“We don’t need no education...”

As much as I love this Pink Floyd anthem, collective past experiences of successful people tells us that education pays. But it need not be in a classroom, it need not be dry and boring. In fact, it can be fun and exciting. This article is an honest attempt to show a fun way of educating ourselves with knowledge and skills required in financial markets.

Most start out in this journey with a bit of curiosity and a lot of appeal for making quick money. It all seems very intimidating at first, the charts, constant barrage of economic data, men in black suits giving expert opinions and a certain bald guy on TV sure doesn’t make it any easy. You don’t know where to begin and how. It’s like seeing a really complicated map of a treasure hunt without the “you are here” sign on it. Fortunately, we live in an age of information explosion and there are unlimited resources for everything and a lot of them are free. That puts us back to the original problem, where to begin.

If you are a complete noob, it may be a good idea to visit investopedia.com also and spend a couple of months there. It’s a terrific free resource that can get addictive when you are just starting out. I still use it for reference. It’s important to get a hang of basic concepts related to stocks, options, bonds, currencies and only then the education begins J

I am going to review some books that have helped me immensely and I am sure they will help you too. These books are not only educational, but also fun reads.

“Pit Bull” by Martin Schwartz is by far the most entertaining and educational book I have ever come across. It gives a real rush and while exposing the nature of this business, vulnerability of a champion trader and what it takes to be successful in financial market. I think it’s a must read for anyone seriously thinking about consistently making money in markets. It’s a good read for all levels of traders.

“Reminiscences of a Stock Operator” by Edwin Lefevre. This is an all time classic originally published in 1923 that still holds all of its charm. It’s fascinating to read about the way markets worked then and how the same principals work even though things have changed quite a bit.

“Adventures of a Currency Trader” by Rob Booker. I am sure anyone who has had any kind of experience with forex will absolutely love this one. It’s a nice fable filled with tales that we all have gone through at some point and the effects they have had on us mentally and in our trading styles. Very easy read and author’s story telling style makes it difficult to put down till you finish.

“Real Money” by James Cramer. Yup..it’s the bald guy mentioned earlier in case you didn’t guess it J. I know people have extreme opinions on this guy but this book is quite an exciting read. That much you can expect from him I guess.

“One up on Wall Street” by Peter Lynch.  Some solid fundamental, conservative trading methodologies that have lasted the test of time. It gives a good understanding of fundamental concepts related to stocks.

At this point you are probably interested enough and know enough to get into some technical stuff that otherwise might feel dry. If you are interested in options and know the basic concepts, “Options as a strategic investment” by Lawrence McMillan is hands down the best reference for options.

“Technically Speaking” by Chris Wilkinson is a very good book that features interviews with various analysts. It’s not a book to learn about technical analysis but getting to know the people behind various techniques and the way they use it.

“Guide to Economic Indicators” by The Economist. John actually showed this book in one of the videos in December. It’s a very handy reference and something to have in your collection.

There are many books written on trading psychology but I think the best way to prepare is reading about real traders and their experiences in my opinion. Some of the books mentioned here will give you plenty of that. It’s important to understand that the most successful traders have had huge losses. But how they reacted to them is a lesson to learn.

One can master all the fundamentals and technicals but the key to success in this business is being able to have conviction in your analysis and being objective in wins and losses. This is called “mental fitness” in sports terminology. It is indeed very helpful if one can actively engage in some sport as sports are the best character building tools in my opinion. Also, doing little things like watching net pips instead of money in your account while trading can go a long way. Use breathing exercise to calm your nerves. How many times have you had a real good run of trades only to ruin it by a single casual trade? Or you saw this real nice set up, checked your analysis many times over and yet when the moment came, you chocked because you had a bad run?  It’s important to understand that any given trade is an independent entity in itself and past trades, wins or losses have absolutely no bearing on it.

Above all, the market is the ultimate teacher of them all. It’s a hard task master and it has no favorite pupils. It has absolutely no concern of your well-being and if we don’t do our homework right, punishment is guaranteed. It has no qualms about taking our money or giving money to us.

What we give or take from the market, ultimately depends on us and only us. Good enough reason to invest in some education?

Good luck,

Kaustubh Shinde