Best Book for Technical Analysis
Are you searching for the best book for technical analysis to sharpen your trading skills and gain a competitive edge in the markets?
With countless books claiming to offer the best insights, choosing one that delivers practical, easy-to-understand, and actionable knowledge can be overwhelming. Whether you’re stepping into technical analysis for the first time or seeking advanced strategies to refine your trading, our curated list of the top 14 books will guide you through the noise and help you make better trading decisions.
The Ultimate Reading List
For those exploring technical analysis, we’ve compiled a list of fourteen highly recommended books we have read at least twice. These books have influenced traders – beginners and intermediates – by illustrating technical analysis and quant trading across various timeframes.
A standout among these is “How I Trade For A Living” by Gary Smith. Published in 1998, it is an excellent resource for novice and intermediate traders on what full-time trading requires regarding work, commitment, and discipline. Coming from rural Kentucky, Smith spent two decades failing until he started a systematic approach. He illustrates practical trading strategies and psychology!
Here’s a brief overview of these fourteen insightful books.
- Best for trading biography: A Man For All Markets by Ed Thorp
- Best for understanding Candlestick Patterns: Japanese Candlestick Charting Techniques by Steve Nison
- Best for quant trading biography: The Man Who Solved The Market by Gregory Zuckerman
- Best for data-driven approach: Evidence-Based Technical Analysis by David Aronson
- Best for understanding markets, randomness, and statistics: Fooled By Randomness by Nassim Nicholas Taleb
- Best for trading psychology: Trading In The Zone by Mark Douglas
- Best for quant beginners: Practical Speculation by Victor Niederhoffer and Laurel Kenner
- Best for independent traders (psychology): How I Trade For A Living by Gary Smith
- Best for technical analysis: The Encyclopedia of Chart Patterns by Thomas Bulkowski
- Best for risk mitigation and management: Safe Haven Investing by Mark Spitznagel
- Best for trading decision and process: Thinking In Bets by Annie Duke
- Best for understanding statistics and trading: The Education Of A Speculator by Victor Niederhoffer
- Best for trading motivation: Pitbull by Marty Schwartz
- Best for entertainment: Market Wizards series by Jack Schwager
A Man For All Markets by Ed Thorp – The Best Four Quantified Technical Analysis
Pros:
- Explains how you can use quantified and mechanical rules to beat the market
- Clarifying how to use math, statistics, and analysis to your advantage
- Explains statistical arbitrage
- Written by one with one of the best trading records – compounding 19.1% annually from 1968 to 1988
- Shows the importance of learning by trial and error
Cons:
- Need some understanding of quantified analysis, math, and statistics
The first part is about a young Thorp who devours books and relentlessly experiments, honing his skills through trial and error. This approach becomes his trading and investing philosophy: curiosity, questioning everything, and learning through hands-on exploration.
Next, the book delves into the thrilling world of casinos. Thorp cracks the codes of blackjack, roulette, and baccarat, culminating in his legendary book, Beat the Dealer. This ignites his passion for an even bigger game: the stock market.
Part three takes us on a roller coaster ride through Thorp’s experiences in finance. While he despises the industry’s rampant fraud and ethical shortcomings, he cannot deny its allure. Unfortunately, the book leaves us wanting more details about his winning strategies beyond hinting at arbitrage techniques.
The final chapter offers timeless wisdom on fundamental principles and life philosophies, peppered with fascinating anecdotes like his 1991 expose with Bernie Madoff’s fraudulent scheme.
In essence, Thorp’s story is a testament to the power of intellectual curiosity and a willingness to challenge the status quo.
Our favorite quote from Ed Thorp’s A Man for All Markets is this:
Chance can be thought of as the card you are dealt in life. Choice is how you play them. I chose to investigate blackjack. As a result, chance offered me a new set of unexpected opportunities.
Rating:
- Content: 5/5
- Understandability: 4/5
- Practicality: 4/5
Japanese Candlestick Charting Techniques by Steve Nison – The Best About Candlesticks
Pros:
- Comprehensive and understandable format
- Hundreds of examples to illustrate candlestick patterns
- It makes charts more visual and informative
Cons:
- Some candlestick patterns may be difficult for beginners to understand
- Nothing is quantified – we have no clue if they work or not
Steve Nison’s “Japanese Candlestick Charting Techniques” is the authoritative guide on candlestick charting, an essential component of technical analysis. The book has been recognized for introducing Japanese candlestick charting techniques to American traders.
The book is considered an investment classic, renowned for its comprehensive and understandable format. With hundreds of examples, the book demonstrates how candlestick patterns like dark-cloud covers and hanging-man lines can signal market reversals and enhance market entry and exit timing.
While some candlestick patterns may be difficult for beginners to understand, Nison’s book serves to make charts more visual and informative and is highly recommended for its focus on candlestick patterns and their signaling of key market moves.
However, it serves nothing more than descriptions. We have compiled all the candlestick patterns into testable trading rules, and found out which candlesticks work and do not work.
Rating:
- Content: 4/5
- Understandability: 4/5
- Practicality: 1/5
The Man Who Solved The Market by Gregory Zuckerman – The Best About Success
Pros:
- Comprehensive coverage of core concepts about quantified trading and advanced technical analysis
- Shows the importance of trading many trading strategies
- Presents how you can test trading ideas for advanced quantified technical analysis
- Teaches how you can use math in finance
Cons:
- Does not provide any specific trading secrets; Jim Simons is secretive
Jim Simons and his Medallion Fund are anomalies in the investment world, boasting a staggering 66% average annual return for over 30 years. What fuels this success? While specifics remain closely guarded, here’s what we do know:
- Data, the secret ingredient: The magic begins with a massive data haul. By meticulously collecting and analyzing vast amounts of information from diverse markets, Simons seeks out statistical patterns and hidden inefficiencies.
- Brainpower fuels the engine: Forget Wall Street veterans; here, mathematicians, scientists, and even linguists join forces. This diverse group generates and rigorously tests numerous trading strategies, constantly seeking an edge.
- Skin in the game: Unlike many traditional funds, Renaissance employees have a personal stake in their success. This “skin in the game” approach incentivizes them to develop and execute the most profitable strategies.
- A veil of secrecy: Unfortunately, details about these winning strategies remain tightly under wraps. This secrecy is part of the competitive advantage, leaving outsiders only with educated guesses and the knowledge that leverage plays a significant role in the fund’s returns.
Simons’ emphasis on data, diverse talent, and a results-oriented culture is a potent reminder that innovation and meticulous analysis can yield extraordinary results in the financial world.
Rating:
- Content: 4.5/5
- Understandability: 4/5
- Practicality: 3/5
Evidence-Based Technical Analysis by David Aronson – Best for Data-Driven Approach
Pros:
- Challenges traditional technical analysis methods
- Emphasizes the scientific approach
- Delves into the use of data mining practices
Cons:
- Occasionally presents trading ideas without conclusive statistical backing
- A pretty tough and heavy read
David Aronson’s work, Evidence-Based Technical Analysis, scrutinizes the conventional methods of technical analysis and endorses a scientific stance for this discipline. It investigates data mining techniques to discover recurring patterns and introduces probabilities into technical analysis methodologies.
Despite drawing criticism for sometimes suggesting trading strategies like money management stops without robust statistical support, as well as making ambiguous allusions to certain studies, Aronson’s method stands out by insisting on empirical verification of trading systems through historical backtesting.
His book distinguishes itself from traditional texts on technical analysis with its insistence on an evidence-based perspective.”
Rating:
- Content: 4/5
- Understandability: 3/5
- Practicality: 3/5
Trading In The Zone by Mark Douglas – Best for Trading Psychology
Pros:
- Explains mental traps in trading
- Explains cognitive biases in trading
- Explores the importance of cultivating a mindset
- Oldie but goldie
Cons:
- Perhaps a bit longer than necessary
Mark Douglas’s Trading in the Zone is a deep dive into the trader’s psyche. Unlike his first book, which garnered moderate attention, this release propelled Douglas to fame, earning him recognition as the “master” of trading psychology.
His key message? Ditch the emotion and embrace discipline, confidence, and consistency. He challenges traders to confront their inner selves, shedding “winning fantasies” and “losing fears” that cloud judgment. As Douglas famously states, “95% of your trading errors come from bad attitudes” towards loss, fear, and missed opportunities.
But how does one attain this zen-like trading state? Douglas argues it stems from a core belief: you are a consistently successful trader. He then dismantles the mental barriers holding you back, revealing that the “secret” to trading mastery lies in accepting uncertain outcomes, trusting your edge, and staying present in the market’s flow.
Our favorite quote from the book is this:
When you really believe that trading is simply a probability game, concepts like right or wrong or win or lose no longer have the same significance….Ninety-five percent of the trading errors you are likely to make—causing the money to just evaporate before your eyes—will stem from your attitudes about being wrong, losing money, missing out, and leaving money on the table.
Rating:
- Content: 4/5
- Understandability: 4/5
- Practicality: 5/5
Practical Speculation by Victor Niederhoffer and Laurel Kenner – Best for Beginners
Pros:
- The scientific method explained to beginners
- Covers fundamental scientific principles
- How to use the scientific method in the financial markets
Cons:
- Some experienced traders may find the content too advanced
Practical Speculation was published after Niederhoffer’s best-seller The Education Of A Speculator and is a good read about “converting” anecdotal technical analysis into trading rules and applying using the scientific method.
Rating:
- Content: 4/5
- Understandability: 4/5
- Practicality: 4/5
How I Trade For A Living by Gary Smith – Best for Practical Application
Pros:
- How to treat trading as a profession
- Hands-on trading psychology
- Smith shows how anyone can become a good trader with the right skills
Cons:
- No cons
Gary Smith’s How I Trade for a Living stands out for its refreshing dose of reality. Forget get-rich-quick schemes; this book dives into the daily grind of a successful home-based trader.
Smith’s journey resonates deeply with many. He wasn’t an overnight success, spending 19 years struggling before transforming a $2,000 account into a $700,000 one. His focus isn’t on flashy, high-risk strategies, but on the consistent, methodical approach that builds wealth over time from his rural home in Kentucky.
Unlike many authors, Smith walks the walk. He meticulously documents his track record, showcasing impressive consistency and remarkably low drawdowns. While not a “trading star” in terms of explosive gains, his success lies in his sustainable, risk-managed approach.
If you’re looking for realistic insights into the daily life of a successful trader, “How I Trade for a Living” offers an invaluable perspective. It’s a testament to the power of hard work, discipline, and a well-defined strategy, making it a good read for those seeking to make it as independent traders.
Our favorite quote is this:
For the first time in 19 years as a trader, I decided to find out where I had gone wrong. Isn’t that amazing? Throughout my trading career, I just assumed that someday I would strike it rick, that dreams always come true simply dreaming. Never once did it occur to me that achieving my dream of trading for a living would require hard work, planning, and discipline. It also requires persistence. But that was one trait I didn’t seem to be lacking. Aftr all, even though I never succeeded in the game, here I was 19 years later, still plugging away.
Rating:
- Content: 5/5
- Understandability: 5/5
- Practicality: 4/5
Encyclopedia of Chart Patterns by Thomas N. Bulkowski – Best for Chart Pattern Identification
Pros:
- Comprehensive list of chart patterns
- Provides clear guidelines on how to identify various chart patterns
- Features statistical performance rankings, albeit not a scientific way
Cons:
- May be overwhelming for beginners due to the amount of information
Authored by Thomas N., the ‘Encyclopedia of Chart Patterns’ is a valuable resource for gaining insights into various stock market patterns, like head and shoulders, double bottoms, triangles, etc.
Bulkowski is renowned for its comprehensive list of chart patterns and for using a quantified approach to technical analysis. It serves as a valuable resource for traders by offering clear guidelines on identifying various chart patterns, complemented with detailed illustrations and examples and statistics and numbers for each pattern or formation.
The book enhances its practicality for traders with statistical performance rankings, although not in a scientific way. While the amount of information may be overwhelming for beginners, this text has become a reference guide, proving particularly beneficial in identifying and understanding the wide array of chart patterns and contributing to more informed trading decisions.
Rating:
- Content: 4/5
- Understandability: 4/5
- Practicality: 3/5
Safe Haven Investing by Mark Spitznagel – Best for Risk Management
Pros of this trading strategy include:
- All about risk mitigation
- How to get better returns without adding more risk (is it even possible?)
- Explain that even an asset that has negative arithmetic returns, in theory, can increase the geometric returns.
Cons:
- Some readers may find the strategies way too complex to implement
- It does not provide any answer to get better returns without adding more risk
Can avoiding risk actually make you money? This is Mark Spitznagel’s bold investment strategy. Conventional wisdom in investing says, “high risk, high reward.” But what if there’s another way? In his book Safe Haven: Investing for Financial Storms, hedge fund manager Mark Spitznagel challenges this notion by exploring the power of risk-mitigating assets.
Spitznagel argues that traditional financial theory, taught in schools and universities, is flawed. He proposes a framework where reducing risk can actually increase returns, especially during market crashes. Sounds counterintuitive, right?
But here’s the gist:
- Spitznagel introduces “defensive assets” – investments that protect your portfolio during turbulent times, even if they have negative returns.
- He uses dice games as an analogy: a defensive asset with a negative average return can still boost your portfolio’s performance by compounding and minimizing losses.
- Many young investors underestimate the value of diversification: even uncorrelated assets with lower returns can improve your portfolio’s geometric returns (overall growth) compared to solely relying on risky assets like the S&P 500.
- Think insurance: while you pay premiums, it protects you from catastrophic losses. Spitznagel argues that defensive strategies achieve similar protection while contributing to portfolio growth.
While he doesn’t detail specific strategies in the book, he challenges conventional thinking and encourages investors to explore alternative approaches.
Rating:
- Content: 5/5
- Understandability: 3/5
- Practicality: 2/5
Thinking In Bets by Annie Duke – Best for Trading Process and Systematic Thinking
Pros:
- Widely accepted as the best book on decision-making
- Focus on the process, not the outcome
- Life is a continuous learning process – make sure you learn from your mistakes
Cons:
- Longer than necessary
Stop fooling yourself!
The stock market, and especially trading, is a master manipulator. We tend to fall prey to its “illusions”, judging our decisions based solely on the outcome – good or bad. But as Richard Feynman said, “The first principle is that you must not fool yourself,” and we’re often the easiest to fool.
Enter Thinking in Bets by Annie Duke (a former poker champion, but don’t let that fool you!). This book, championed by Charlie Munger himself, goes beyond poker and dives into the heart of decision-making in all aspects of life.
Here’s the key takeaway: Focus on the process, not the outcome. We can’t control the final result, only the quality of our decisions.
By judging ourselves solely on outcomes, we miss crucial learning opportunities and perpetuate biases like “resulting”: assuming a good outcome equals a good decision, and vice versa.
Think about it: you could make a stellar trade based on solid research, only to unexpectedly shift the market against you. Was it still a good decision? Absolutely! Conversely, a seemingly impulsive trade might end up in your favor due to sheer luck. Does that make it wise? Not necessarily.
So, why think in terms of “bets”? Life is a continuous learning process, and experiences are valuable teachers. But only if we learn from them, not just celebrate successes or lament failures. Even small biases, like “resulting,” can lead us astray over time. Imagine a ship crossing the Pacific with a compass off by just one degree. That tiny error could result in missing the destination by a vast margin.
The good news? Even small improvements in our decision-making process can significantly impact our long-term results. By focusing on the quality of our decisions, embracing uncertainty, and learning from every outcome (good or bad), we can navigate the stock market and life with greater clarity and confidence.
Rating:
- Content: 5/5
- Understandability: 4.5/5
- Practicality: 5/5
The Education Of A Speculator by Victor Niederhoffer – The First to Quantify Technical Analysis?
Pros:
- Widely accepted as the best book on decision-making
- Focus on the process, not the outcome
- Life is a continuous learning process – make sure you learn by your mistakes
Cons:
- A very tough and long read
Victor Niederhoffer’s The Education of a Speculator is a goldmine for aspiring quantitative traders. It dives into the core principles and strategies that underpin successful speculation, leaving a lasting impact on those who read it.
We were instantly drawn to Niederhoffer’s approach, finding in it the spark that ignited our passion for quantifying our trading strategies and not using anecdotal technical analysis. Niederhoffer’s emphasis on rigorous testing and data-driven decision-making resonated deeply in the 70s when such methods were uncommon.
Niederhoffer’s motto, “test, test, and test more,” perfectly encapsulates his belief in uncovering patterns and anomalies within market data. From analyzing FED days to options expiration, he demonstrates how seemingly insignificant factors can be used in trading strategies.
While Niederhoffer’s hedge funds may have faced challenges, the book’s value transcends individual successes or failures. His impact is evident in the numerous successful money managers he’s mentored, including his brother Roy. Additionally, figures like Jim Simons, known for their data-driven strategies, share a similar spirit.
Despite some negative reviews focusing on the author’s ventures, the book’s true worth lies in its timeless trading wisdom. Niederhoffer masterfully draws analogies from everyday life, poker, and even board games, making complex concepts relatable. The final chapter, “The Ecology of Markets,” stands out as a brilliant exploration of market dynamics, drawing parallels from biology.
While the book’s unconventional writing style and assumed knowledge of market fundamentals might pose a hurdle for some, it offers invaluable rewards for those willing to finish it. If you’re an open-minded individual seeking a scientific approach to understanding markets, “The Education of a Speculator” could open some doors for you.
Our favorite quote is this one:
I can’t show you how to make money by parroting systematic trades. But I can show you something more valuable: a way of thinking that will lead you to greater success.
Rating:
- Content: 5/5
- Understandability: 3/5
- Practicality: 3/5
Pit Bull by Marty Schwartz – The Best For Trading Motivation
Pros:
- Entertaining and easy to read
- Explains the importance of a checklist
- Shows the importance of passion
Cons:
- No specific trading strategy is explained
Pit Bull is an entertaining story of a self-made trading millionaire trading S&P 500 futures in the 1980s when the contract was first introduced.
If you’re looking for a light, engaging read packed with trading insights, Marty Schwartz’s Pit Bull might not be your ideal pick. Instead, it looks into Schwartz’s journey as a trader, offering glimpses into his life, mind, and motivations.
While specifics about trading strategies are scarce, the book explains psychological aspects crucial for success in the market. Schwartz emphasizes the importance of understanding your mindset and developing a trading methodology that aligns with your personality.
One key takeaway is the power of a checklist. A clear, written plan helps combat emotional reactions and avoid costly mistakes, especially when trading with real money.
Schwartz’s passion and self-belief are undeniable throughout the book, though some might find his confidence bordering on egotistical. Nonetheless, his journey can be inspiring for aspiring traders.
Rating:
- Content: 4/5
- Understandability: 5/5
- Practicality: 3/5
Market Wizards Series by Jack Schwager – The Best For Trading Insights
Pros:
- Entertaining and easy to read
- Great for motivation
- Learn trading lessons from successful traders
Cons:
- You don’t get any specific trading strategies
Jack Schwager has written the following books in the series (in chronological order):
- Market Wizards
- New Market Wizards
- Hedge fund Market Wizards
- Stock Market Wizards
- The Little Book of Market Wizards
- Unknown Market Wizards
All the books are on our bookshelf, and we summarize the key takeaways:
- All successful traders interviewed emphasized the importance of developing a strong mental framework for handling risk, emotions, and setbacks.
- Discipline, confidence, and adaptability are crucial traits.
- Each trader had a unique personality and approach to the market. Finding a strategy that suits your temperament and risk tolerance is key.
- Learning never stops: The best traders remain open to new ideas and constantly adapt their strategies as markets evolve.
- The series showcases various trading styles, from technical analysis to fundamental analysis to arbitrage and discretionary trading.
- There’s no one-size-fits-all strategy for success. Finding a strategy with a solid edge and adapting it to your individual strengths is more important.
- All successful traders prioritize managing risk and protecting their capital.
- There’s no quick and easy path to trading success. Building a track record takes hard work, patience, and consistent learning.
- While skill and discipline are crucial, even the best traders acknowledge the role of luck in their successes.
- Many traders interviewed benefited from mentorship, collaboration, and sharing ideas with others.
Rating:
- Content: 5/5
- Understandability: 5/5
- Practicality: 3/5
Deciphering the Language of Charts
The essence of technical analysis lies in the detection and interpretation of various chart patterns, might be pivotal to several trading strategies. Essential chart patterns that traders should be familiar with include:
- Head and Shoulders
- Double Tops and Bottoms
- Triangles (which can be Ascending, Descending or Symmetrical)
- Flags and Pennants
- Cup with Handle
These are well-known formations, but how do you trade them? How do you know they are profitable? This is why we recommend backtesting and looking at technical analysis more scientifically.
Candlestick charts are one of the earliest types of charting tools available, instrumental for effective pattern recognition that enables trend spotting and adjustments accordingly.
Scrutinizing highs, lows, price action, and volume indicators provides valuable insights into trend predictions, including potential market breakouts—information vital when making informed trading decisions.
Related Reading: Best Trading Podcasts
Navigating the Market with Technical Analysis Books
Books on technical analysis might guide identifying trends and patterns in the market by examining charts. They include instruction on deploying tools such as:
- Recognizing upward, downward, and sideways price movements
- Prioritizing the employment of support, resistance, and trend lines over other types of indicators
- Acknowledging round numbers and psychological levels as important zones of support or resistance that traders need to monitor
Such books are valuable resources for traders who want to scrutinize and decipher historical trading data effectively.
These materials instruct readers in:
- Identifying reversal or continuation patterns that can signal upcoming changes or persistence in market trends
- Applying line graphs and candlestick visuals adeptly to confirm market activity prior to making trade decisions
- Utilizing moving averages to spot prevailing trends while also understanding their inherent delay as lagging markers.
They help traders harness technical indicators like RSI (Relative Strength Index), MACD (Moving Average Convergence Divergence), and Stochastic Oscillator – essential when evaluating conditions such as overbought/oversold markets. The practical application is demonstrated with real-world examples across various asset classes, including stocks, futures exchange products, and currencies.
The content advocates for a methodical approach when using these analytical instruments. It emphasizes vigilance against excessive dependence on them by highlighting potential drawbacks.
Investing in Your Trading Education
All traders should learn technical analysis by reading books, as they provide valuable insights into market trends and strategies, thereby improving trading decisions. Adopting established statistical practices aids in analyzing and interpreting technical analysis and financial theories, improving the quality of trading education.
Thomas N. Bulkowski’s analytical approach to chart patterns, shaped by his engineering and software background, provides traders with a practical learning tool. Real-world trade decision experiences of authors like Perry J. Kaufman enrich the educational content for traders who study their books. Managing emotions in trading is a crucial aspect covered in technical analysis books, emphasizing its importance alongside technical proficiency.
By reading these books, investing in your trading education can greatly enhance your trading decisions, improve statistical analysis, and help manage emotions in trading.
Summary
Trading requires appropriate tools and knowledge. Reading books on technical analysis can provide a robust base for discerning patterns in chart data, grasping the nuances of market trends, and crafting strategies for trading.
These resources are valuable whether you’re just starting and need to grasp fundamental concepts or you’re an established trader aiming to enhance your proficiency. Professionals stand to expand their expertise with advanced materials tailored to their level. Trading extends beyond mere decision-making. It encompasses ongoing education and adjustment in response to the dynamic nature of financial markets.
But no matter what approach you use in technical analysis, we recommend quantifying as much as possible.
Frequently Asked Questions
What book should I read for technical analysis?
The book you should start to read on technical analysis are with John J. Murphy’s seminal work, “Technical Analysis of the Financial Markets.” This comprehensive guide sheds light on different markets and delves into the philosophical underpinnings of trading practices.
Delving into this book will equip you with a mindset similar to that of experienced traders, enriching your understanding and approach to financial market analysis.
What does Warren Buffett think of technical analysis?
Warren Buffett thinks that investors should avoid technical analysis, as it resembles an illusion prone to multiple interpretations.
What is the best way to learn technical analysis?
The best way to learn technical analysis is by mastering the essential elements such as trend lines and chart patterns. Following this, it’s beneficial to engage in practice using actual market data on demo trading platforms or through simulated trading provided by brokers and various online resources. Doing so will allow for a robust comprehension of the subject matter and enable practical application of your learned techniques in trading scenarios.
How important is it to read technical analysis books?
Understanding market trends and trading strategies by studying technical analysis books might be very helpful. Books offer significant knowledge about statistical analysis and help traders manage their emotions effectively.
