MUST READ BOOKS

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Nicolas Darvas has inspired traders for many generations. His book, “How I Made 2,000,000 in the Stock Market” is one that you’ll find on many recommended reading lists including my own. While some have argued that much of Darvas’ success had to do with lucky timing, his books are still widely read and for good reason.


A lot of traders can identify easily with Darvas because he went through the process of learning how to trade much like most people do today. Darvas began by first looking for the “secret” to the market. And, just like all of us have found, after finding no success from trading on the stock tips of others including brokers and expensive newsletters, Darvas figured out that he ultimately had to develop a trading system on his own. He accomplished that feat by committing himself to years of study of the market and from learning from his own mistakes. His determination, perseverance, and constant self-evaluation offers an excellent model for all traders to follow.

Some drops from it..

Trading Lessons From Nicolas Darvas:

• There are no good or bad stocks. There are only stocks that rise in price and stocks that decline in price, and that price is based on the laws of supply and demand in the marketplace

• “You can never go broke taking a profit” is bad advice that will result in overtrading and cutting winners short. Selling winners and holding losers is to be avoided at all times

• There is a “follow-the-leader” style in the market. You will find success by selecting the most active and strongest industry group and trading its top leader

• The combination of price and increased volume is key to stock selection. Focus your time on new leaders emerging with a new market cycle

• It is the anticipation of growth rather than the growth itself that leads to great profits in growth stocks. “You have to find out what the public wants and go along with it. You can’t fight the tape, or the public.”

• One of the quickest ways to lose money in the market is to listen to others and all of their so-called expert opinions. To succeed, you must ignore all outside opinions and predictions. Follow your own strategy!

• Losses are tuition on Wall Street. Learn from them.

• You should expect to be wrong half of the time. Your goal is to lose as little as possible when you are. “I have no ego in the stock market. If I make a mistake I admit it immediately and get out fast. If you could play roulette with the assurance that whenever you bet $100 you could get out for $98 if you lost your bet, wouldn’t you call that good odds?”

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READ IT AND GET SOME FLASHES
TO WIN

“Psychology of Intelligence Analysis”
by Richards J Heuer, Jr.,
published by the CIA’s Center
for the Study of Intelligence, 1999.

This is a CIA book written for Intelligence Analysts, not a trading book written for traders. However, the information available in this book is superb. Well written and easy to follow. This is an excellent source of information on how we think, and the cognitive biases which undermine our ability to process information and conduct market analysis.


VERY APPLICABLE TO TRADING.. HIGHLY RECOMMENDED.

Here’s what it covers:


Part 1 – Our Mental Machinery

Chapter 1: Thinking About Thinking

Chapter 2: Perception: Why Can’t We See What Is There to Be Seen?

Chapter 3: Memory: How Do We Remember What We Know?

Part 2 – Tools for Thinking

Chapter 4: Strategies for Analytical Judgment: Transcending the Limits of Incomplete Information

Chapter 5: Do You Really Need More Information?

Chapter 6: Keeping an Open Mind

Chapter 7: Structuring Analytical Problems

Chapter 8: Analysis of Competing Hypothesis

 Part 3 – Cognitive Biases

Chapter 9 – What Are Cognitive Biases?

Chapter 10 – Biases in Evaluation of Evidence

Chapter 11 – Biases in Perception of Cause and Effect

Chapter 12 – Biases in Estimating Probabilities

Chapter 13 – Hindsight Biases in Evaluation of Intelligence Reporting

Part 4 – Conclusions

Chapter 14 – Improving Intelligence Analysis