Top Trading Books Every Serious Trader Should Have

There are so many trading books out there. Lots of them are not worthy of your time and money. Here is my list of ten best trading books that will help new traders to shorten their learning curves and achieve their trading goals, no matter which market they are trading, be it futures, stocks, or forex currencies, no matter what trading styles they apply, be it trend trading, swing trading, or day trading. These books are helpful to professional traders as well.

1. Reminiscences of a Stock Operator by Edwin Lefevre

There is no doubt that this book is on top of my list. The reading is both entertaining and informative. Lefevre surely has the talent to capture the mind of a great trader – Jesse Livermore and the market as well. Reminiscences is the best trading book recommended by most top traders in the world. It’s also the most quoted trading book. My favorite quote is “there is nothing new in Wall Street. There can’t be because speculation is as old as the hills. Whatever happens in the stock market today has happened before and will happen again.”

2. Market Wizards: Interviews with Top Traders by Jack D. Schwager

A fantastic book allows a peek into the mind of the world’s most successful traders. Million dollar traders, even billion dollar traders were interviewed in this book. Richard Dennis, the father of turtle traders, was reportedly made $200 million in about ten years started with a shoe string. Paul Tudor Jones is worth $2.8 billion, and was ranked by Forbes in 2009 as the 224th richest person in the world. Bruce Kovner is worth $3.5 billion, and was ranked by Forbes in 2009 as the 164th richest person in the world.

3. The New Market Wizards: Conversations with America's Top Traders by Jack D. Schwager

Another market wizard book by Schwager.

4. Pit Bull: Lessons from Wall Street's Champion Day Trader by Martin Schwartz

Pit Bull was written by market wizard Martin Schwartz. In this book, Schwartz shared his journey from a dead-end financial analyst to Wall Street’s champion day trader. Schwartz won the U.S. Trading Championship in 1984. Schwartz is also a Champion Horse owner. It’s obvious that Schwartz has a champion heart. One particular useful tool I learned from this book is to use 10-day EMA as barometer to gauge the daily market behavior. A must read for serious day trader.

5. The Taylor Trading Technique by George D. Taylor

This book was recommended by the only female market wizard Linda Bradford Raschke, who admitted built most of her short-term trading strategies based on the technique introduced in the book. The reading is proved very challenging, but the reward is well worth the time. Taylor divided trading days into three categories – buying day, selling day, and short sale day. Taylor trading technique captures the essence of swing trading. A must read for serious swing trader.

6. Japanese Candlestick Charting Techniques, Second Edition by Steve Nison

Nison is the first person introduced Japanese candlestick charting to the western trading community. Candlestick charting offers unique information about market price action, especially at the turning point. This is the best book on candlesticks so far. Readers will learn lots of useful candlestick patterns and how to combine candlesticks with other common technical analysis tools.

7. Technical Analysis of the Financial Markets by John J. Murphy

This is the only book you ever need to study technical analysis. Murphy did a wonderful job to drive home various technical analysis topics in a straightforward and understandable manner.

8. Trading in the Zone: Master the Market with Confidence, Discipline and a Winning Attitudeby Mark Douglas

Most novice traders have spent lots of time and energy to search Holy Grail in the trading. They tried all kinds of indicators and trading systems, and overlooked themselves are the most important factor of successful trading. This is a perfect book for learning trading psychology.

9. Zen in the Art of Archery by Eugen Herrigel

This book was recommended by an anonymous market wizard. At first, it might be bizarre to associate trading with Zen and archery. Archery is only one media to express the Zen experience. Actually when you are trading in the zone, you are experiencing Zen in the art of speculation, the highest form of trading psychology.

10. The Art of War by Sun Tzu

The Art of War is the oldest book about military strategies and tactics in the history. It was written by Sun Tzu more than 2,500 years ago, during the Spring and Autumn period. There are 13 chapters to discuss every aspect of fighting a war. Although trading in the market shares much similarity with fighting in the battlefield, it is by no means more difficult than the warfare, the cruelest form of performance art. My favorite quote is “Every battle is won or lost before it is ever fought.”

If you haven’t read above books, please do yourself a favor and study them. It might be the best trading decision you have ever made.

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The Little Book of Trading: Trend Following Strategy for Big Winnings - Michael W. Covel

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Multibagger of Long Term Investing

Wouldn’t you be shocked if we told you that someone has turned Rs 10,000 into Rs 3,69,00,00,000 (Rs 369 Crores) in 32 years?. And that too by doing nothing in stock markets!! We bet you would be... :)

Your next question would definitely be – Who has done it?

Our answer is that we don’t know. But we are pretty sure that promoters of company would be one of them. They would have held shares for 32 years and made a killing. By the way, turning Rs 10K to Rs 369 Cr is same as growing your money 49% year on year for 32 consecutive years. Even great Warren Buffett managed a ‘paltry’ 25%...  So even if we told you earlier that you cannot become Warren Buffett, here we have data, which suggests that you actually can!!

(In comparison, banks pay 8% per year on deposits)

So now you’ll ask – How has it been done?

Before we answer this question, we would caution you that data given below has been collected from various sources and may or may not be correct. So, take it with a pinch of salt.

The company is WIPRO. Suppose you invested Rs 10,000 in its shares in 1980. You would have got 100 shares @ Rs 100 each. Now shares of Wipro have gone through multiple splits & bonuses. So we adjust them as and when splits & bonuses happened.

1980 – Bought 100 shares @ Rs 100

1981 – 1:1 Bonus = 200 shares

1985 – 1:1 Bonus = 400 shares

1986 - Stock Split to Rs.10 face value = 4000 shares

1987 - 1:1 Bonus = 8000 shares

1989 - 1:1 Bonus = 16,000 shares

1992 – 1:1 Bonus = 32,000 shares

1995 – 1:1 Bonus = 64,000 shares

1997 – 2:1 Bonus = 1,92,000 shares

1999 - Stock Split to Rs. 2 face value =9,60,000 shares

2004 – 2:1 Bonus =28,80,000 shares

2005 - 1:1 Bonus =57,60,000 shares

2010 – 3:2 Bonus =96,00,000 shares

Value of one Wipro share is around Rs.385.

So as of today, your investment of Rs 10k is worth a staggering  Rs.369 crores!!

And we are not finished yet. If you know about benefits of dividends, you would realize that Wipro has been a regular dividend payer. Last year it paid Rs 6 per share as dividend.  So you would have earned  Rs.5,76,00,000 (Rs 5.76 Crores) last year alone as dividend income. Just imagine how much you could have made from dividends alone in last 32 years. :-)

via - http://www.stableinvestor.com/2012/12/multibagger-of-long-term-investing.html

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How stock scams works in India

I will teach you how stock scams work today and for that Let me declare something – “After years of study and hard work, I have come up with a strategy which can predict stock markets movement with almost 100% accuracy. Each month I can tell you which way market will move in next 30 days, it can be UP or DOWN and I can guarantee that. If someone needs to see the performance, I can give a free 6 tips trial.” Now what will be someone’s reaction on hearing this? Most probably, some of you will get excited and interested in getting these free tips, at least to check if I am saying truth or not! . Right now I have a big subscriber base with more than 10,000 people (11.5k to be precise) whom I can reach by email. Let’s see how I can create a stock tip scam -

Here is how we will build a scenario wherein you are Ajay who is extremely interested in knowing about the tops which are almost 100% accurate. Ajay is bearing some disbelief in his mind, but due to the trust factor in the given tips he thinks ‘Let’s see what tips Manish gives, they are free anyway and by reading his tips I am not losing anything’.

I start sending you exactly one tip each month and it starts this way:

Tip #1 (May) : Markets are headed UP

Reaction  : Markets really went UP in the month of May. Ajay feels good, but still he is confused if its just luck or did It really went up based on my tip . Ajay anyways wanted to just check the tip and how it turns out . He is a bit impressed and he has made up his mind to act upon the tips if 3 consecutive tips work.

Tip #2 (June) : Markets are headed UP

Reaction  : Markets after a bit of volatility finally went up and the tip was a success again! Markets are up by great extent, but Ajay feels like a fool to be so fearful and not act on it. But his confidence has started building up. If the next tip also works, Ajay will invest some money for sure based on the tip!

Tip #3 (July) : Markets are headed DOWN

Reaction : Crash! A huge sell off came in the month of July and the 3rd tip in a row was correct. Ajay starts feeling “Oh my god! Looks like Manish really have come up with something amazing which can predict markets” Ajay makes up his mind to “try” next 3 tips and see how it performs!

Tip #4 (Aug) : Markets are headed UP

Reaction : With all the excitement, Ajay has invested Rs 10,000 in the markets to see if he can make some quick bucks! However, Markets are headed down in the starting of the month and all the TV channels are confirming that next Crash is on the way. Ajay is a bit nervous and secretly praying for the tip to work somehow. He wants market to go UP as per the tip. Everybody around him has already sold off and decided to sell of all the stocks, but you are on the other side. You are praying, literally! And here it comes, markets make a turn up side and it makes one of the sharpest come back in 1 week. Ajay is now in profit and he feels like a winner. Ajay’s confidence in my tips is becoming stronger, but still he is not ready to take BIG risks, he needs to solid confirmation that the tips will fall true no matter what, which is about to come .He will invest 40k in the next tip of mine.

Tip #5 (Sept) : Markets are headed DOWN

Reaction :  Ajay thinks that he should liquidate all the investments in direct stocks and even his mutual funds. His friends do not think alike and suggest him that he should not go with the tip, but Ajay wants to confirm the tips and wants to see the affect on his investments in real time Markets move downside and he is now confirmed that there is really some kind of mega-research done by Manish to come up with the tips using his secret-strategy. Ajay can now visualize how he can become a millionaire soon by subscribing to the tips for next 1-2 yrs. He is just can’t wait for the last tip to show its magic!

Tip #6 (Oct) : Markets are headed DOWN

Reaction : Ajay is totally with the tips now and has decided to use this last one to make some quick bucks, he does some short selling and buys some puts options by finding out how to make money in falling markets. With his confidence in the free tips, he does not lose focus and waits for the tips to turn correct. Markets fall as per the tip and due to his decisions, Ajay has made some amazing money this time. He is clear that he wants these tips at any cost now!

Free tips are over now.

Taking money from the targets – How Stock Scams unfold

Tips are over now, Ajay and many others like Ajay has experienced the amazing tips which really worked. They all get a mail after few days from me.

Hi, you might have already got 6 free tips from me each month, we give only one tip each month, but it’s bound to work. It’s based on our strategy which is based on years of research. If you want to continue getting the tips further. It would cost Rs 50,000 for 1 year subscription. You can expect the same accuracy like you saw in last 6 months.

Disclaimer: The tips are highly accurate and we make sure they are accurate, but we can’t promise it and can’t guarantee it legally. Risk is yours

Ajay is so much impressed with my tips performance and so much drowned in greed, that he subscribes to my offer and pays 2 lacs for the secret tips subscription. The tips start coming from next month. But there is some issue this time! . Somehow, not all the tips are working this time. Some tips work, some does not. It’s not at all accurate like it was before. In reality all the tips are just random tips and Ajay is totally frustrated. He has lost a lot of money because he invested big money each time, thinking it would work!

The truth is Ajay fall prey to a stock scam. Now let me share how all this works.

How this scam works

At this moment I have around 10k or more email subscribers and I can send emails to this 10,000 group. I divide this group of 10,000 readers into 2 parts A and B, I send a tip “BUY” to A group and tip “SELL” to B group. One of them will be true for sure. After month is over, I see which tip was correct. If A group was correct, I discard group B and only have people in group A as my final group. This group will be the group which got “correct” tip.

Now I do the same thing again, I divide them in group A and B with 2,500 members each and send “BUY” and “SELL” tip to them. Now again, markets will move UP or DOWN and one of those groups will be right at the end of the month. I again discard the group which got wrong tip. This way I continue doing it for 6 times and at the end I have small group of 156 people who was right all the 6 times and Ajay accidently belonged to his group.

Targets paying for the subscription

Now you can imagine how many people will fall prey to these scams? Even if 20% of the people fall in the trap and are ready to pay Rs 50,00o, it would be Rs 10 lacs in total! Here you can clearly see that out of 10,000 there will always be a group of 156 people who will always get “accurate” tips and the beauty of this strategy is that people who were discarded only get one wrong tip, and after that wrong tip, they don’t get any more tips.

There are many tip providers in real life who claim to give you 90-95% accurate tips with free 1 week trial, If you are getting a lot of right tips, you might be that lucky small group which is their “TARGET” as seen above in the chart. Don’t fall prey to these stock scams. Beware!

- by Manish Chauhan

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2013 Market predictions

2012 is drawing to a close and Indian markets have given close to 25% returns this year. And just like past years, experts are coming out with targets like 21,000, 23,000 & 26,000 for Sensex. It seems that everyone is anticipating a bull market. And this anticipation is fueled by buzz words like Reforms, FDI, coming rate cuts, rising investor sentiments, etc.

So what are our predictions?

Before you close this website after reading our answers, we would like to tell you 2 things:

If a bull market is really coming, you will not listen to what we have to say. If markets correct next year, you will repent not listening to what we had to say.

So here is our answer:

We have decided not to make any predictions. It is irrelevant for long term investors like us. We will continue to invest in great companies and try buying them at really cheap prices.

So, have you decided to leave? Because you didn’t get that hot stock tip??

No?? …Then we will go ahead and tell you two really important facts…

Fact 1:

Indian markets are currently (December 2012) trading at P/E multiples of 19. And this is not cheap by any standards. You can check State of the Markets to get a snapshot of Indian market’s valuations. We have an analysis which tells that investing at current levels may not turn out to be a good bet for next 3-5 years. Anything less than 3 years does not interest us. Just check the table below:

P/E Ratio of Sensex & 3-5 Year Returns

We are trading close to P/E multiple of 20. And average returns over 3 year periods are abysmally low at 4%. We won’t vouch for 5 year data as this number is skewed because of bull-run of 2002-07 (which may not be repeated during our lifetimes).

Fact 2:

We checked last 20 years’ data and found that 13 of those years gave positive returns. Out of these, 6 can be attributed to Great Indian Bull Run (2002-07). So, there were 7 ‘normal’ years of positive returns. These 7 years were followed by 4 years of negative returns & 3 years of positive returns. Surprised? Yes… its true. The probability of getting positive returns, just after an year of positive return is lower than that of getting negative returns.

We are sorry to disappoint those who were looking for hot stock tips for 2013. We continue looking for safe, stable, rock solid, cash generating machines. We don't know what would happen in 2013. But we do know what we would do in either cases. If markets correct, we would buy more of these great stocks. If it moves up into the overvaluation zone, we would not buy. It is as simple as that. :-) But as it has been rightly said, successful investing is simple, but not easy.

via - Stable investor

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Trading is a Journey in Self-Discovery

I know a trader, let’s call him Leon. He day trades Futures. He has been actively trading for several years. His profits are erratic and undependable, often going dramatically up and down in the same session. When Leon is making money his confidence soars and he feels like he is a power trader. On the other hand, when he loses money, which is more times than he cares to admit, he feels like a failure, a loser and stupid. For quite some time Leon has wondered why he can’t be consistently successful, and why his drawdowns tend to be much larger than his profits. He wonders this even though he has no Business Trade Plan, doesn’t consistently document his trades and despite having numerous rules, tends to violate them regularly. Leon doesn’t have a clue and wonders why he can’t get different results even though he continues with this pattern of behavior. Leon is out of control and unless he changes he is headed for a financial ice-cold shower. Are you Leon? 

 If you want to change your behavior, you must first change your thinking and since much of your thinking is driven by your unconscious, you must become aware of your underlying self-sabotaging beliefs that drive thinking, emotions and behavior. Trading is arguably the most difficult business venture on the planet; why? Because we are talking about money, and with every tick while in a trade you are either gaining or losing money. But, it goes beyond that. Money is not only the cornerstone of our society, it is tied up in your identity. If you are winning it, you often feel powerful, competent, intelligent or “good looking” and if you are losing you feel impotent, incompetent, stupid or “ugly.” The fact of the matter is that when you go to the market you invariably are expressing yourself; whether you want to, try to or feel a need to, it doesn’t matter, you are and will express yourself. And, when expressing yourself your behavior is tied much of the time to unconscious beliefs. Actually, when you are in the markets, every blemish, weakness and character flaw in your personality will be challenged, called out and tested. Now, that doesn’t mean that the markets are doing that to you. On the contrary, the markets have no intention for you – even though you may have often wondered how the markets knew that you just placed a long trade and how they chose that exact moment to reverse! Also, there are no rewards, punishments, pain or risk in the markets, only consequences. You provide all the rest. And, with changing yourself, you must provide all the ingredients for that as well. 

You can’t change what you can’t face and you can’t face what you don’t know. Awareness is key. The more aware you are of your underlying self-sabotaging beliefs the more you can position yourself to begin to address these issues – one at a time. Now, you might be asking; how do I do that? How do I become more aware if these limiting beliefs are unconscious. Good question! You become aware by simply asking questions of yourself, and by introspection and more importantly by personal observation as you are going through market observation. By checking yourself and checking the market you’ll begin to gain an awareness of why you have no Business Trade Plan or failing to follow the one you have. Why you have no Trade Journal, or failing to document in it. Why you are continuing to do things that you say you must stop doing; and why you are failing to do those very things that you say you must do. Once you identify the underlying self-sabotaging data, you can begin to deal with them…one issue at a time. 

 So, trading is a journey in self-discovery, and you must begin to pull back the layers of your unconscious onion, one at a time to begin to realize and recognize what is motivating you to behavior that is producing results that you don’t want. There are essentially two kinds of data with respect to trading. Many traders miss this fact and therefore miss a very important set of variables that impact heavily upon their trading. One type of data is mechanical data, which are everything that have to do with the markets; that being, news, technical analysis, instruments, indicators, etc.. This data is external to you. The next type of data is internal data, which are everything that have to do with your thoughts, emotions and behavior; in other words the T+E+B=R equation which impacts upon every outcome that you get. You must manage this equation in order to manage your results. 

 Trading is a 100% mental and emotional game. Either you are preparing, analyzing, processing or executing while trading; all of which require mental and emotional tools. If you don’t have mental and emotional tools that’s like driving without a steering wheel; and you will not only lose your way but you will crash and burn without it. And, you can’t steer if you are driving blindfolded. You must become aware of what is between you and keeping commitments with consistent follow-through. In Mastering the Mental Game we teach you tools and techniques to put the steering into your trading while helping you to remove the blindfolds as well in order for your journey to be a joyful and self-fulfilling one. Remember, you can’t change what you can’t face, and you can’t face what you don’t know. 

 May all your trades be green.

- Dr. M. Woodruff Johnson

(Dr Woody Johnson can be contacted at The Online Trading Academy)

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