Investment Tips 04-05-2023 05:22 55 Views

Empowering Your Trading Journey: Handpicked Trading Books Every Trader Should Read

As a closing gesture to the end of April, which, as you know, was Financial Literacy Month, we're featuring a few trading books handpicked by some of the most respected traders and technical analysts in the field. These books had a strong impact on the people recommending them, and, hopefully, you'll find them just as relevant and impactful.

What Makes a "Great" Trading Book?

As you know, the world of financial trading is vast, and there's an overabundance of books to guide you. But not all of them are worth your time. This is not so much a reflection of "quality" as it is a number of other important things.

Remember, a remarkable trading book does more than just impart knowledge...

  • It has to "click" with the reader on a deep and personal level, aligning with his/her tendencies, way of thinking, and style of doing. It should fit well with the reader's trading approach, analytical inclinations, financial goals, and risk tolerance. With that said, how a book "resonates" will vary from trader to trader.
  • It's got to bring something fresh to the table, whether it's a new idea or a new spin on an old idea. An exceptional trading book can give its readers a distinctive advantage by teaching them to see the markets from a different angle.
  • It has to be "actionable." It's all well and good to learn about theories and concepts, but if you can't apply them in real life, what's the point? The best trading books are the ones that not only teach you new things, but also show you how to put them into practice, helping you become a better trader in the process.
  • And finally, the ideas have to be customizable. Economic environments change, and, with them, markets and trading environments. Inflexible ideas can break. But those flexible enough to be enhanced and transformed can make your skills agile and adaptable (the qualities you need to thrive in a trading environment).

So, are you ready to dive in? Let's hear what the experts have to say.

Linda Bradford Raschke, LBR Group

Profits in Volume, Richard W. Arms, 1971

This is a classic trading book that emphasizes the importance of volume analysis in stock trading. Arms introduces Equivolume charting, which combines price and volume data, helping traders identify significant market trends and make more informed decisions.

What makes it unique and how has it impacted your trading?

"This was the first book on technical analysis I read. I checked it out of the San Francisco business library when I first started as a trader on the Pacific Coast stock exchange. I practiced charting with equivolume bars, but that only lasted six months. However, the content of this book beyond the description of equivolume bars is pure gold: Chart formations, how price reacts around support and resistance levels, cause and effect, and trading techniques. If a trader can become a good chartist through study, there is little more that is needed."

The Taylor Trading Technique, George Douglass Taylor, 1950

Taylor's classic book on trading introduces a market timing method based on the repeating patterns and cycles in the stock market. Taylor's systematic approach includes principles like the "Three-Day Cycle" and "Buy/Sell Day" concepts, enabling traders to better anticipate market moves and optimize their strategies.

What makes it unique and how has it impacted your trading?

"I came across a copy of this book when I was the librarian for the MTA (now CMT) around 1991. Since then, I have bought at least  10 copies because I keep marking them with yellow highlighters. The book is not about technical analysis, but taking one day at a  time, and each day is a different type of trading day. Much of it is about tape reading, but I feel that it really captured the essence of professional trading. Selling into strength, covering below previous lows, understanding the power of the trend for the day. It's a very stress-free way of trading—not worrying about where the market will be in a week. On the other hand, it is also more work—preparing for each market the night before. I also discovered the power of the two-period rate of change from George Angell's blurb in the back. George provided some concrete tools, even though they could not be made into a mechanical system. I still consider Taylor's advice in the chapter in Pertinent Points to be my greatest guide."

Jesse Felder, Founder & Editor of The Felder Report

Market Wizards, Jack D. Schwager, 1989

Almost everyone who started trading in the 90s had some exposure to this book as an inspirational catalyst. Market Wizards is a renowned book featuring interviews with top traders, revealing their insights, strategies, and experiences. The book hints at the secrets behind their success, providing valuable lessons and inspiration for traders at all levels.

What makes it unique, and how has it impacted your trading?

"Market Wizards' value comes from the fact that it highlights what makes legendary traders of various backgrounds and strategies so successful. The factors that make each of them unique and also those they all have in common make for very important insights into understanding successful trading techniques and mindsets.

"Market Wizards allowed me to understand and incorporate the strategies and tactics that most suited me into my approach to markets, a process every trader needs to undertake continuously in order to grow and adapt."

Technical Analysis of Stock Trends, Edwards and Magee, 1948

Perhaps the seminal work on technical analysis, which lays the foundation for understanding price patterns, trends, and various charting techniques to make informed trading decisions. An oldie but a goody; this is where it all began, at least in the US.

What makes it unique and how has it impacted your trading?

"Technical Analysis of Stock Trends is an almanac of the most common price patterns in markets that appear over and over again. If understanding history is foundational to success in any arena (and I strongly believe it is) then familiarizing yourself with historical price patterns, in other words becoming a competent technician, is key to achieving success in markets.

"Technical Analysis of Stock Trends is something I refer to regularly to try to understand how the current market environment may be communicating a message similar to those it has communicated in the past. History rhymes even if it doesn't exactly repeat and trying to understand how it is rhyming with periods from the past is a key part of the trading process."

Mark Newton CMT, Fundstrat Global Advisors, LLC

Master Stock Market Course, W.D. Gann, 2009

This book by W.D. Gann is a comprehensive guide encompassing Gann's unique trading methods and technical analysis tools. The book covers various aspects of market analysis, forecasting, and investment strategies, introducing readers to Gann's innovative techniques such as Gann Angles, the Square of Nine, and the Master Time Factor. Although some of Gann's methods are considered controversial, this course remains a valuable resource for traders seeking to understand and apply his groundbreaking approaches to predicting market trends and price movements.

What makes Gann's book particularly unique? 

Gann's techniques are groundbreaking and unconventional. Many were developed using a combination of geometry, astrology, and ancient mathematics, setting them apart from other conventional approaches to trading. His emphasis on the significance of time and price relationships in forecasting market movements is also a distinguishing feature of his work. Despite the (arguably) eccentric nature of some of Gann's methods, many traders have found value in studying and applying his techniques to enhance their own trading strategies.

Wheels Within Wheels, Daniel Ferrera, 1981

Wheels Within Wheels: The Art of Forecasting Financial Market Cycles by Daniel T. Ferrera is an extensive study of market cycles and forecasting techniques, integrating various market cycle theories such as the Kondratiev Wave, Elliott Wave, and Market Timing Report Cycles. The book combines these theories with a range of forecasting methods, including planetary cycles, technical analysis, and pattern recognition, providing traders with a comprehensive understanding of market cycles and the necessary tools to develop their own forecasting models.

What makes Wheels Within Wheels particularly unique is its amalgamation of W.D. Gann's techniques with other market cycle theories and forecasting methods. By building on Gann's foundation while incorporating a diverse array of market analysis tools, Ferrera's work offers a holistic approach to understanding and predicting financial market trends, making it an invaluable resource for traders seeking to refine their market analysis techniques and forecasting capabilities.

Jeffrey A. Hirsch, Editor of Stock Trader's Almanac

The Stock Traders' Almanac 2023 (Almanac Investor Series) 56th Edition, Jeffrey A. Hirsch

These almanacs serve as invaluable resources for traders, providing historical market data, patterns, trends, seasonalities, and insightful market analysis. The almanacs compile a wealth of information on a yearly basis, including economic indicators, election cycles, and other significant events, all of which can impact the financial markets. Furthermore, they highlight recurring market tendencies and strategies, such as the "January Effect" and "Sell in May and Go Away," helping traders make more informed decisions.

What makes the Stock Trader's Almanac series unique is its comprehensive and data-driven approach to market analysis, with each edition offering an updated and exhaustive compilation of historical market data and insights. This makes the series a one-of-a-kind resource for traders looking to capitalize on seasonal trends, cyclical patterns, and other market influences to improve their trading strategies and decision-making.

In Jeffrey A Hirsch's own words: 

"Without question, the most influential trading book for me is the iconic Stock Trader's Almanac. Created by my father, Yale Hirsch in 1967, the year after I was born. I literally grew up on this book and was born, bred, weaned, and raised on all the cycles, trends, seasonal patterns, and groundbreaking discoveries he made and published in the book year in and year out. I took over in 2001, but I grew up running the calculations by hand.

"Yale Hirsch invented and named the "January Barometer" and the "Santa Claus Rally" in 1972, published in the 1973 Stock Trader's Almanac. Yale also discovered and published the "The Best Six Months Strategy" (commonly known as "Sell in May and Go Away") in 1986, published in the 1987 Stock Trader's Almanac.

Stock Trader's Almanac has been on the desks of top money managers for seven decades. And the 57th annual edition is currently being prepared.

Yale identified and popularized a plethora of patterns, trading strategies, and other seasonal behaviors of the financial markets, such as the four-year Presidential Election Cycle, the best and worst trading days of the month, as well as a plethora of intraday, daily, weekly, monthly, holiday, quarterly, annual, and multi-year patterns like the Super Boom Cycle.

It is this book, and this book alone, that taught me how to analyze and trade the market. I proudly stand on his broad analytical shoulders every day, providing my clients, subscribers, and the world with analysis, insight, and market outlooks based on this iconic book and methodology."

The Bottom Line

As we close the April curtain and bid farewell to Financial Literacy Month, we present you with a carefully curated list of influential trading books recommended by respected traders and technical analysts. 

These books offer unique perspectives, techniques, and insights to enhance your understanding of financial markets and improve your trading strategies. From classic works on technical analysis and volume to innovative approaches to market cycles and forecasting, these books can resonate with traders on a personal level and provide actionable knowledge that can be customized to suit individual trading styles and goals. 

With this diverse selection of resources, you can empower your trading journey and broaden your financial literacy. Happy reading and, most importantly, happy trading!

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