Best Trading Psychology Books

With the experience of being a futures broker, options floor trader, building an options trading firm and training traders to trade my own capital, I have a pretty good sense of books that are helpful for traders on the road to trading mastery.

Here are my current favorites. If you want to nominate one that isn’t on this list, let me know!

Mind, Money and Markets

The Hour Between Dog and Wolf: Risk Taking, Gut Feelings and the Biology of Boom and Bust – by John Coates, Random House 2012

This is by far and away the best book I have read that combines neuroscience, physiology and trading stories. It obliterates many of the myths we carry around about ourselves and our trading decisions. Here are the corrections from author John Coates.

1. Our bodies and our brains are so interconnected, think of them as one organism
2. Our physiology and neurochemistry change with winning and losing trades
3. Our decision process is in play long before we are aware of it
4. Intuition is about powerful pattern recognition
5. Our communal and interconnected biochemistry sets us up for the boom and bust cycles.

See my blog post on this book for more information.

Super Trader: Make Consistent Profits in Good and Bad Markets – by Van K. Tharp, McGraw Hill 2011

Combining the sharp insight and technical brilliance that have drawn legions of investors to his books and seminars, Tharp provides a holistic approach for becoming a successful full-time trader.

The Daily Trading Coach: 101 lessons for becoming your own trading psychologist – by Brett N. Steenbarger, 2009 Wiley Publishing

Dr. Steenbarger covers every aspect of the transformational process that traders and investors will need to deal with. Reading the book is like walking on a field of diamonds and hearing them crunch under your boots. The major issues that most of my clients are working on are all addressed clearly along with suggested solutions.

Trading in the Zone: Master the Market with Confidence, Discipline and a Winning Attitude – by Mark Douglas, 2000 NYIFD

For Douglas, maximizing the trader’s state of mind is the key to successful results. He teaches traders to think in terms of probabilities and to adopt the core beliefs necessary to assuming a “winner’s mindset.”

Fooled by Randomness: The Hidden Role of Chance in the Markets and in Life – by Nassim Nicholas Taleb, 2001 Texere LLC

Taleb deals with three areas of difficulty we face with our current thinking processes: the problem of induction, survivorship biases and our genetic unfitness to the modern world. Our brains want to create patterns from random events that bare no relationship to reality and Taleb clarifies this tendency.

The Mental Strategies of Top Traders: The Psychological Determinants of Trading Success – by Ari Kiev, 2010 Wiley

Kiev defines the characteristics of successful traders by looking across a broad range of skill sets with case studies that provide a real-world picture of what it really takes to make it in today’s markets.

Inside the Investor’s Brain: The Power of Mind Over Money – by Richard L. Peterson, 2007 Wiley

Dr. Peterson, backed by recent research in Neurofinance explains the fundamental “hardwired” mistakes made by most investors and reveals the simple steps you can take to overcome these obstacles and improve your financial decision-making skills.

MarketPsych Data

MarketPsych Data Make money when your own Mind Muscles™ are in top shape and emotion is running wild in the market place. MarketPsych Data integrates the competitive advantages derived from behavioral economics into data and signals for the world’s largest investment banks, hedge funds and brokerages.

Super Trader: Make Consistent Profits in Good and Bad Markets – by Van K Tharp

Super Trader provides a time-tested strategy for creating the conditions that allow you to reach levels of trading success you never thought possible. Providing expert insight into both trading practices and psychology, Tharp teaches you how to steadily cut losses short and meet your investment goals through the use of position sizing strategies – the keys to steady profitability. Tharp offers concepts and tactics designed to help you.

Mindset: The New Psychology of Success – by Carol Dweck

Mindset is “an established set of attitudes held by someone,” says the Oxford American Dictionary. It turns out, however, that a set of attitudes needn’t be so set, according to Dweck, professor of psychology at Stanford. Dweck proposes that everyone has either a fixed mindset or a growth mindset.

A fixed mindset is one in which you view your talents and abilities as… well, fixed. In other words, you are who you are, your intelligence and talents are fixed, and your fate is to go through life avoiding challenge and failure. A growth mindset, on the other hand, is one in which you see yourself as fluid, a work in progress. Your fate is one of growth and opportunity.

The Book of Not Knowing: Exploring the True Nature of Self, Mind and Consciousness – by Peter Ralston

Over decades of martial arts and meditation practice, Peter Ralston discovered a curious and paradoxical fact: that true awareness arises from a state of not-knowing . Even the most sincere investigation of self and spirit, he says, is often sabotaged by our tendency to grab too quickly for answers and ideas as we retreat to the safety of the known.

This “Hitchhiker’s Guide to Awareness” provides helpful guideposts along an experiential journey for those Western minds predisposed to wandering off to old habits, cherished presumptions, and a stubbornly solid sense of self. With ease and clarity Ralston teaches readers how to become aware of the background patterns that they are usually too busy, stressed, or distracted to notice. The Book of Not Knowing points out the ways people get stuck in their lives and offers readers a way to make fresh choices about every aspect of their lives, from a place of awareness instead of autopilot.

Superforecasting: The Art and Science of Prediction – by Dan Gardner

Everyone wants to be able to predict the future, whether they are buying stocks, choosing a mate, or deciding how the next presidential election will go, but what, if anything, can we do to improve our ability to predict?

Wharton School professor Philip Tetlock has been studying that question since the Reagan era and has observed forecasters from pundits and intelligence analysts to filmmakers and pipe fitters to try to learn why some people are better at making predictions than others. In this book, he describes his work and that of others and presents some techniques that may help all of us make better decisions.