Reading List

  • The Market Wizards series by Jack Schwager. There’s 4 or 5 books which are interviews with Traders in different markets who all have different approaches but have found a way to make their approach work. These are really fascinating because of the different approaches and opposing viewpoints but they have winning in common.
  • Reminisces of a stock operator. This is unofficially a biography of a famous speculator from the 1920’s and 1930’s in cotton futures and stocks in general. This book has so many fantastic general trading lessons contained in the story that I have read it 7 or 8 times. He talks about his experiences and reactions in pyramiding into trades, timing the market, taking tips and scalping vs trading the big swings in the economic cycle.
  • What I learnt losing a million dollars. This book was mostly about the guy realising that he could not predict which way the market was going and that his success was due to outside factors so he decided to stop trading.
  • The Volatility Edge in Options Trading. This book was about the practical process and life-cycle management of an option, using lots of examples to illustrate every point and I found it very useful framework for thinking about options trades.
  • Japanese candlestick charting techniques with Steve Nison. This book is one of the most comprehensive manuals for understanding candlestick charting which is an alternative to traditional bar charts.
  • Edward’s and Magee the 7th edition guide to Technical analysis. This is the Bible of technical analysis of bar charts, in terms of formations and rules around charting. If you’re going to draw a line on a page, these guys discuss all the different shapes and what they supposedly imply.
  • Benjamin Graham security analysis. This book is for fundamental stock analysts and the underlying message is buy good quality stocks when they are relatively cheap. It describes how to define what a good quality stock is and things to be aware of which could potentially lead to trouble down the track. This was the main guide Warren Buffett used in his value investing career. I am not a value investor based on this type of analysis, so I would only suggest reading it if you are so inclined. I think value investing is a great approach for people who are generally speaking time-poor because there are many filters available on almost all the online broking platforms to be able to sort all stocks by various measures and ratios. The time frame for value investing is very long term so holding periods are typically from 1 to 10 years or more and it can be a great way to compound returns. The key is can you hold through a bear market and ride a bull market all the way to its conclusion? (as we have seen from 2001 to 2007 and again from 2012 through to 2017).
  • The Little Book of Value Investing. This was focused on some rules and ratios intended to identify companies that will outperform over time and again is based on fundamental analysis. Only recommended if you are so inclined. Again I am no accountant so company accounts make me nervous with their hidden explanations/number trickery!
  • Trade your way to financial freedom. This book focuses on providing a complete end to end framework for trading. It is very comprehensive and well worth your time. It is probably the best all-round starting point for a new trader. Everything from considering: What are your advantages, resources and impediments? Why are you trading? How are you going to trade? What are the rough categories of approaches? Statistics you should be considering. It is probably the most underrated book out there because the title sounds a bit lame. Prompts a lot of questions which could save you a LOT of money.
  • A couple of new things I took away from this book related to Psychology and Money Management. The psychology aspect which the author Van K Tharp has quite a few books on discusses why were you repeat mistakes even though we have the conscious recognition that we are contravening a rule or have conflicting feelings about taking an action. This is one of the most important parts of trading for discretionary traders and I refer to the impact in the section under my system. It also emphasises the treatment of trading as a business including preparing for the unexpected and techniques we can use to change our daily habits and thought processes for improved performance.
  • Investment biker & Hot commodities by Jim Rogers. I basically read these books after reading one of the market wizards interviews and it references to him about being a great investor. From what I can surmise he is good at it is recognising a fundamental change in a market environment or economy and then taking a long term position in that market until his view is resolved or he is proven wrong. His process and degree of inaccuracy in timing the market which he freely admits is terrible means he can’t really use much leverage but I think he has a great nose for recognising when markets have gone crazy or when they are ridiculously cheap and eventually the fundamental drivers will push the prices a long way up. Some examples of what he has been involved in or opportunities that appeal to him include investing in North Korea when the economy opens up because it will be starting from zero, another one was selling gold because he thought the market was overdone it subsequently went up another $200 but he was still short. Eventually the trade moved back in his favour and made him quite a bit of money. I would definitely recommend reading these books even just to have see things in a slightly different way. Another reason to read his books is because he was part of the famous Quantum fund along with George Soros and they have some of the best hedge fund returns of those published over a long period of time. My read of the situation is that Jim Rogers was the ideas guy who would spot unusual opportunities and Soros was the timing guy who could recognise when to execute some of Rogers’ strategies in addition to his own ideas.When genius failed by Roger Lowenstein. This is the story of long term capital management which highlights the issues of trying to apply a mostly exact science such as physics to a probabilistic science such as finance. It also speaks to one of the greatest risks for any discretionary trader which is hubris. It shows that regardless of how much brain power you have you still cannot predict the future and markets often go further than anyone expects so be careful betting against the market.
  • The Alchemy of Finance. This book by George Soros refers to the idea of reflexivity which although the guy is obviously brilliant at making money I could not quite get the application or the technique of how he applied it to financial markets so I didn’t really get a lot of use out of this book.
  • There’s a book by one of George soros best trader’s Victor Niederhoffer who is much more tactical in talking about managing positions and holding a view. He also talks a lot about his life and overlapping themes between different activities.Anti fragile by Nassim taleb. This book expands upon the authors previous theme in the book The Black Swan full stop before me book elaborates on a theme that we don’t know what we don’t know and by way of example in the title that nobody knew black swans existed until they came to Australia and saw them in Perth. The analogy to finance is you don’t know how bad or how good something could become and if you are using some sort of mean reversion strategy like the famous example of long term capital management then this method is fraught with danger and likely to unravel in the long-term. The example of long term capital management was exacerbated because of the leverage involved where as the market moved further and further away from it’s historical average and hey return all reversion to the mean seemed more and more likely then the hedge fund increase their bets on this reversion using mostly money offered to them by they’re banking connections. The main purpose of the Black Swan was to draw our attention to the risks of such a strategy and the surprising frequency with which unusual events occur the purpose of this next book is to suggest a strategy for living in that world which he paints as 3 different countries called extremist and mediocristan and I the normal one he basically uses these three countries to refer to different states of market volatility with the underlying point of the book being that if you live in a world that you think is described by the normal bell curve with a standard normal distribution and relatively predictable small tales of unusual events then you can make certain dance camp that should work but if you actually live in and trade in an environment where extreme events happen more often than the normal distribution predicts then you should bet in favour of those extreme events and avoid betting on smaller events which have a smaller pay off and do not compensate for the extreme risk. So a lot of people associate this with being long an option strategy because typically options benefit from volatility so baby addressing the fact that if you are long the outright then it’s probably wise to have some sort of Jeep explosion position which will benefit gif you’re out right position starts to move against you rapidly. Obviously there is a cost to doing this so your expected move in the outright will need to compensate you for the cost of buying this insurance. Either way the focal point of the book is extreme events have had more often than standard models predict so be aware that you’re products which are based off a distribution assumption such as options may not incorporate the true cost of the expected future payoff and so buying them May results in unexpectedly frequent Lodge playoffs and selling them it wasn’t expecting the front page losses.
  • My life as a quant Emanuel derman this book is mostly oriented around anecdotal stories of his experiences on the trading desks and time at the major investment banks as well as his passion for physics and his experiences in the academic world. It does not contain much about trading specifically probably more interesting if you are interested in becoming a quantitative analyst or would like more background on the connection between physics and finance although again there is not a lot of detail on the mechanics
  • Trend following by Michael covel. This book focuses on big techniques and rationale home trend following why it will be successful and different ideas for getting started. It also refers to the haps the most famous trend follower. This is Ed seykota who was interviewed in the first wizards book. This is definitely a book worth covering just in terms of having a good exposure to different philosophies or ideas in trying to make money I might get some. As with all other cities of trading if you look long enough or at the right example you can always find evidence to support using this Theory or that approach. The important question is can you make the combination of what you are using work within the framework of the fundamental equation. As a bit without getting to me you could use a random entry system such as a dart board and
  • Extraordinary popular delusions and The Madness of crowds by Charles Mackay. This is a wonderful book if only for the recent comparison it provides with Bitcoin and the various bubbles throughout history including Tulip Mania and the south sea company which prompted Isaac Newton to words to the effect of he could calculate the motions of the heavenly bodies, but not the madness of the people.’ Great cannon fodder for ‘this time is different mentality’
  • This time is different by Kenneth Rogoff and Carmen Reinhardt. This book highlights the repeated bias shown by humankind throughout history towards thinking the event they are involved in is somehow special and the standard laws of the markets do not apply. I like this because it provides so many different examples across time and just reinforces the dual themes of prices often go further than anyone expects and eventually things which seem crazy probably are and mean reversion will occur. The key lesson being to avoid picking turning points and find a way to get on the trend.