Recommended Trading Books
These books may assist you in arriving at a decision in whether you want to invest in a company’s shares.
Reminiscences of a Stock Operator by Edwin Lefevre
This is a classic text detailing the exploits of Jesse Livermore, who started trading in bucket shops and progressed through the ranks ending up in Wall Street. The book was first written in 1923, and an annotated version which was published in 2008 is now available. The annotations, which can be found on a majority of pages in the book, are useful for explaining some of the now dated terminology used in the original.
As well as making several fortunes, Jesse Livermore also lost them which acts as a sobering reminder of the risks involved in the financial markets. The book is widely quoted and is important in exploring trading concepts which many people otherwise find psychologically counter-intuitive. For example, Livermore advocates buying stocks when they are expensive as this is when they are exhibiting strength and are likely to continue to rise in price. This is in marked contrast to what a lot of people do, buying shares when they have fallen significantly only to see them fall even further; an example of this is banking shares during the financial crisis of 2008 onwards.
How to Make Money in Stocks by William J. O’Neil
This book borrows from many of the concepts of Reminiscences of a Stock Operator (such as buying shares on strength and cutting losses quickly), but is a more up to date text with the most recent edition being published in 2009. It introduces a framework called CANSLIM, which was based on the study of stocks going back over 50 years. This acts as an easy to follow checklist for investing in shares, which can be especially useful for newcomers finding the markets daunting and not knowing where to start.
It covers both fundamental analysis of shares, with particular emphasis placed on earnings per share (EPS) growth, and technical analysis, stressing the importance of buying stocks which have moved out of proper chart bases. It also has a very useful section on determining overall market direction by daily study of the indices such as the S&P 500. This includes recognising market tops, distribution and accumulation phases and whether, overall, we’re currently in a bear or bull market. When in a bear market it advocates staying out of the market completely.
The Naked Trader by Robbie Burns
The strength of this book is the down to earth approach to things. It manages to successfully tackle trading concepts in an accessible way. An early chapter covers spreads, the costs associated with trading and market makers before it goes on to how to explain how to develop a money strategy and the psychology which underpins the market.
It covers both fundamental and technical analysis, and has a comprehensive chapter consisting of real trades the author has placed, including his reasons for making them and how they ultimately turned out. This is invaluable when you’re a beginner and want to see “real world” trading scenarios. Later, it also has a chapter on the more risk-prone forms of trading, spread betting and CFDs, making this a thorough guide.