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6 Trading Psychology Books to Improve Market Strategies

Market Psychology Books Can Improve Your Trading Strategies

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Updated July 31, 2020

Trading is as much about psychology as it is about developing a solid strategy. Without the mental fortitude to stick to a plan, the most well-conceived strategy in the world won't do you any good. Successful traders not only develop and master a strategy, but they also become more familiar with their own psychological traits (such as discipline and patience) and cultivate them, which allows them to be more effective in implementing their strategies.

A variety of books can help traders take steps towards understanding psychology from an investment perspective.

Trading in the Zone

Written by Mark Douglas, this is a must-read for anyone who is struggling to attain consistency in the market. The author provides a roadmap for overcoming many trading issues.

This book includes addressing personal inclinations to seek short-cuts, being easily swayed by fear or greed, and getting distracted. These traits often cause traders to act irrationally even when they know better. In simple language, the book explains why and how these issues occur, and how to approach them to keep them from happening.

If you'd like to learn about the psychology of trading, you should first work to understand trading practices, techniques, and lingo before reading this book, so you can fully grasp the topics covered.

"The Disciplined Trader" is another popular trading psychology book by the same author.

While this is a book about trading, the author does not provide strategies.

Reminiscences of a Stock Operator

Even classic books can maintain their relevance over several generations. First published in 1923, this book by Edwin Lefèvre is based on legendary trader Jesse Livermore. Combining rich storytelling with a deep insight into what it takes to trade successfully (and actions that can ruin a trader), the material can be read over and over again, offering new or different insights each time as you build familiarity with the subjects.

If you are an experienced trader already seeing positive results, not trading well, or just starting your trading journey, this book has something for you. In it, you'll follow the trading career of a life-long trader, whose experiences might just be the insight you need to help you through the struggles you are facing, or have yet to encounter.

Sway: The Irresistible Pull of Irrational Behaviour

Written by Ori and Rom Brafman, "Sway" is a rare page-turner in the non-fiction genre.

In the book, the authors tackle problems many traders are aware of yet seem powerless to prevent. They include why it can be so hard to get out of a losing trade—even delving into why people stay in personal relationships, relating it to the trials of trading.

The book explores issues of which traders are often unaware. The authors examine how danger and risk affect the decision-making process and their relevance in facing the risks of the financial markets.

The material also addresses such concepts as diagnostic bias—an inability to see beyond an initial hypothesis despite evidence to the contrary, and the chameleon effect—a person's habit of taking on traits that are assigned to them. All of these psychological quirks can have a substantial effect on traders.

The research and anecdotes in this book can also teach the reader about hidden motivators that drive decision making, which in turn may help them make more informed decisions as a trader.

The Art of Thinking Clearly

Written by Rolf Dobelli, this book presents its content in a concise manner across 99 chapters, each only two to three pages long. The chapters provide examples of psychological pitfalls everyone—not just traders—can fall into.

With 99 pitfalls presented in the book to be aware of, many readers will be able to learn something about choices that can stifle their development and growth. Some of the chapters include:

How to Relieve People of Their Millions
Murder Your Darlings
Don't Take News Anchors Seriously
Why Watching and Waiting Is Torture

Market Wizards

Reading the "Market Wizards" book series by Jack Schwager is well worth the time investment. Each book is composed of interviews with top traders. The interview format is very informative and provides you with perspectives on how each trader invests in markets, as well as the trials and tribulations each overcomes.

Engaging and informative, these books contain something for everyone. From strategy tips to overcoming hurdles, these are timeless books that can be read over and over again.

The series is composed of "Market Wizards," "The New Market Wizards," "Hedge Fund Market Wizards," and "The Little Book of Market Wizards."