In this article I’d like to provide a review of what I believe are the best trading psychology books.
This is a list that I have compiled over my trading career which have provided really important insights about the roll emotion plays in trading, how to manage risk and understanding probability.
The books included in this list are written by many of the most famous minds in trading. I’ve also included several books that aren’t trading specific but include VERY valuable principles about how to manage your emotions, create discipline and develop successful habits.
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Best Trading Psychology Books
The following is a quick reference list for the books I will be covering in this post:
The Daily Trading Coach: 101 lessons for becoming your own trading psychologist (2009)
The Daily Trading Coach – Best Trading Psychology Books
Overview
The daily trading coach is not just one of the best trading Psychology books but one of my favourite trading books! Dr Breet Steenbarger is a leading trading psychologists and this is his best book to date.
The book is broken down into 101 easy to read, practical lessons that provides really effective strategies for navigating the emotions and stumbling blocks of trading.
What I love most about this book is each of the 101 lessons is only about a 5 minute read. Making it a really digestible. You can just pick up the book, read a lesson and digest the takeaway in your own time.
Key points
101 simple lessons
This book is packed full of great material that is formated in a simple to read bite sized lessons.
Self coaching
This book aims to provide a self coaching framework for any trader from novice to the more experienced. The book provides simple strategies supported by exercises and other resources to help traders help themselves navigate their own trading mindset.
Must read
This book is a must read for any serious trader looking to achieve success in the markets!
About the Author
Dr. Brett Steenbarger, PhD is a clinical psychologist, active trader, performance coach, and author of multiple books. Dr. Steenbarger has been actively involved in the financial markets since the late 1970s and has an in-depth experience as director of Trader Development for Kingstree Trading, LLC coaching portfolio managers and traders alike.
Other books: Enhancing Trader Performance (2006), Psychology of Trading (2002), and Trading Psychology 2.0 (2015)
Editorial Review
“A great book! Simply written, motivational with unique content that leads any trader, novice or experienced, along the path of self-coaching. This is by far Dr. Steenbarger’s best book and a must-have addition to any trader’s bookshelf. I’ll certainly be recommending it to all my friends.”
–Ray Barros CEO, Ray Barros Trading Group
Psychology of Trading (2002)
Psychology of Trading – Best Trading Psychology Books
Overview
The Psychology of Trading is a unique book that combines psychology and cognitive neuroscience to observe how it applies in the emotion-filled trading world. As a Psychologist and performance mentor, Dr. Steenbarger utilizes real life case studies to expose the common cognitive and emotional tendencies that affect our ability to objectively recognize market patterns. In doing so, psychological techniques are also discussed in depth to help hone positive cognitive practices.
Key Points
As an overview, the Psychology of Trading revolves around the idea that state of mind, consciousness, energy, level of concentration – many psychological variables – affect our decision making; hence, the importance of self-understanding and self-development.
Takes a personal approach
- The Psychology of Trading uses numerous real-life case studies.
- Dr. Steenbarger highlights the role our everyday lives play in our psychological makeup.
- Illustrates how certain personal development tools and techniques serve as the key to understanding the problems we face as traders.
- How self-knowledge can help not only in trading but in different aspects of our lives
Solution-focused Approach
- Many traders are problem focused – a mentality that focuses on holes and deficiencies – rather than solution-focused.
- The Psychology of Trading focuses on a solution based framework.
- Focuses on inherent strengths and positive experiences. Drawing from these to develop a solution pattern to get you closer to your goals.
State Shifts
- The Psychology of Trading introduced the idea of state shifts or changes in our states of consciousness
- State shifts play a critical role in the rapid change in emotions.
- The book dives into the importance of recognizing shifts in our state of consciousness. It provides techniques to quickly navigate ourselves out of the maze of clouded judgment, impulsiveness, anxiousness.
About the Author
See ‘The Daily Trading Coach’ above
Other books: Enhancing Trader Performance (2006), The Daily Trading Coach (2009), and Trading Psychology 2.0 (2015)
Editorial Review
“‘Investigate, before you invest’ was for many years the slogan of the New York Stock Exchange. I always thought a better one would be, ‘Investigate YOURSELF, before you invest.’ The Psychology of Trading should help you increase your annual investment rate of return. Mandatory reading for anyone intending to earn a livelihood through trading. “
–Yale Hirsch, The Hirsch Organization Inc., Editor, The Stock Trader’s Almanac
Reminiscences of a Stock Operator (1923)
Reminiscences of a Stock Operator – Best Trading Psychology Books
Overview
A classic (fictional) tale that portrays the life of Jesse Livermore, the most famous and successful market speculator of all time. Even after a hundred years of its publication, this book remains a favorite among professional and novice traders. Its timeless investing lessons remain relevant even today.
Below you will find some of these key themes:
Key Points
Some things never change
Times change, but one thing that remains the same is human nature and behavior.
In the financial markets what remains the same is the role of fear and greed in decision making and trading performance.
This book explores the emotional cycle of investing.
No amount of studying and analyzing the markets will still lose money if you lack the ability to control emotions and exhibit patience.
“They beat themselves, because though they have brains, they cannot sit tight.” – Reminiscences of a Stock Operator
The book emphasizes that markets do not beat the trader, but rather the trader beats himself/herself.
Be a student of the markets
Reminiscences of a Stock Operator retells the story of Jesse Livermore. It documents the legend’s vast dedication to studying the markets.
Build self-trust
Livermore tenet: do your own work. Livermore’s story is about building on studies, research, experience and analysis then believing in your hard work.
A man must believe in himself and his judgment if he expects to make a living at this game. That is why I don’t believe in tips. – Reminiscences of a Stock Operator
Look at the bigger picture
The story also talks about the importance of reading the entire market in the entirety of its trend and avoiding miniscule aspects like price fluctuations.
This is a timeless Livermore tenet that served as an early influence for trend trading.
…big money was not in the individual fluctuations but in the main movements—that is, not in reading the tape but in sizing up the entire market and its trend. – Reminiscences of a Stock Operator
Latch on to winners, cut the losers
Reminiscences of a Stock Operator is one of the early works that emphasized the timeless lesson of holding on to winners and cutting losers. This lesson was told through the real life experiences of Livermore in investing in cotton and wheat.
“I did precisely the wrong thing. The cotton showed me a loss and I kept it. The wheat showed me a profit and I sold it out. It was an utterly foolish play… Always sell what shows you a loss and keep what shows you a profit”
About the Author
Edwin Lefevre is a diplomat, stockbroker, investor, journalist, and a well-known writer. He wrote eight books in his career with Reminiscences of a Stock Operator serving as a timeless piece up to this day.
Editorial Review
“Although Reminiscences. . . was first published some ninety years ago, its take on crowd psychology and market timing is as timely as last summer’s frenzy on the foreign exchange markets.”
– Worth magazine
Trading in the Zone (2000)
Trading in the Zone – Best Trading Psychology Books
Overview
A unique piece that takes a pure psychological point of view to trading – No charts and numbers. This book is about mastering the market using purely discipline and a winning attitude.
Key points
Consistent winners think differently
This book explains how consistent winners have a different level of psychological makeup compared to the 90-95% of most traders. Douglas believes that to be a consistent winner in this game, one has to believe and develop its “mental state” or “zone,”.
According to Douglas, most traders do not recognize the concept of the “Zone” is and therefore fall into mediocrity. They overemphasize the role of fundamental or technical analysis as the main reason for their losses.
Consistent winners, on the other hand, recognize that market analysis is not the sole determining factor, but rather his/her mental state and mindset also play a strong role in performance.
Disconnecting emotions
Compartmentalize emotions and feelings when entering trades. This book makes suggestions about how to take on an objective perspective on trades by looking at it solely from a risk-reward perspective.
The book also suggests methods for controlling defensive mechanisms when a trade doesn’t pan out as expected which will take you out of the “opportunity flow.”
“Accepting the risk means accepting the consequences of your trades without emotional discomfort or fear” – Trading in the Zone
About the Author
Mark Douglas is well-known as the author of two industry classics: The Discipline Trader and Trading in the Zone. He began his career as a trading coach in the early 1980s and has been a consistent proprietor and speaker in trading psychology programs.
Douglas also stood as the president of the seminar firm Trading Behavior Dynamics.
Editorial Review
Douglas explains to the trader just what type of mental mindset is needed to be a winner in the markets ~ and guides the reader along a path of self-discovery leading them to higher and sustained trading results.
-Global Publishing House
Other books: Discipline Trader
Thinking Fast and Slow (2011)
Thinking Fast and Slow – Best Trading Psychology Books
Overview
Thinking Fast and Slow isn’t a trading book per se, rather it’s a self-help book that talks about the inherent battle of two systems in our brains that make us prone to misjudgment, inaccurate memory, and flawed decision making. Basically, this book makes use of science-backed principles to help you make better decisions.
Key Points
The Two Systems of our Brain
According to Kahneman, behavior is caused by 2 systems in our brain – one that is conscious, the other automatic. The latter is responsible for impulsive decisions while the former is more about self-control.
Kahneman creates a well-rounded discussion on these 2 systems – explaining the origins, dynamics, as well as the thoughts and cognitive patterns that induce these types of brain activities.
Understanding and mastering how to control these 2 systems and manipulating them to work harmoniously is of huge benefits to traders.
Money and Emotions
Thinking Fast and Slow argues that our two ‘systems’ are heavily conflicted when confronted with money. Because finances can be very emotional for a lot of people, many cognitive biases arise here that makes us vulnerable to making bad decisions.
The cognitive biases discussed are: diminishing sensitivity principle, loss, aversion, and reference points.
About the Author
Daniel Kahneman is a renowned psychologist and Nobel Prize winner for Economics – for his work bridging two disciplines: psychological research and economic science. His work is heavily tilted towards cognitive psychology and its relation to mental processes in making choices.
Editorial Review
“There have been many good books on human rationality and irrationality, but only one masterpiece. That masterpiece is Daniel Kahneman’s Thinking, Fast and Slow . . . This is one of the greatest and most engaging collections of insights into the human mind I have read.”
―William Easterly, Financial Times
Atomic Habit (2018)
Atomic Habit – Best Trading Psychology Books
Overview
Another self-help book that gives astounding actionable advice about turning behaviors into positive habits. Atomic Habit explains the impactful role of developing small positive habits in our life. Choosing to break the bad ones and develop better ones to help create a positive lasting change over time.
Key points
The Four Step Pattern
According to James, the four step pattern, Cue, Craving, Response, and Reward, is the basis of all our habits. These 4 step patterns help in habit recognition.
Understanding the role of these steps will help us consciously recognize habit inducing factors.
Four Laws of Behavior
James suggests four laws that will help create a behavior change: make it obvious, make it attractive, make it easy, and make it satisfying.
The book discusses these 4 concepts in detail and provides ways to easily incorporate them into everyday life. According to James, by following the 4 laws, creating positive habits will be much more achievable. Conversely, you do the reverse to eliminate bad habits.
About the Author
James Clear is a writer earning his New York Times bestseller on Atomic Habits, which sold over a million copies worldwide. He is also a speaker who advocates about habits and continuous improvement among many major companies in the US.
Editorial Review
“James Clear has spent years honing the art and studying the science of habits. This engaging, hands-on book is the guide you need to break bad routines and make good ones.”
-Adam Grant, New York Times best-selling author of Originals, Give and Take, and Option B with Sheryl Sandberg
Psycho-Cybernetics (1960)
Psycho-Cybernetics – Best Trading Psychology Books
Overview
Like Atomic Habits and Thinking Fast and Slow, Psycho-Cybernetics is a book about self-help and development. The author talks about the power of positive self-perception. The way we choose to paint ourselves – whether in a positive or negative light – and how that dictates our happiness.
In his studies, Maltz discovers that our self-image holds a key part in our mental state, which then determines our successes and failures.
Key Points
The Power of Self-Image
According to Maxwell Maltz, our actions are dictated by how we envision ourselves, so much so that our self-perception limits us and puts ourselves in our own hypothetical box. This self-image is shaped by major events in our lives.
Maltz emphasized how crucial it is to reshape our perceptions as this will dictate our actions in our day to day lives. It is even more important to establish a positive self-image first before setting our life goals.
S.U.C.C.E.S.S. – 7 Principles
Maltz creates 7 principles that he believes are crucial elements in developing a winning personality. The elements include, Sense of Direction, Understanding, Courage, Charity, Esteem, Self-confidence and Self-acceptance.
The Power of Letting Go
A crucial lesson applicable in the trading world. Maltz discussed the effects of eliminating mistakes and failures simply because it will not do you any good. Only the process of reflecting on these mistakes for the purpose of learning is key.
The Power of Imagination
One of the most interesting takeaways from the book is Maltz’s take on imagination. Maltz believes that imagination plays a big role in changing our self-perception. Assigning a huge role to imagination is based on the notion that our brain cannot effectively distinguish imagination from reality. Hence, we can dictate what we feed into our brains and how that effects our reality.
About the Author
Maxwell Matz is well-known in the medical field as a cosmetic surgeon. His experiences in the medicines brought him to write a series of self-help and fictional books. Psycho-Cybernetics is his literary masterpiece and a long-time best seller. Although published in 1960, this book remains a self-help classic.
Editorial Review
“Psycho-Cybernetics is a classic personal development book. Most of the current speakers in the area of personal development, including Zig Ziglar, Tony Robbins, Brian Tracy and others owe a debt to Maxwell Maltz for the foundation of their material. The psychological training of Olympic athletes is also based on the concepts in Psycho-Cybernetics. Thousands, possibly millions, of people have benefited by putting these ideas to work. Put Psycho-Cybernetics on your ‘”must-read’” list.”
–Michael C. Gray, Profit Advisors
Market Mind Games (2012)
Market Mind Games – Best Trading Psychology Books
Overview
Market Mind Games debunks the common belief that traders should be emotionless robots to make the best decisions. Realistically, certain emotions drive good decisions; hence, Shull suggests that we should learn to use these kinds of emotions to our advantage.
Shull utilizes psychology, philosophy, finance, and cognitive science to create theories and techniques to manage emotions.
Key Points
Self-Similar Patterns
Market Mind Games goes beyond the common study of the relationship of thoughts, emotions, and actions by introducing the concept of self-similar behavioral patterns. This principle suggests that pieces of our past experiences shape a behavioral pattern that repeats in a reinforcing pattern.
The book encourages the analysis of past experiences and relationships to assist in the our emotional response as traders. Shull refers to this as our “fractal-emotional context.”
Psychological and Emotional Leverage
According to Shull, feelings are information.
Emotions, are commonly considered a burden to our trading. However, Shull debunks this as she believes that we cannot suppress emotions. Instead, Shull emphasized the importance of emotion and psychological management through acknowledgement and timely leverage.
Shull acknowledges the importance of knowing yourself and understanding the nature of your emotions to fully unlock your emotional and psychological leverage. Shull also believes it becomes equally important to create a model of our emotions.
Physical Capital
Trading is like any other sport: it requires preparation, rest, diet, and exercise. According to Shull, building and maintaining a strong and healthy physical capital is as important as maintaining your emotional capital. Trading with a tired body creates a toll that affects our mental state.
About the Author
Denise Shull, MA is a performance coach and acts as the CEO of the human performance and decision-making consultancy, The ReThink Group Inc. Her experiences in the neuroeconomics and modern psychoanalysis spectrum brought her to develop her proprietary Shull Method.
Shull’s career in Wall Street began in 1994.
Editorial Reviews
“If you are trying to solve the unsolvable, stop. Read this first and you will learn that the surest path to success will be to start with yourself; solve that conundrum and challenges like understanding how you do and should react to markets will come to be solvable.”
—Marvin Zonis, Professor Emeritus, Booth School of Business, The University of Chicago
Trade the Trader (2010)
Trade the Trader – Best Trading Psychology Books
Overview
A unique addition to the trading book spectrum, Trade the Trader takes a realistic and personal approach. It highlights real life matters that concerns a trader. The author, Quint Tatro, introduces a binary strategy- reactionary versus anticipatory. This book delves on the pros and cons of each strategy to help determine which one works for you.
Key Points
Zero Sum Game
Tatro reminds us that trading is indeed a zero-sum game, where it’s more than just a playing field of different companies but it is also a competition among traders. There is always one winner and one loser.
This book takes a unique perspective of understanding your competition – the person on the other side of your trade.
Probability Game
Tatro is a non-believer of utilizing capital % metrics as a factor in setting stop levels. Rather, he believes in playing from a probability standpoint rather than P&Ls. This is a unique strategy that can be of benefit to some trading systems.
Technical Strategies and Psychological Approach
As a well-experienced trader and hedge fund manager, Tatro indulges readers with his own technical approach to the market. Apart from sharing chart patterns, Tatro utilizes a reactionary and anticipatory approach. He suggests which of these strategies is best for any one trader.
This book will fit very well for traders who are looking for a mix of both technical and psychological discussion.
About the Author
Written over 10 books, Quint Tatro is an author with a multitude of works in trade literature. Tatro is also an active contributor in CNBC and an active faculty member in the University of Kentucky teaching investment analysis and portfolio management.
Quint Tatro is the acting president and owner of the investment advisory firm Tatro Capital LLC. He also acted as a partner in a hedge fund in Florida.
Editorial Reviews
“Active trading based on technical analysis is not for the woolly headed or the faint of heart. Quint Tatro brings a patient, measured, and highly disciplined approach to the action that sets him apart. If you trade, or are tempted to do so, you’ll benefit from Trade the Trader.”
–Tim Forbes, President and COO, Forbes
