A Revelation! 4 Must-Read Books for Traders!

Based on my own trading experience, I would like to share 4 books that I think are particularly worth reading.
They include technical types and philosophical types,
These are books that I have read many times.
I will also summarize and share some of the essential content from the book 👇👇
1️⃣ "Trading for a Living"
The contents of this book include trading common sense, trading psychology, and trading discipline,
Trading tools and systems, risk control and trading management, with a significant portion focused on trading psychology.

Because the author Alexander Elder initially worked as a psychiatrist, his perspective on trading psychology in the book is completely different, which is also a very interesting point.

He has treated many alcoholics and helped them quit drinking. He found that the psychology of alcoholics is very similar to the loss psychology of traders.

In the process of helping alcoholics to quit drinking, he found that these methods also apply to traders. There is a lot of content, so those interested can take a look at the original work.

Today, I plan to focus on discussing a technical method of his: the Triple Filter Trading System. This system does not rely on any lofty theories; instead, it is very simple, practical, and effective, so I will emphasize this technique.

This triple filter refers to three time periods.
Step 1: Choose the main period you want to trade as the medium term. After selecting the main period, choose a larger time frame for the long term, and finally select a smaller period for the short term.
Step 2: Look for major trends on the long-term candlestick chart. Once the trend is established, prepare to enter when the medium-term trend is opposite to the long-term trend. Find entry signals on the short-term candlestick chart, set stop-loss at the medium term, and exit at the long term.
Step three, confirm the direction in the long term and wait for the mid-term to show an opposite trend.

The above is a simple demonstration of the triple filter trading system. Everyone can use their preferred indicators and choose suitable time frames to try it out. As always, first backtest and confirm its effectiveness before going live.

Old fans know that my daily strategy sharing for SOL at the beginning of 2024 was based on the habits of market makers, combined with on-chain data from the SOL blockchain and macro-level information, along with the trading techniques from this book. The accuracy rate is over 97%.

2️⃣ "Trend Trading Method"
The book "Trend Trading Method" provides a more detailed definition of trends using Dow Theory and establishes a trading system based on it. The book contains many basic technical explanations, such as trend lines, turning point lines, boundary point A, etc. There are also more complex topics, such as new perspectives on wave theory and candlestick techniques. Additionally, the book includes a large number of practical case studies. I think this book is quite comprehensive and offers a thorough understanding of trading systems.

I do not recommend everyone to study very complex wave theory, as the content is quite obscure and difficult to understand, and once learned, it does not significantly help with trading. On the contrary, the most basic candlestick theory, how to draw trend lines, how to draw pivot lines, and how to find the boundary point A are all easy to learn, simple, and practical. As long as you can apply them flexibly, the trading results will definitely not be poor.

The technical methods in this book are worth learning, but they also have their own issues. Now the "Trend Trading Method" has been published in its 3rd edition, and the previous versions had simpler content, mainly explaining three methods for trend trading:
One method is to follow the trend line for trend-following trading.
One type is to follow the channel line to track the trend in trading,
One method is to use trendline channels and the boundary point A to filter trends for trading.

I finished reading the content of the book and chose the first trend line breakout to go long and short, to track trend trading. The method is very simple, but a bit too rough. Why do I say that? Because I encountered problems during actual execution.

1: The standards for drawing trend lines are unclear, and in practice, they tend to get smaller and smaller. Although the book provides a relatively clear definition for drawing trend lines, there are still ambiguous areas. The longer one watches the market in practice, the more they tend to focus on the details of price fluctuations, leading them to draw trend lines that connect smaller highs in the market. The trend lines become increasingly aggressive, resulting in a higher trading frequency, and technical issues can also affect trading confidence. Ultimately, this technical execution becomes untenable (this method is difficult to execute and requires a wealth of experience to grasp the rhythm).

2: The technical standards of this approach are too simple, resulting in a high error rate during trading and significant psychological pressure during execution. In a volatile market, one can be slapped from both sides, suffering consecutive stop losses; after making 3 consecutive mistakes, one becomes anxious, after 5 mistakes, one gets annoyed, after 7 mistakes, one becomes angry, and after 10 mistakes, one goes crazy, ultimately rendering execution impossible (this requires us to have a strong mindset, but this approach poses too great a psychological challenge).

Most of the technical theories in this book are worth learning, but it does not take into account the clear classification of trading system details, leaving a lot of subjective ambiguity, which may lead to difficulties in long-term execution of the trading system. Of course, we must not deny the value of this book; it clearly and practically explains many foundational trading knowledge and trading concepts, making it worth reading. On the technical side, I suggest you focus on reading Chapter 4 on candlestick theory, Chapter 5 on trend lines, Chapter 6 on turning point lines, Chapter 7 on boundary point A, and Chapter 9 on trend trading model.

3️⃣ "Black Swan"
This book is familiar to many friends, so I won't talk too much about the content of the book today. Instead, I will share my understanding of its content: this book describes a reality that is very real and cruel, yet beyond our perception.

The world of trading is extreme Stant. There are two important concepts in the book: average Stant and extreme Stant. Average Stant refers to the idea that when the number of samples is large enough, an individual case will not have a significant impact on the whole. For example, average height, average lifespan, and average IQ of people all belong to average Stant.

Your height, whether a bit taller or shorter, does not affect the average height of humanity. Extreme Stan refers to an individual having a disproportionate impact on the whole. For example, in wealth distribution, there is a trillion-fold gap between the rich and the poor. For instance, this year when Musk became the richest person in the world, his total assets amounted to 187.1 billion dollars, while the per capita GDP of impoverished African countries is still less than 1,000 dollars.

So what does the world of trading belong to extreme Stan mean for us traders? Among all traders, the distribution of profit and loss ratios is extremely uneven, with only a small number of people ultimately being able to profit, while the majority can only become cannon fodder. The real world constantly instills the idea that everyone is born equal, and teachers also tell us to work hard and that diligence leads to success.

But in the world of trading, due to the differences in resources that traders have, the market information they understand, and the amount of capital they possess, an unfairness is created in trading, and this unfairness cannot be compensated for by hard work and diligence.

To achieve profits in trading, one must improve technology, cognition, and psychology simultaneously. If one only focuses on one aspect, no matter how diligently they study, they may still incur losses in the market. Of course, once the constraints of trading are broken, the income from success can be very groundbreaking, which is also the charm of trading. Both sides of trading are prominent and require us to make our own choices.

At the same time, starting to trade might also be a black swan event for oneself. Unpredictable and sudden black swan events can have a significant impact on the progress of society and history, and unexpected events in life can also greatly influence the direction we take in life, such as participating in high-risk trading.

For me, entering the trading industry was a black swan event in my life. From a chance encounter at a wine gathering, I learned about trading from someone, and since then, I have been deeply immersed in it, starting a trading journey that lasted over ten years, changing the direction of my life. I used to be unaware that I had entered an extremely volatile world, feeling omnipotent, which led to severe losses and a low point in my life. After numerous struggles, I have arrived at where I am today. If you ask me whether I would want to experience it again, my answer might be that I would rather do business than suffer the pains of trading again, as it is too against human nature.

So, I hope that everyone, before starting trading, should make the worst-case assumptions, think about whether they can withstand it if trading becomes a black swan event in their life, and then begin their so-called trading career. Therefore, no matter what stage you are at in trading, I suggest you read this book "The Black Swan"; it will provide a deeper understanding of the risks in trading and give you clearer thoughts about your life.

4️⃣ "Essays" by Montaigne
The book "Essays" by Montaigne may not be known to many people; it is a philosophical work authored by the French thinker Montaigne. After inheriting his father's estate at the age of 37, he led a life of seclusion. One could summarize his life as follows: he hardly worked at all, dedicating himself entirely to contemplating life. He discusses his thoughts on the myriad aspects of the world with the perspective of a sage, and some of his theories are quite interesting, revealing a very profound aspect of human nature.

One of the essays is called "On Fear." "Terror has driven wisdom from my heart." In this passage of the book, many terrifying examples are discussed. Some have frozen in fear on the battlefield, while there are even more examples of people making mistakes and going mad due to fear. "Terror's sharpness surpasses all emotions." Those who have trading experience have felt the emotion of "fear," such as the fear of stop-loss, the fear of profit drawdown, and the fear of opening positions, etc. Fear is an innate emotion because in trading you face many unknowns, which inevitably accompanies the entire trading process. Moreover, fear is a powerful emotion that you cannot completely overcome no matter what. Just like me, after more than 10 years of trading, I still experience worry and fear, albeit in a smaller amount than an average person.

Since the emotion of fear is unbeatable, what we need to do is to avoid challenging terror as much as possible in trading. How to understand this sentence? Through extensive practice, improving trading skills, and gaining a profound understanding of the overall long-term market, we can eliminate the unknowns in trading as much as possible. The more you understand, the fainter the emotion of fear will become. The better you control the risks, the fainter your fear will also be. We do not challenge it, nor do we eliminate it, nor do we go against it, but instead, we adapt to it, understand it, and thus can coexist peacefully with it, making it a part of your trading.

"When we are impulsive, it is our emotions that are in control, speaking for us, not ourselves." "Anger is most likely to lead to misjudgment; viewing mistakes through the lens of emotion will magnify those mistakes, which is akin to seeing objects through a fog." In "Essays of Montaigne," there are many reflections on emotions, including anger. When you are in a state of anger, you basically lose all rationality, and all emotions are infinitely magnified. To put it simply, when you are angry, you are not thinking clearly. The probability of making mistakes in trades made in this state is extremely high, and those mistakes will also be infinitely magnified. Therefore, maintaining stable emotions in trading is very important.

"A person who does not set a rough goal for their life cannot arrange their individual actions in a coherent manner. A person without an overall shape in their mind cannot piece together scattered fragments."

Actually, trading is very similar to other livelihoods; it requires certain goals and a defined process. It is definitely not something that can be achieved overnight. And remember this point: the faster something comes, especially if it exceeds your capabilities, it will disappear from your sight even faster. Many people, when they do not have a deep understanding of trading, often experience large profits or significant short-term gains. These profits are more derived from luck than from trading skills, and in the later trading journey, they will be returned to the market in various ways, even overdrawing one's investment. This is also the aspect that resonated with me the most in my past trading failures.

At first, trading only involves scattered bits of information, and what you see is just the tip of the iceberg. I used to think that these fragments represented the whole iceberg, so when I hit the iceberg, I was caught off guard. Therefore, before understanding the entirety of something, do not jump to conclusions or invest fully; instead, learn more, make plans, set goals, and only after gradually revealing the whole picture should you act decisively. The probability of success will be much higher.

In this book, there are too many thought-provoking contents for me to list one by one. In fact, trading is both a very simple and a very complex thing. Traders often look outward toward others, seeking standards for trading success, but few turn their gaze inward to reflect on themselves, to contemplate the deeply ingrained weaknesses of human nature, and to consider whether they have put in the effort and whether they truly have the ability to achieve success.

Many people find philosophy books very dry to read, but in fact, the writing throughout this book is very casual and smooth. When I read this book, I felt like I was not reading, but rather having a conversation with Montaigne. From this wise man, I saw the shadows of humanity, and I also saw my own awkwardness in trading, feeling a surge of emotions. I don't mean to elevate trading to the level of philosophy, but it is undeniable that good trading indeed requires the wisdom of life, and wisdom comes from your life experiences, from reflecting on the past, and from self-reflection.

I'll stop here for today; my thoughts are a bit scattered, but they are indeed my true feelings. I'll conclude today's content with a quote from "Essays of Montaigne": "I have two faithful assistants, one is my patience, and the other is my hands" — "Essays of Montaigne".
Let's encourage each other!