5 Must Read Trading Psychology Books

What separates a winning trader from a losing trader is psychology.

Trading psychology, for those new to the subject, refers to the emotional aspects dictating a trader’s decisions.

Irrespective of the trading plan employed, good psychology is a must-have trait for any trader.

Learning to govern emotions and develop good decision-making skills will, unequivocally, improve trading performance and ultimately unlock the door to trading success.

Recognising most traders fail to identify the importance behind the psychology of trading is, indisputably, one of the reasons for the high failure rate in this business.

Fortunately, several books are available to help confront this broad topic.

Working closely with our research team and editors, the following books have been specially chosen for those wishing to extend their knowledge on the subject, each offering a unique perspective.

‘The Daily Trading Coach’ by Brett N. Steenbarger (2009)   

Trading psychology‘Dr. Steenbarger has been helping traders help themselves for many years. Simply put, this book is a must-read for anyone who desires to achieve great success in the market’ Charles E. Kirk – The Kirk Report.

Brett Steenbarger, Ph.D., a Clinical Associate Professor of Psychiatry and Behavioural Sciences at SUNY Upstate Medical University in Syracuse, New York, has been actively involved in the financial markets since the late 1970s, serving as Director of Trader Development for Kingstree Trading, LLC in Chicago and currently consults with traders in a number of professional trading organizations.

The Daily Trading Coach boasts a practical and engaging style. Within a span of 350+ pages, the book offers 101 lessons designed as coaching interventions, featuring techniques and assignments traders can use to improve their psychological approach.

Reviews of the book are generally upbeat, with many reporting marked changes in their trading, thus a worthwhile read for any trader.

Some notable points from the book:

‘A trading career is a marathon, not a sprint; the winners pace themselves’.

‘When you act as your own trading coach, your challenge is to stay fully conscious, alert to risk and opportunity’.

‘Your goals should set yourself up for success and a building of confidence’.

‘When you talk aloud your thoughts and feelings, you no longer identify with them; you listen to them as an observer’.

‘It’s okay to be emotional; it’s not okay to let emotion change your management of risk’.

‘The Disciplined Trader’ by Mark Douglas (1990)

Successful trading is 80% psychological and 20% methodological’.

Emotion is the enemy of successful trades’.

Mark Douglas began coaching traders in 1982, and continued to develop seminar and training programs on trading psychology for the investment industry, as well as for individual traders.

Published in 1990, The Disciplined Trader is considered an industry classic, successfully helping traders get a handle on their psychological trading issues.

In 250 pages, Douglas examines why most traders fail to maintain their equity on a consistent basis, bringing the reader to practical conclusions as to how to go about changing limiting mindsets.

Douglas does an outstanding job challenging some of the most fundamental assumptions you have about the way the world works. He clearly demonstrates how the financial market is an environment like no other, and our experiences do not effectively equip us to interact with the intricacies of the market.

In terms of reviews, the majority reported positive vibes, though some aired disappointment with repetitive ideas and sloppy sentence structure.

Although Douglas sadly passed away in 2015, his work continues to inspire traders around the world.

Overall, this is a book every trader must read.

‘Trading in the Zone’ by Mark Douglas (2000)

Trading mindset Although Mark Douglas published The Disciplined Trader ten years prior, Trading in the Zone grabs the lion’s share in terms of distinction.

Trading in the Zone is relevant to anyone embarking upon, or intent on maintaining, a successful career in the role of a trader. The author, in the space of 240 pages, describes various flaws in thinking which may work against a trader, causing him/her to act in a manner at odds with the overall objective: consistent profitability.

The question often asked, however, is which book offers the most value, The Disciplined Trader or Trading in the Zone?

Some traders described The Disciplined Trader as being the only book needed. As good as Trading in the Zone is, some viewed the text as simply a recap/rehash of The Disciplined Trader and, therefore, not worth the money.

Other traders, nevertheless, believe Trading in the Zone is the best resource to learn about trading psychology, and an enormous improvement from The Disciplined Trader.

If you want to understand the fundamental truths of trading and trade from a care-free state of mind then both books are worthy of a place on your shelf.

Whether you choose to read both of Douglas’ books, or just one, it will certainly change the way you view trading.

Key quotes:

  • ‘You don’t need to know what is going to happen next in order to make money’.
  • ‘There is a random distribution between wins and losses for any given set of variables that define an edge’.
  • ‘An edge is nothing more than an indication of a higher probability of one thing happening over another’.

‘Trade Mindfully’ by Gary Dayton (2014)

Written by Gary Dayton, a psychologist, a mentor and a trader since 1999, Trade Mindfully bases its theme on the concept of mindfulness. Mindfulness, by definition, is the quality or state of being conscious or aware of something. You are likely familiar with this term if you practice meditation.

Dayton comes from the unique perspective of possessing both trading skills and knowledge of the mental side of trading. In 300 pages, he offers defined steps to overcome many psychological problems associated with trading. Although the author uses mostly futures and stock markets in examples throughout the book, the problems he talks about and the solutions he offers are pertinent to all kinds of markets, including the spot foreign exchange.

On the whole, readers’ reviews have been positive. Many reported the book as a well-written piece that clearly expressed relevant points. On the other side of the field, though, a small portion of readers labelled the book as being too repetitive, and not effectively summarizing critical parts.

By and large, the book offers a comprehensive guide through some of the parts of human psychology that relate to trading and, therefore, is a noteworthy addition.

‘Reminiscences of a Stock Operator’ by Edwin Lefevre (1923)

‘After twenty years and many re-reads, Reminiscences is still one of my all-time favorites’ — Kenneth L. Fisher, Forbes.

‘A must-read classic for all investors, whether brand-new or experienced’ – William O’Neil, founder and Chairman, Investor’s Business Daily.

Reminiscences of a Stock Operator provides a riveting account of legendary trader Jesse Livermore. Despite first published in 1923, the book more than maintains its relevance today.

Providing context through means of rich storytelling, readers gain insight into what it takes to become a successful trader, and the pitfalls to avoid. Whether you’re already consistently profitable, just beginning your trading journey or struggling, this book, over the course of 300 pages, follows the trading career of a life-long trader, providing insight into struggles you may have faced already, or have yet to encounter.

Don’t be put off by the book’s age. It really is a timeless classic most worthy of any trader’s bookshelf.

Never stop learning!

Beyond keeping things fresh to sustain your creativity and passion, learning keeps you relevant in our ever-changing world.

No matter your current level, you’ll forever be a student in this business, be it day trading, swing trading or position trading. Thinking this way permits continual progression, keeping you one step ahead of the competition and bound for top-trader status.

Additional books that may interest you are: The New Market Wizards and Hedge Fund Market Wizards by Jack Schwager, Trade Your Way to Financial Freedom by Van K. Tharp, Trading Psychology 2.0: From Best Practices to Best Processes by Brett Steenbarger and Trading to Win by Ari Kiev.