When an aspiring trader asks me to recommend books on technical analysis he or she is often surprised at my answer. While I do have a technical favourite or two (besides my own) I am quick to redirect him or her to books on trading psychology.
Technical analysis is worthless without a thorough understanding of the psychology behind winning and losing, buying and selling, fear and greed, risk versus reward, the past versus the future, the knowable versus the unknowable. Technical analysis is best used as a psychological tool to help the trader manage random price action and the emotions associated with it, not as a way to predict price action and thus confirm the trader’s egotistical need to be right. Psychology first; technical second.
One of my favourite “go to” authors on trading psychology is Mark Douglas. Although he is best known for his book Trading In The Zone, Mr Douglas’ first book The Disciplined Trader is a gem of a read also. I recommend both but start with The Disciplined Trader. It will help you better understand and appreciate the principles discussed in Trading in the Zone.
The following is from the INTRODUCTION and provides the thesis for the book. In it, Douglas discusses the following: