January 21, 2021 Most traders tend to believe that once you have a good strategy then you can trade successfully and make a lot of money. Then there are others who think that if you have a good strategy + rules then you will be able to do well. But the truth is that your rules and strategies are not enough to sustain a trading career.
Trading is actually 90% mental/psychological and the right mindset is the deciding factor in how well you will do long term. Having the right psychological approach to the market is what will allow you to trade the market rather than have the market trade you.
That is what trading psychology is all about. It is about developing the right mindset, so that you can deeply understand yourself as an individual and as a trader and so that you know your strengths and your weaknesses.
The truth is that you will not achieve long-term success until you have reached this level of self and market knowledge. The books below are some of the best ever written on Trading Psychology. The information contained in these pages are basically the shortcut to developing the right mindset for trading.
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This book is a classic and, in my opinion, Mark Douglas’ seminal work. This book breaks down every single part of the trading process and the common thought patterns that most traders have when it comes to executing and managing trades. Most of these thought patterns can be self defeating and lead to poor trading outcomes. Douglas spends a lot of time, and does a great job of helping readers deal with these issues effectively.
I was an avid reader of Brett Steenbarger’s blog for a long time before I read any of his books. And it just so happens that the fist one I read was “Psychology 2.0” and it really set a lot of things into perspective for me and helped me deal with some of the biases that I had at the time. My encounter with this book marked a critical turning point in my trading career.
Which trader doesn’t have Van Tharp on his/her shelf? If you don’t you need to have it. This book deals with every aspect of trading, including the all important, trading psychology. The entire back is really a detailed roadmap that can be adapted into your own trading journey.
This book is what really drove home the importance of making sure your trading strategy matches your personality. This is something that a lot of traders just do not get. It doesn’t mean that you can’t learn a trading strategy and do well with it but, if you learn a strategy that fits your personality it will make your trading strategy a lot less difficult and you can get to consistent profitability faster.
This was the forerunner to “Trading In The Zone” and it pretty much laid the groundwork for many of the Trading Psychology books that came afterwards. When you read this book you will see that many of the concepts that are now mainstream were birthed in it.
Being aware of the subconscious and managing your emotions are superpowers when it comes to trading and investing. Peterson’s book will help you figure out how you can acquire these superpowers and get an edge in the market. The vast majority of market participants don’t even consider these things so just being aware of it puts you ahead of the game.
In trading, and life in general, we make decisions everyday and often fall victim to some simple mistakes/errors that are usually preventable. In this book, Mauboussin will take you through the process of identifying these common mistakes and, more importantly, how to avoid/prevent them.
Fixing your bad habits will lead to better trading results but fixing those habits is hard and can take a very long time. You will have to replace those bad habits with good ones and, in order to do that, you must be able to implement the new habits consistently. This book will take you through the entire process.
What if you had a dozen seasoned, successful traders sit you down and tell you all the psychological issues they struggled with and how they overcame them? Well this is what Andrew Aziz does in this book. You hear from real traders about how they overcome the mental/psychological issues and achieve trading consistency.
We like to think that we are rational human beings and that we make data driven decisions, but the truth is that emotions play a far greater part in our decisions than we like to believe. Denise Shull makes this very clear in this book and tells you how to use this fact to your advantage.
Conclusion: It was difficult to put this list together because there are so many good books on Trading psychology. But I focused on those books that offered a different take on the subject and attacked the issue head on/directly and think these books fit the bill. If you have come across any great books on the topic, shoot me an email and I will check it out