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Trading in the Zone by Mark Douglas
 

Any subtitle that states the following; "It is not you against the market, it is you against yourself." gets my attention. I came to the realization a month into my career as a day trader, that the mental aspect was by far the most important component of any traderís methodology. Unfortunately, at the time I did not have a sound method or style to get mentally confident about. I kept banging my head against the wall wondering why I was not getting results. In retrospect it was easy to see why, I did not know how to trade consistently well, therefore developing confidence in a system that didnít exist was pointless. Seven years later and four of them as a consistently profitable trader I now primarily focus on the mental aspects of trading, to me that is what separates the good traders from the great traders.

Most trading books deal with coming up with new indicators and "bells and whistles" to enhance your trading. What most people donít realize is that all of that stuff is useless unless you put it to use consistently and tailor it to your personality. Mark Douglas, the author of "Trading In The Zone" walks you through an amazing insight into the characteristics of what separates good from bad traders and offers the reader practical strategies to develop the mindset of a winning trader. Have you ever wondered why time after time you see trade set-ups that ultimately work, but you either were too afraid to take them or rationalized why this trade probably would not work despite your indicators saying otherwise?

Douglas explains how all consistently successful traders have several things in common:

  1. They take responsibility for their actions
  2. They donít expect the market to go in the direction they think, rather, they know that the market can go in any direction at any time despite what their indicators say.
  3. They have pre-defined rules for determining the level of risk they will take on each trade.
  4. They are never afraid of trading and are never euphoric to the point where it causes recklessness in their trading.

While all of these reasons are familiar to most traders and they know they need to implement and have that mindset, most of them do not know how to achieve those traits. This book will enable the reader to this.

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SHORT TERM TRADING / SWING TRADING

  Hit and Run Trading by Jeff Cooper
  This book contains a few types of trading setups. Some seem to be renamed candlestick patters and some are just plain good old setups for buying momentum stocks. We have purchased the software and at times reviewed the results in a somewhat limited manner. Our overall feel for this style of trading is that it could work with proper money management and proper filtering. In fact it has to work with proper filtering in an up market because experience tells us that trends experience pull backs and this books contains setups that will get you in to potentially large moves. Perhaps a filter looking for accumulation in the NASDAQ 100 or the S&P 500 would bring solid returns. One caveat, in general, the downside setups seem to have you selling right into the area where professionals love to stuff shorts. Really back test your sell setups. A good book for a person trying to figure out what professionals are thinking.

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Street Smarts by Linda Raschke and Larry Connors
  A great book for learning what professionals are thinking and doing. Apparently, Linda Raschke a market wizard, really uses the "Holy Grail" trade setups. She seems to use the 20 period ema moving average setups within a comprehensive system and understanding of the markets. This book contains professional concepts endorsed by Van Tharp in his book. Of course Van Tharp would tell you that you must trade small, trade frequently, trade with excellent, cheap executions and trade with discipline. So do we. Again, we did limited back testing on some of these trades (on stocks) with mixed results. From our own experience taking some of these trades in real time does lead to profitable results. However, we are using additional indicators, experience and trade management to trade stocks. The Cooper, Rashcke, and Connors books are not cheap but neither is experimenting in the markets. If you are looking to learn about high probability trading setups, this book is a buy.

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Connors on Advanced Trading Strategies by Larry Connors
  A good book and a follow-up in our minds to Street Smarts. Somewhat of a review of the previous book co-authored with Raschke. If you like "Street Smarts", are willing to do work, take trades, and develop your own trading style this book is very useful. No book by itself is going to make you a profitable trader. But, if you incorporate high probability trades into a method for trading small and frequently you can make money. This book will help you develop a trading methodology. All we can say is that one of the keys to trading is to take enough small trades to allow a high probability method to get you onto the trading probability tables. If you are going to try and hit home runs once in a while you will be either more skilled than all but one "market wizard" or very lucky.

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SCALPING

  The Electronic Day Trader
  This is a very interesting book and useful if combined with the Secrets of Electronic Day Trading also created by the same authors. We are not sure that the discussion regarding Specialists is still that useful because it is our understanding that specialists do a great deal more hedging with options than when one of these authors worked on the AMEX. However, with regard to listed stocks you get to see how a trader of New York stocks thinks. It is part of the evaluation process that we do all day long. This bookís strength seems to be with NASDAQ stock trading. Which makes sense since the authors own a SOES firm. On CNBC the author stated a new trader should learn how to trade by trading 100 shares. We agree. You are not going to sit in front of a screen and be a great trader; without understanding, experience and discipline. After all did the net stocks go up forever? After Yahoo went up over 200 was it still a hold. I guess it depends on the size of your account and your time horizon. This book explains a very simple method of day trading. It surprisingly works for a few very skilled practitioners. We know it works because we do the same thing, (mostly on New York stocks). If you have experience you might pick up the nugget of wisdom in this book. Without experience you need to read the follow-up book because the useful piece of information gets drilled into you by every real daytrader they interviewed.

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  Secrets of Electronic Day Trading
  See the review above. This book is not full of secrets, yet it is not full of "it" either. What one learns is that profitable day trading is the result of doing the same boring thing over and over. Some of the traders explain that to make money you have to know your levels and look at the S&Ps. This is the essence of scalping stocks. It was nice to see that these guys were doing with NASDAQ stocks what we do with New York stocks. Some of these guys were making unreal amounts of money. I wonder if the guys holding 50,000 shares overnight did as well in the fall and spring volatility. It did not seem easy to us to predict where the market was going to go overnight and we know some people made a lot and then lost a lot money with their Internet positions. However, there was real simplistic wisdom from some the real daytraders in this book. Without, training and experience this book probably did not contain enough secrets to make a new trader profitable, however this book is a good starting point for stock scalpers. However, to really make money scalping stocks one probably needs to know a few "secrets" that the interviewees did not give away.

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FUNDAMENTAL ANALYSIS

  How to Make Money in Stocks : A Winning System in Good Times or Bad
  You could use the information in this book to create a hit list of stocks that could then be analyzed and traded on a short term time frame. These books are easily acquired with a subscription to Investors Business Daily.

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TECHNICAL ANALYSIS

  Schwager on Futures :Technical Analysis
  A companion to his fundamental analysis book. The author of this book has admitted that he was not that sure that very short term patterns could be exploited in the market by off floor traders until he met particular market wizards. An excellent book for background understandings of Technical analysis. We read this book a few years ago and it left the readers believing they should trade flag patterns and measured moves.

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  Technical Analysis of the Financial Markets: A Comprehensive Guide to Trading Methods and Applications by John Murphy
  If you do not know much about Technical analysis read this book. The Donchian methods cited by the author seems to be the basis for the old Turtle Method of trading. Channel breakouts seem to be the only widely used methods by succesful commodity trading advisors. While these methods may be useful for a daytrader to be monitor, to make money a much more refined system is probably needed.

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  The Visual Investor by John Murphy
 

An updated and possibly abbreviated follow up to his previous book.




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MONEY MANAGEMENT

  Trade Your Way to Financial Freedom By Dr. Van K. Tharp
  This book captures the fundamental understandings of trading. You should not make another trade unless you incorporate the lessons contained in this book into your trading plan. Do you understand why you are a trader instead of an investor? Do you know the difference between investing and trading? Do you know the importance of having a disciplined approach to choosing your trade size, your trade entry and exit?

If your current trading style does not parallel the trading concepts described in this book, you will either destroy your account or be the recipient of undeserved luck. This book is quite simply the best book on the subject of trading.

Once you have made the determination that you are willing to follow a trading methodology, you then need to understand the tools that go into developing your trading methodology.

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DISCIPLINE

  The Disciplined Trader: Developing Winning Attitudes
  disciplinedtrader.gif (6126 bytes)You could have the best trading methodology in the world but it would be useless without proper implementation. Discipline and money management are the keys to any successful trader. Read this book to gain the insight required to be disciplined.


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INTUITION

  The Intuitive Trader : Developing Your Inner Trading Wisdom
  intuitivetrader.gif (16089 bytes)Experienced traders know the value of intuition, and can distinguish between "intuition" and "wishing". This book will give you a practical overview of how intuition can be used effectively in your trading methodology.


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TRADING WISDOM

  Market Wizards by Jack D. Schwager
  marketwizards.gif (6247 bytes)This was the first book I ever read on trading, not only did it inspire me to become a trader, but it still proves to be a valuable resource even after 9 years. For new traders, the interviews give you a glimpse inside the minds of some of the worldís best traders. Whether they are long term or short-term traders the same lessons come across in each interview that all traders must follow. A must read!!!† Purchase Book
 
The New Market Wizards: Conversations With Americas Top Traders
  newmarketwizards.gif (6089 bytes)A brilliant follow up to the classic, more traders, more lessons, and more insights.


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Trading for a Living : Psychology, Trading Tactics, Money Management
  tradingforaliving.gif (4790 bytes)In a game that is 80% mental and 20% mechanical, this book is invaluable.


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