Can I Learn How to Trade from Books?

There are an absolutely huge number of books out there that explore how to trade the financial markets, covering everything from long-term investment strategies for stocks to active day-trading in forex and futures.

It might be natural to assume that you could teach yourself to trade purely by studying a handful of good trading books, just as you could teach yourself about any other technical topic. However, the reality is that trading isn’t simply a technical affair; your knowledge and skills as a trader need to cover a range of complementary fields that might include psychology, analysis and strategy, technology and programming, game theory and money management, advanced quantitative finance, market microstructure . . . Some will argue that trading is as much an art form as it is a science.

As you’ve probably now gathered, becoming successful in the financial markets requires you to take a broad-based approach and piece together a holistic puzzle, and consequently no one single trading book is likely to give you all the answers or provide a full picture of what you need to learn. Trading books can be surprisingly expensive though, so it’s important to choose books that are going to give you a return on your investment.

The first question to ask is how to choose from the massive selection of trading and investing books that are available? In some ways, this will be narrowed down by your own trading goals. Be careful not to dismiss books out of hand due to this focus, however – we can all learn from individuals who are experts in their fields, and a lot of lessons are transferable between markets and timeframes.

One useful tip is to try and determine the authority of an author before you buy. The trading education industry is full of snake-oil salesman promoting products that have little real value, and without a lot of experience it can be hard to tell the good from the bad. A quick search for information about the author helps. My trading shelves are full of books written by successful fund managers who have a proven, public track record of profitability with the strategies they write about. While none of them would tell you everything you need to know to become a successful trader, you can have confidence in books that are written by market professionals, where those written by marketers who don’t really have ‘skin in the game’ tend to provide little reliable information.

Once you’ve done a bit of background research into the author, extend this by reading some reviews of trading books to find out whether other traders have actually found them useful. Just because someone can trade successfully or manage a fund does not mean to say that they can write well or communicate their methods effectively in a book. A detailed book review will generally give you some idea of how useful your prospective purchase may actually be.

As well as considering the topics that you want to focus on, and the authority of the author, it is useful to try and plan your learning so that you slowly immerse yourself in learning about a particular area. If you wanted to learn about high frequency trading, for instance, you might start by reading a few books that will give you an overview of how this area of the market works and the terminology it uses, such as Michael Lewis’s ‘Flash Boys’ or Scott Patterson’s ‘Dark Pools’. Each of these is written by great financial journalists who understand how to explore the topic with historical detail and an engaging narrative. You might then move towards books such as Ernest Chan’s ‘Quantitative Trading’ to gain ideas about algorithmic strategy development and money management techniques, and later you may find yourself studying a book such as Yves Hilpisch’s ‘Python for Finance’ to learn the Python programming language with which to implement your strategies.

If you’re fairly new to the financial markets and feel completely unsure where to start, then any of Jack Schwager’s ‘Market Wizards’ books are a great way to learn about different trading styles from highly successful traders and fund managers. The books each contain a series of interviews covering all aspects of the financial markets, and should give you a feel for the areas that you may wish to gravitate towards.

You won’t learn everything you need to know about trading from books, but by reading book reviews and choosing the right books, with a focus on your goals, from authorities on the subject, you can give yourself the best possible grounding. After that, you’ll need to gain experience with live trading, and might like to seek a mentor or find support on one of the many online trading forums.