Trading Rules, Aphorisms & Books

Expat writes:

I am interested in your opinion and advice. I traded oil for eighteen years before retiring to the south of France where I tend my orange trees and teach at two business schools in the area.  Since I know pretty much nothing, I am forced to teach the little I know, which is commodity trading.

I have canvassed my friends and enemies in the business and read good and bad books and articles by experts, so-called experts, and outright frauds.  I have plenty of information on fundamentals and the mechanics of markets, but it’s harder to teach students how traders think.

So, would you impart a few aphorisms, tips, or vapid advice . . .

Thanks, Chris, I have been meaning to pull all of these together in one place, and you motivated me to get off my bum and do so.

Start with these various rules:

• Livermores Seven Trading Lessons

• Bob Farrell’s 10 Rules for Investing

• John Murphy’s Ten Laws of Technical Trading

• Rules for Shorting

• Art Huprich’s Market Truisms and Axioms

• DENNIS GARTMAN’S NOT-SO-SIMPLE RULES OF TRADING

• Lessons from Merrill Lynch

• Rosie’s Rules to Remember

• The Zen of Trading

Then go to these books — they cover trading and markets generally:

• Stock Market Wizards : Interviews with America’s Top Stock Traders by Jack D. Schwager

Schwager interviewed market legends at the height of their success. What makes the book so worthwhile are the consistent themes that evolve from currency traders, mutual fund managers, commodities traders, hedge fund managers. Regardless of what is being traded, there are related motifs that run throughout.

What results is not a “How to trade” book; instead, it is a book about “How to think about trading.”

• The Investor’s Anthology: Original Ideas from the Industry’s Greatest Minds by Charles D. Ellis

Instead of interviewing famed investors, Ellis gathered their best writings into one collection. He ends up with a series of short chapters by luminaries of days gone by. There is something worthwhile on just about every page. This is another favorite worth rereading every few years.

• Bull: A History of the Boom and Bust, 1982-2004,  What drove the Breakneck Market — and What Every Investor Needs to Know About Financial Cycles by Maggie Mahar

The best book about the 1982-2000 market, bar none.  There are a surprising number of lessons buried in these pages that will reward the careful reader. I found it both fascinating and informative.

• How I Trade and Invest in Stocks and Bonds by Richard Wycoff

Quite simply, this is one of my favorite books on the markets and investing. The fact that it is from 1923 is totally irrelevant.

Another good book is When to Sell by Justin Mamis. Published in 1970s, it is filled with good observations about developing a sell strategy.

If you want some book ideas for Technicals, have a go at these:

• Technical Analysis of the Financial Markets by John J. Murphy.
• Technical Analysis from A to Z by Steven B. Achelis;
• Encyclopedia of Chart Patterns by Thomas N. Bulkowski;
• Japanese Candlestick Charting Techniques by Steve Nison;

Don’t think you need a full reference library; any pair of these books should do.

Last, there are a full run of books here:

• Reading Is Fundamental

• More Reading Ideas