different scenarios and see what your reactions would be.

8 Trading Tips

1. Know that you can’t control the markets: but you can be well-prepared.

2. Set aside time to prepare: Block out an hour before the markets open through the first hour of trading to make final plans for the day and focus only on your markets.

3. Generate a Trading Plan: Create a Trading Plan and stick to it! Having a plan in place can ease your mind, give you direction and help focus your efforts for profitability. It allows you to control how you will use your trading time.

4. Take a deep breath: You know you can’t control the markets so take a deep breath knowing what you can control – your trading decisions – and don’t let emotion or anxiety get in the way. You can also take a few moments to clear your mind with relaxation and meditation exercises.

5. Turn off all potential distractions: Avoid all potential distractions. When your day starts, make sure you don’t begin it with a potentially distracting activity like Twittering and checking email. Start with a focus on the markets and on how you will perform today. You will feel good about yourself for being well-prepared.

6. Stay positive! There is plenty of research proving the power of positive thinking and general thought on one’s life. Creating a positive approach right from the start of the trading day will have a positive influence on your trading during the rest of the day.

7. Separate emotion, anxiety and the facts: The one reason people feel like trading failures is because they allow their emotions and anxiety to control their actions rather than sticking to the facts of charts and information.

8. Admit that you will win some and lose some: Not everyone can win every time in the markets, but allowing yourself to accept that you will win some and lose some will help you brush off any emotions and anxiety that you feel so you can focus back on winning.