Conviction Book List - Convict Me, Grab Me, and Then Read Me
Conviction Book List - Convict Me, Grab Me, and Then Read Me

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Conviction Book List

Beat the Market by Edward O. Thorp 1967
It is the product of the synthesis of mathetimatics and markets.

Characteristics and Risks of Standardized Options, 1967
PTI Securities & Futures LP recommended this book.

Common Stocks and Uncommon Profit by Philip A. Fisher, 1996
Warren Buffet praises this book. It fits his public investment ethos of investing in good companies that have good products and good balance sheets. Two sentences can sum up what this author is all about: "I established what I called my three-year rule. I have repeated again and again to my clients when I purchase for them, not to judge the results in a matter of a month or a year, but to allow me a three-year period." This book is considered a classic and is read at colleges.

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Economics Classics
These are books that are considered to be classics that give solid ground to the understanding of the fundamentals of economics, but they should not be confused with books that are essential to profitability in the markets. They are the foundation of markets.

Hot Commodities: How Anyone Can Invest Profitably by John Murphy, 2004
It provides a provocative perspective on commodities and their averaged seventeen years cycle.

Intermarket Technical Analysis by John Murphy, 1991
It is the most important book on fundamental analysis. If there is one book that anyone who is involved in the markets should read, it is Intermarket Analysis. If you ever wondered why gold went up, while the dollar went down, or why bonds went up and commodities down, you should read this book. It is contains all of the fundamental analysis you need in one book, which is just only over 200 pages. It is absolutely filled with good content and possibly no filler. Mr. Murphy speaks about how the 1987 collapse in the stock market was preceded by the collapse in the bond market only four months earlier. The same exact scenario unfolded in reverse in December 2008 when the bond market bottomed and then the stock market bottomed in March 2009. The movements in bonds and the stock market in 1987 were not a coincidence, and John Murphy explains why. The most important statement made in this book is that there is a cycle in the markets in which one sector begins a chain reaction in the markets that then affects its other sectors. Once you memorize the order of sector rotation, you should be able to master the markets in the long-term. It goes like this: Interest Rates Up, Dollar Up, Gold Peaks, CRB Index Peaks, Interest Rates Peak, Bonds Bottom, Stocks Bottom, Falling interest Rates Pull the Dollar Lower, Gold Bottoms, CRB Index bottoms, Interest Rates Up, Bonds Peak, Stocks Peak, Rising Interest Rates Pull the Dollar Higher. There is more to it, but it is the cycle in essence.

Japanese Candlestick Charting Techniques by Steve Nison, 1991
It gives you a satchel of candlestick patterns that signal trend continuations and reversals. It is definitely in the top three books on the markets. It may seem simple, but it is very effective in correctly analyzing stock charts.

Market Wizards Volumes I, II, and II
The title says it all. In these books, you can learn trader psychology by reading interviews of actual traders. Seneca, says, "Imperare sibi maximum imperium est." If you can control yourself, you can go on to trade. It is a basic requirement to first control yourself before doing anything else. If you do not, you are going to make mistakes. The problem for male traders is it is difficult to admit mistakes. Cutting losses is probably the most important lesson to ever learn in the markets. Studying trader psychology and learning more about yourself is necessary to be profitable. Discover yourself. Find your foibles and weaknesses. Afterward, execute like a machine. Feelings only hurt you in the markets. You date trades, not marry them. Mistakes are costly. Limit your mistakes. About 80% of all trades you make are wrong. Finding the 20% that work and believing in yourself to recognize them is what sets a good trader apart from a bad one. Mistakes are also valuable, valuble lessons that only help you in the long run. Josh DiPietro says, "The truth is, your biggest investment in know-how is not the training programs. It's the losses you're going to incur while developing into a pro."

McMillan on Options by Lawrence G. McMillan, 2004
Someone who worked at the CBOE for around twenty years said that this book is the only book he ever read on the markets.

Technical Analysis of the Financial Markets by John Murphy, 1999
It is the most important book on technical analysis ever written. Mr. Murphy goes through almost all technical analysis tools: Fibonacci Retracements, MACD, Moving Averages, RSI, Stochastics, and much more. In this book, you will find Dow Theory, Elliott Wave Theory, and many other ways to analyze the markets. This book is a classic that will be read by generations upon generations to come.

Technical Analysis of the Futures Markets by John Murphy, 1986
This book was written before Technical Analysis of the Financial Markets. It is shorter than it, and it is its basis. If you need to choose one over the other, choose Technical Analysis of the Financial Markets. It is uncertain if there is information in this book that Technical Analysis of the Financial Markets does not include.

The Alchemy of Finance by George Soros, 1987, 1994
If you need a good fundamental analysis summed up in about fifty pages, you need to read the beginning of The Alchemy of Finance. George Soros postulates his Theory of Reflexivity, which refutes the common notion that the market is always right and that it is a self-correcting mechanism that moves into equilibrium. Soros states that the market is an incorrect analysis of the psychology of flawed actors with inherently biased opinions. The rest of the book chronicles the last years of the bear market in the 1970s and early 1980s and then slides into the bull market of the 1980s. It is very interesting to see how his analysis during the bull market of the 1980s made him very bearish and very wrong.

The Intelligent Investor by Benjamin Graham, 1949
Here is another classic that is for investing. Warren Buffet takes his fundamental investment philosophy from this book. He studied under Benjamin Graham and notes specific chapters from this book when he speaks publically about his investment philosophy.

The Quants: How a New Breed of Math Whizzes Conquered Wall Street and Nearly Destroyed It by Scott Paterson, 2010
A quant is in search of one thing: Alpha. What is Alpha? "Alpha is a code word for an elusive skill certain individuals are endowed with that gives them the ability to consistently beat the market.

Way of the Turtle by Curtis Faith, 2007
It is a small book for anyone to become a disciplined trader. The author worked in an experiment in a bet to see if profitable trading can be taught or if it is natural. The results were a draw. The person who consummated the experiment was in Singapore and saw how turtles were being raised on a farm. He thought that he could do the same with traders. The new turtle traders were taught system trading. They were given parameters when to buy and when to sell. They looked for "edges," moments in time when there was a clear signal to begin a position. Faith says, "Edges come from places where there are systematic misperceptions as a result of cognitive biases. Those places are the battlegrounds between buyers and sellers. Good traders examine the evidence and place bets on what they perceive to be the winning side." The strength of this book is that it goes into trader psychology. For example, ever have a trade that you believed in but then began to go horridly wrong but eventually rally but you were too angry to reenter the trade? The author calls it "recency bias." There are several good technical terms that the author uses to describe similar situations. Another is the "disposition effect": "the tendency for investors to sell shares whose price is increasing and keep shares that have dropped in value. Some say that this effect is related to the sunk cost effect since both provide evidence of people not wanting to face the reality of a prior decision that has not worked out. Similarly, the tendency to lock in winning trades stems from the desire to avoid losing the winnings. For traders who exhibit this tendency, it becomes very difficult to make up for large losses when winning trades are prematurely cut short of their potential." One of the most important points in this book is that when there are no clear signals to enter a position, they would play ping pong. They played so much ping pong during work that the neighbor threatened to kill them. This story tells me that there are not many times that a clear edge in the market is present. When there is not one, you should not be involved in the market. Warren Buffet has said similar things. Instead of playing ping pong, he says to go to the golf course. One of persons who reviewed this book has called it one of the top five books in trading.

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