I Read 67 Trading Books, and I Found This

Summary

After reading 67 trading books over six years, the author shares surprising insights about what truly helps traders succeed. While popular books like 'Trading in the Zone' are often recommended, they focus too much on psychology for beginners and not enough on finding a profitable edge. The author emphasizes the importance of understanding systematic and algorithmic trading, recommending foundational books like 'Quantitative Trading' by Ernest Chan and 'Systematic Trading' by Robert Carver. Additionally, advanced strategies, portfolio management, and backtesting techniques are covered, with an emphasis on real-world application rather than theoretical concepts.

Takeaways

• 😀 Trading books can be insightful, but not all of them are helpful for beginners. Popular books often focus on mindset and psychology, which are secondary to having a proven trading strategy.
• 😀 The first step in trading should be finding an edge (a proven trading strategy) and testing it, rather than focusing on psychology or discipline.
• 😀 Reading 67 trading books has led to valuable insights about the importance of strategy, backtesting, and implementation over psychology in the early stages of trading.
• 😀 Some beginner-friendly books for systematic and algorithmic trading include *Quantitative Trading* by Ernest Chan and *Systematic Trading* by Robert Carver, both providing solid frameworks for new traders.
• 😀 *The Laws of Trading* by Augustine LeBron provides essential decision-making frameworks, helping traders think about risk, reward, and probability in real-time trading decisions.
• 😀 *Evidence-Based Technical Analysis* by David Aronson helps traders quantify and build technical analysis strategies, which is crucial for systematizing trading methods.
• 😀 While no book will instantly make you profitable, certain books offer tested strategies and deep dives into trading systems, such as *Advanced Futures Trading Strategies* by Robert Culver.
• 😀 Books like *Algorithmic Trading* by Ernest Chan teach traders why certain strategies work (e.g., mean reversion and momentum) and the rationale behind their success, which is essential for optimization.
• 😀 *Expected Returns* by Antti Ilmanen explains the concept of risk premiums and how understanding them can help improve strategy development and backtesting in trading.
• 😀 Building a diversified portfolio of trading strategies is key to minimizing risk and improving risk-adjusted returns, with books like *Advanced Portfolio Management* providing in-depth knowledge for advanced traders.
• 😀 Retail traders looking for a simpler introduction to portfolio management can benefit from *Smart Portfolios* by Robert Carver, which provides an accessible guide to constructing and rebalancing a multi-asset portfolio.

Q & A

What is the primary lesson the speaker learned after reading 67 trading books?

The speaker discovered that the most popular trading books are often the worst for beginners, and that real insights come from books that most traders have never heard of.

Why does the speaker believe books like 'Trading in the Zone' are not ideal for beginners?

'Trading in the Zone' and similar books focus heavily on psychology, mindset, and discipline, which the speaker argues are less important at the start of a trading journey. Beginners need to focus on finding a profitable edge before worrying about managing emotions.

What is the first thing beginners should focus on according to the speaker?

Beginners should focus on finding a trading edge, testing it using methods like backtesting, and implementing the strategy, before worrying about psychological aspects.

What does the book 'Quantitative Trading' by Ernest Chan teach, and why is it recommended for beginners?

'Quantitative Trading' provides a comprehensive introduction to quantitative trading, covering key definitions and beginner concepts. It's specifically designed for retail traders and is recommended for those just starting out in systematic or algorithmic trading.

How does 'Systematic Trading' by Robert Carver differ from 'Quantitative Trading' by Ernest Chan?

'Systematic Trading' is a step up from 'Quantitative Trading', providing a deeper framework for creating trading rules, managing positions, and avoiding common traps in systematic trading. It’s suited for traders who are ready to move beyond the basics.

What is the key takeaway from 'The Laws of Trading' by Augustine LeBron?

'The Laws of Trading' is focused on decision-making frameworks for trading, teaching traders how to think about risk, reward, probability, and uncertainty. It helps traders develop a solid decision-making process in real-time market situations.

Why does the speaker recommend 'Evidence-Based Technical Analysis' by David Aronson?

'Evidence-Based Technical Analysis' helps traders understand how to quantify technical analysis and build strategies around it. This is crucial for systematic traders who need to define technical criteria that can be coded and backtested.

What is the main idea behind 'Advanced Futures Trading Strategies' by Robert Culver?

'Advanced Futures Trading Strategies' provides 30 fully tested strategies that cover multiple timeframes and styles. These strategies are practical and can be implemented immediately by traders, making them valuable for those involved in futures trading.

What does 'Expected Returns' teach about risk premium and why is it important for traders?

'Expected Returns' is a masterclass on understanding risk premium, the return earned for taking on specific risks. It teaches that most profitable strategies are based on harvesting risk premiums, and understanding them allows traders to build better strategies and diversify their portfolios.

What are the two books the speaker recommends for portfolio management?

The speaker recommends 'Advanced Portfolio Management' for more advanced readers and 'Smart Portfolios' by Robert Carver as a simpler introduction to portfolio construction, risk management, and rebalancing strategies for retail traders.