For the sake of balance, we’ve decided to cover three of the most thorough and in-depth works on the practical steps you can take to improve your trading mindset as it applies to your day-to-day work. You’ll also see two classic trading books that all traders should read to get a sense of what it takes to be successful in a high-stakes, fast-paced environment.
More importantly, these are all in the words of traders who themselves have prospered and taken the time to discern what exactly separates triumph from failure. By reading the following books, you can hope to answer the following questions in a meaningful way:
- How does one develop or improve one’s trading psychology?
- Which books should I read for a well-rounded understanding of trading?
- How do you master practical psychology?
- How important is psychology in trading?
Best trading psychology books
Of course, there are various opinions as to which are the best trading psychology books. This is our list of favourites, though you’re welcome to suggest a few of your own in the comments. The book reviews below supply more details about what we like about each.
- Flow: The Psychology of Optimal Experience – Mihaly Csikszentmihalyi
- Trading in the Zone – Mark Douglas
- The Psychology of Trading – Brett Steenbarger
- Market Wizards – Jack Schwager
- Reminiscences of a Stock Operator – Edwin Lefevre
Flow: The Psychology of Optimal Experience – M. Csikszentmihalyi
“Flow” is a word psychologists like to use, not as a technical term but when explaining performance strategies to their clients. This book is not specific to investment but actually applies to any mentally demanding task. Still, we have never heard any complaints after recommending this to traders.
The idea is all about getting in the “flow” or in the “zone” in order to find contentment in your work. To do this consistently, you first need to understand exactly what it is you are trying to achieve and then apply specific, scientifically proven mental techniques. The author refers to these as “flow activities”. Practical examples include adding complexity to your routines to avoid boredom.
This is not the easiest read, but it is very thought-provoking and can make a huge positive difference to the way one approaches trading and life in general.
Trading in the Zone – Mark Douglas
Almost certainly, this is not the first time you have seen this book recommended. Though published back in 2000, its advice has been proven to stand the test of time. You could even say it is nearly indispensable to being a successful trader.
This is a book, as you will find, that totally changes the trading mindset you may have developed as a beginner trader. Newbies come into trading thinking it works one way, and often don’t adjust their attitudes later. After reading this book, though, they often experience a big “ah ha” moment and understand its mental mechanics in another way entirely.
However, Trading in the Zone is not a good starting point for complete trading novices. The examples given in the book, including about what often stops many aspiring traders from becoming consistently profitable, require some investment experience to understand and appreciate.
If you enjoy this one, the Disciplined Trader is another classic on a similar topic from Douglas.
The Daily Trading Coach – Brett Steenbarger
Steenbarger is a psychiatrist by training, but happened to become involved with the financial world when he was hired by some top Wall Street firms to try to help their traders and investment bankers. Realising what an important role trading psychology plays in the profits and losses these professionals made, Steenbarger went on to specialise in the area of investment psychology, acting as a full-time “trading coach”.
The books provide 101 very practical lessons and easily applied lessons to help traders coach themselves into better work and decision-making habits. These include productivity-boosting morning routines, setting daily goals, and trading psychology techniques to help evaluate your daily trade strategies.
Another book by Steenbarger, Trading Psychology, is also worth a look.
Market Wizards – Jack Schwager
Each chapter of this book consists of an interview with some of the most famous hedge fund and CTA traders, each with a long track record of success. The figures interviewed include Paul Tudor Jones, Ed Seykota, Marty Schwartz and others.
There is a slight bent towards trend-following in the book, which Schwager correctly notes is one of the best recipes for long-term success in trading and investing. But beyond that particular strategy, Schwager notes that all successful incestors place a huge amount of emphasis on risk management and controlling their downside. An important part of doing this relies on establishing trading systems instead of making ad hoc and potentially emotional decisions. This lesson alone makes Market Wizards worth reading.
Reminiscences of a Stock Operator – Edwin Lefevre
This book is, by now, almost 100 years old, having been published in 1923 (when Warren Buffett’s father was a stockbroker). Nonetheless, it has lost little of its relevance or potency when applied to modern-day trading. Although technology improves and markets shift, people and the way they behave have hardly changed at all. Lefevre’s view of human nature, at least as displayed in this book, isn’t all that rosy: most of us are guided by fear and greed. A trader who’s able to move beyond these knee-jerk reactions will be all the more successful for it.
Reminiscences of a Stock Operator follows the trading career story of Jesse Livermore, one of the most legendary traders of the time. It was largely he who popularised the idea of “trading the tape” and using price action as a guide to market timing. Livermore made several fortunes and also blew up several trading accounts, making for an interesting narrative. Even so, the story teaches the reader plenty of valuable lessons along the way.
