Even if you’re not thinking of it, or feel you don’t have time for it, as a trader you know in your gut that psychology is probably the most important factor in success. Whether you are an experienced trader, a novice, or somewhere in between—every move you make, every step you take … is guided by emotions and psychological circumstances that get beyond your control when you’re not paying attention.
Before investing in stocks, invest in trading psychology, because nothing defines your success as succinctly as the psychology you allow to guide your mind. If you have not had time for psychology up to this point, you are missing out. It is this that will make or break you.
When you’re darting in and out of stocks and forced to make quick decision, discipline and self-control are everything—and so is psycho-analysis (why are you making the decisions you’re making; and are they really YOUR decisions or are you just being influenced those around you?)
Then there is fear and greed, your greatest enemies. Bad news from the market sparks your fear and drives your next move, and greed leads you blindly into failure.
Reading is a key liberator of the trader. An OK book can increase your trading knowledge, but a BRILLIANT book is long-term nourishment for the soul, and helps you understand yourself and gain a much wider and broader perspective than you ever thought possible.
Amid the multitude of books out there on the market and trading psychology, we’ve put together a short list to get on your way:
This is the book for traders who have a problem achieving consistency. Our brains are often hard-wired to look for short-cuts, blinded by fear and greed that forces us to act irrationally. But the resulting contradictions can sink even the best trader.
This book does a great job of explaining how and why we do this, and how we can fight it.
If you are looking for a trading strategy you will not find it in this book. To fully understand all the topics covered in this book, you need to have some trading experience.
The only strategy you will find in this book is a “thinking strategy” designed to positively influence your trading success rate. Through simple exercises, you will learn how to think in terms of probabilities and adopt the specific beliefs necessary to developing a the mindset of a winner. Along the way, you’ll gain valuable insight into your own entrenched misconceptions about the market. If you’re not up to self-psycho analysis, let this book do it for you. You’ll find yourself in here somewhere.
“If your goal is to trade like a professional and be a consistent winner, then you must start from the premise that the solutions are in your mind and not in the market.” – Mark Douglas
#2 The Undoing Project – A Friendship That Changed Our Minds, by Michael Lewis
This is a beautiful intellectual ‘love story’ between two completely different Israeli psychologists, whose partnership produced the foundations of behavioral economics. One was overly confident, and the other was completely insecure, but they made a perfect match for writing a series of original studies undoing our assumptions about the decision-making process.
Their work shows us the ways in which the human mind systematically makes mistakes when forced to make judgments in uncertain situations.
The is one of the most amazing and inspiring books you will ever read, and we hope you won’t think you’re too busy because what you take home from this book will be more valuable what whatever else you were planning to do.
“Man is a deterministic device thrown into a probabilistic universe. In this match, surprises are expected.” – Michael Lewis
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#3 The Daily Trading Coach: 101 lessons For Becoming Your Own Trading Psychologist, by Brett N. Steenbarger
If it’s motivation you seek, this is an excellent choice—for all levels of traders, and for anyone who wants to learn how to manage emotions and achieve success.
The main goal of this book is to train yourself to become your own coach. If you follow the advice offered in this book, you will boost your self-confidence and be able to turn your weaknesses into strengths.
Steenbarger also writes at length about the consequences of your own negative self-talk and how to turn this to your advantage as well for use in trading and overall decision-making.
“We don’t need to push ourselves toward a goal when we’re drawn toward our calling. That is the purpose of purpose.” – Brett N.Steenbarger
This book is short, but it’s a great guide for any trader who is serious about developing good trading habits. The fact that it is short and sweet is a good selling point for the busy trader, but that doesn’t mean it isn’t packed with information, including how to keep your emotions in check and far away from your trading decisions.
This book explains 12 habits you must have if you want to be a successful trader: Risk taking, thinking in probabilities, discipline, courage and open-minded are just few of them. The book also clarifies why each of these habits is important for success, and how they tie together into the way every trader must think. In the end, you always have two options: you can learn principles from this book the hard way by losing money, or you can take a short break to read this book and adopt the 12 habits.
“Consistency is the name of the game. You want to consistently apply your proven strategy to the market. To be consistent you have to have faith in your method and faith in your ability to apply that method. You need to be optimistic about the future of your trading even as you are realistic about the past and the present. You can improve your strategy, but you don’t want to keep changing it and shifting back and forth.” – Ruth Barrons Roosevelt
This book will take you through the path of self-transformation to improve your trading results. What is most interesting here is how the book shows the real transformation of other traders—people you can directly relate to.
Beyond the Matrix is your consciousness, and this book will help you dig deep into yours and make drastic changes to the way you think. Most significantly, it helps you to avoid trading out of fear and greed.
To trade better, you need to raise your awareness level, and this book will explain how to do it.
”A peak performance trader is totally committed to being the best and doing whatever it takes to be the best. He feels totally responsible for whatever happens and thus can learn from mistakes. These people typically have a working business plan for trading because they treat trading as a business.” – Van K.Tharp
Every truly successful trader will say that the key to his or her success is all about psychology. Master this, and you will be the master of your trading universe.
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