When you hear about books about forex or investing for that matter, quite often you would be pointed to books that are full of jargon and whatnot. For a beginner, it can get intimidating and downright discouraging at times.
However, you can learn more about forex and investments in general by reading non-fiction business books. The books that are recommended here will not cover any trading strategies. But on the other hand, documents some interesting periods in history.
Many may have heard about Long Term Capital Management and its demise. However, if you sift through the content, there are some key takeaways that one can apply to their day trading as well.
As such, the books listed below are inspiring, intriguing and downright interesting. There are no technical terms you will come across. These books will no doubt give you insights into the world of professional trading.
So without further ado, here are the five most engaging books that every day trader should read.
The Psychology of Money
The psychology of money, by Morgan Housel, is a book that dips into the emotional and psychological aspects of money management. Although this book talks about personal finance and investing, it is filled with nuggets of wisdom for the average day trader.
Psychology, as one may know plays a key role in day trading. This is especially true in fast-moving markets. Every day trader has had their share of winning and losing streaks. The Psychology of Money gives the reader insights into how psychology can affect one’s behaviour, from personal finance to investment.
From a day trading perspective, this can yield valuable insights into one’s trading as well.
The book is written by Morgan Housel, who argues that experiences and biases form our emotions, which play into our investment (and day trading decisions).
There are many real-life examples that one can apply to personal trading. Perhaps one of the biggest take-ups away is about outliers.
Giving numerous examples, even that of Warren Buffet, Housel touches upon how growth happens through infrequent streaks of outlier market movements.
Housel also demonstrates how money affects one’s thoughts and feelings. This, he says, spurs one into action. By using different historical events, Housel provides empirical evidence of the psychological impact on money management.
When it comes to the importance of having a psychological edge in the markets, The Psychology of Money is a great read. This is the simple fact that Housel writes this book in a simple way for everyone to understand.
For the day trader, there are lots of things that one can take away and apply straight to their trading activities.
Key takeaways from The Psychology of Money
For a day trader, it is important to keep a clear head. However, that being said, it is not foolproof. Your environment, upbringing and everything else tends to manifest itself when it comes to the decisions you take when day trading.
The Psychology of money is a great read not just because of the tips it offers from a day trading perspective. One can also apply the ideas outlined in this book to their personal finances as well. Hence, even if you are an investor and have nothing to do with forex or the currency markets, the psychology of money makes for a great read.
The book is something of ‘street advice’ that you wouldn’t really learn in a business school. And neither can words of wisdom be gained through trading experience (it can be a costly experience).
The book is neatly divided into different chapters and makes for an easy read that one can pick up while on the commute or during a long travel route.
When Genius Failed: The Rise and Fall of Long-Term Capital Management
"When Genius Failed: The Rise and Fall of Long-Term Capital Management" is a book by Roger Lowenstein. The book chronicles the rise and fall of one of the most prominent and innovative hedge funds of the 1990s, Long-Term Capital Management (LTCM).
The demise of LTCM makes for a great case study. While on one hand it shows how irrational the markets can be, it also stresses on the fact that despite no amount of safety, one can still lose money.
Ironically, the LTCM hedge fund was founded by a group of highly skilled quants and traders of the day. In fact, some of the names behind LTCM include Fisher Black, Myron Scholes and Robert C. Merton.
They are famous for (if you haven’t guessed already), the famous Black-Scholes Merton option pricing formula.
LTCM also included former Fed officials as well. Looking at the setup, one may assume that LTCM was here to make money. And up to a certain point, LTCM was indeed making money, and loads of it.
LTCM’s fund was based on a revolutionary investment strategy at that time. It combined advanced mathematical models and cutting-edge computer algorithms with an unprecedented level of leverage.
Consequently, LTCM managed to make abnormal returns and was touted as the top hedge fund of its day. The more it grew in popularity, the more funds came flowing in. But, as is everyone’s guess, LTCM did not last for too long.
Trading takeaways from LTCM
The summer of 1998, saw a series of events triggering a global financial crisis. This ultimately led to the collapse of the fund. Events included the devaluation of the Russian Ruble, and the Asian crisis back in the days. Being highly leveraged, LTCM was soon hit with margin calls.
Eventually, the Fed had to put together a group of bankers to bail out the company and contain the situation. The story of LTCM can resonate with almost every trader. Leverage is something that is taken for granted by traders.
However, traders who have seen their accounts blown up, know how devastating over-leveraging can be. Roger Lowenstein offers a close insight into the events leading up to the collapse of LTCM.
The narrative is very engaging and one can imagine the words playing out into a movie in your head. According to the author, the failure of LTCM was it being too overconfident and depending too much on their mathematical models.
For the day trader, the demise of LTCM shows that you cannot just rely on quantitative trading strategies. Sometimes, the markets can irrational and at times, outliers from the markets can wreak havoc.
The main takeaway for day traders would be the advise to remain vigilant. Trading is a risky game and you cannot discount all the news all the time. Observing this more closely, the story of LTCM highlights the importance of
The book serves as a reminder that even the most brilliant minds can fail, and that there is always a human element in the financial world that cannot be ignored.
Barbarians at the Gate: The Fall of RJR Nabisco
Barbarians at the gate was written by Bryan Burrough and John Helyar. It is a book that chronicles the largest corporate takeover saga of the 20th century.
Barbarians at the gate offer the reader an inside look into the events that lead to the takeover of a business conglomerate called RJR Nabisco. In its day, it was the most profitable company in the world.
RJR Nabisco was selling tobacco and food products, headquartered in New York. Interestingly, the company is now owned by the Mondelez Group.
During the 1980’s RJR Nabisco faced a number of challenges due to increased competition, rising debt and falling sales. Management consequently decided to sell the company to cut its losses.
This decision was taken in order for the company to finance its debts. However, it sparked a debate and spurred a takeover battle. Given its reputation, RJR Nabisco’s attempt to trim its losses attracted numerous wall street institutions. It also included names such as KKR and other ‘corporate raiders’.
Barbarians at the gate go into the details of the bidding war, boardroom negotiations and strategic manoeuvring as well as the egos of the people who had the decision-making power.
The authors also provide a broader perspective on the implications of the takeover for the broader corporate world and the financial industry.
They argue that the takeover of RJR Nabisco marked a turning point in the history of corporate America and that it was a harbinger of a new era in which corporations would become increasingly focused on maximizing shareholder value, rather than investing in long-term growth.
To conclude, Barbarians at the gate is a must-read, if you are into the history of finance and the corporate world’s inner workings. It provides the reader with a deeper understanding of the forces that shape the corporate world and the decisions they make.
It offers the reader a cautionary tale on the risks of greed and the pursuit of short-term profits. From a day trader's perspective, this is quite relatable, albeit in a different context.
Flash Boys: A Wall Street Revolt
"Flash Boys: A Wall Street Revolt" is written by Michael Lewis. It tells the story of Brad Katsuyama, a former Royal Bank of Canada trader. Katsuyama discovers that the stock market is rigged against ordinary investors.
The protagonist realizes that high-frequency traders are using ultra-fast computers and complex algorithms to exploit a flaw in the stock market's design and extract profits from ordinary investors.
Flash Boys details Katsuyama's journey to level the playing field and create a fairer and more transparent market for all investors. Lewis provides an in-depth look at the inner workings of the stock market and the high-frequency trading industry, exposing the ways in which the market is rigged against ordinary investors.
He argues for the need for market reform and highlights the negative impact that high-frequency trading has had on ordinary investors and the wider economy.
Flash Boys is a must-read if you are interested in finance and economics. The details in the book serve as a reminder that ordinary people can make a difference when they are motivated by a strong sense of purpose and a commitment to justice.
There are similarities between the book Flash Boys and Flash Crash, which speak of the same broader theme about high-frequency trading. The argument of course continues. While on one hand proponents of HFT believe that they bring more liquidity to the market, the opponents of these see it as a rigged game.
Michael Lewis is a famous author with other big titles such as Liar’s Poker in the same genre.
Flash Crash: A Trading Savant, a Global Manhunt, and the Most Mysterious Market Crash in History (Author: Liam Vaughan)
The book "Flash Crash: A Trading Savant, a Global Manhunt, and the Most Mysterious Market Crash in History" by Liam Vaughan and Gavin Finch focuses on the events leading up to and including the 2010 flash crash.
This is an inspiring read and it is quite possible that many traders who have read this book, would have wished to be in Sarao’s shoes, the protagonist.
Flash Crash is indeed a true story of a recluse, Navindar Sarao, who allegedly caused the flash crash in the S&P500 futures market in 2010. This launched a global investigation from the US to the UK to dig deeper into the cause behind the crash.
Sarao allegedly caused the flash crash by spoofing, and from his bedroom. The book takes the reader into the world of algorithmic trading, order spoofing and high-frequency trading.
These were just some of the buzzwords of the time. Sarao was a brilliant trader and made a lot of money. However, he didn’t really care much for it. Sarao was not so happy with the infiltration of high-frequency trading that took most of the pie off manual traders such as him.
The book describes in vivid detail the events leading up to the flash crash as officials tried to make sense of what really went on. It also gives insights into the world of broker-dealers back in the day who were more than happy to facilitate traders with high volumes.
Eventually, authorities from the US and the UK get to Sarao. But fortunately, the book has a happy ending. Sarao’s prison sentence is deferred in exchange for his knowledge about the financial markets and the order book.
If you are a day trader and regardless of whether you have traded the ES futures or not, Flash Crash is a thoroughly enjoyable and interesting book to read.
