One of the books that I read when I began learning trading is: Come Into My Trading Room: A Complete Guide to Trading, authored by Dr. Alexander Elder.
In my opinion, this is one of the best books for beginners, as it provides a comprehensive introduction to trading essentials as a solid foundation to build upon.
In this book, Dr. Elder shares three important pillars of trading: Mind, Method, and Money (3M).
The first M, Mind, refers to your trading psychology. Here he stresses the importance of discipline in trading,
In order not to let emotions (fear and greed) to lead you astray, you must instill discipline to stick to your own trading system and follow your trading plan prepared beforehand. Dr. Elder explains how to develop discipline in trading and avoid the traps caused by emotional trading, and also the importance of trading diary.
Discipline means designing, testing, and following your trading system.
It means learning to enter and exit in response to predefined signals rather than jumping in and out on a whim.
It means doing the right thing, not the easy thing.
And the first challenge down the road to disciplined trading involves setting up a record-keeping system.
The second M, Method, discusses how you about finding the trades and making entry and exit decisions. Basically, in order to achieve long term success, you have to develop a good system that gives you an edge over the market, and you must trade consistently based on your system.
In this section, Dr Elder covers technical analysis and trading indicators, and how to use and combine them to develop your own trading system.
He also shows using various examples on how to identify good trades and determine entries and exits (i.e. stops & targets).
The third M, Money, refers to how you manage your trading capital for long-term survival and success (i.e. money management).
Here Dr. Elder explains the importance of money management. Basically, a successful trader always manages his risks properly.
He then lays down the rules / formula of a good money management and provides the detail steps of proper money management.
Good quotes from the book with regards to how important the 3M is for trading success:
Every winner needs three essential components of trading: a sound individual psychology, a logical trading system and a good money management.
These essentials are three legs of a stool – remove one and the stool will fall together with the person who sits on it.
Losers try to build a stool with only one leg, or two at the most. They usually focus exclusively on trading systems.
Your trade must be based on clearly defined rules.
You have to analyze your feelings as you trade, to make sure that your decisions are intellectually sound.
You have to structure your money management so that no string of losses can kick you out of the game.
In addition, Dr Alexander Elder also provides some ideas on how to how to set up a good trading diary. Trading diary is very important from a trader. Because by having a good trading diary, you can learn from your own trades & experiences, both good & bad.
At the end of his book, Dr Elder discloses his own trading diary, which shows the details of some of his real trades (charts & indicators, trading signals, entry, stop, target, exits, etc.).
The bottom line is that, I HIGHLY recommend all beginners to read this book.
As I said earlier, this book can equip you with a complete introduction to trading essentials, which would serve as a solid foundation to build upon.
In case you’re interested, for your info, another popular & excellent book from Dr Alexander Elder is Trading for a Living: Psychology, Trading Tactics, Money Management
* Why Trading Psychology Is Very Important
* Book Review: When The Market Moves, Will You Be Ready?
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* Options Trading Basic – Part 2
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