Books on Stock Trading - 3 Must Reads to Learn to Make Money Fast

Three must read books on stock trading are (in no particular order) Liar's Poker, The Economics of Money, Banking, and Financial Markets, and Multinational Business Finance. While it may seem out of place to recommend three books that don't mention stock trading in their titles as great books on stock trading. That is understandable. I think you will come to agree that understanding what makes markets move is more important for a day trader (and less well understood) than what any individual security is doing on a given day.

The Personalities Matter When It Comes to Stock Trading

Consider the benefits learned in reading these three must read books on stock trading. The first book, Liar's Poker, describes in very personal detail the experiences of a bond salesmen in the biggest bond trading firm of the 1980s, Salomon Brothers. The book provides rich descriptions of the personalities and characters within an investment banking firm. It also describes in great detail the amount of pressure employees are under to produce profits (from you as a client), and the lengths some will go to to make money at your expense. This book without question teaches the caveator emptor (buyer beware) rules of the investing world.

Understand the Role of the Federal Reserve and Monetary Policy

The second work I recommend is The Economics of Money, Banking, and Financial Markets. While this is specifically used as a college text-book in graduate level financial management courses, the concepts within are simple enough for the average trader to understand. Among the most important concepts discussed is the role of the Federal Reserve Banks of the United States. Understanding how currency mechanics works is important to interpretting the impact of monetary policy, the money supply, and forecasting economic activity (the invisible hand which guides investment results).

Learn the Dynamics of Forex

The last book on stock trading I suggest you read is also a college text, called Multinational Business Finance. While the first book talked about the people and psychology of market participants, the second book talked about the God of the U.S. market (the Fed). This book has important sections on how the currencies and policies of other Gods (central banks) relate to each other. This will influence how you think about global events and their impact on surrounding economies and ultimately down to individual stocks.

How to Make Money in the Stock Market

When I'm asked how to make money in the stock market, I inevitably am compelled to say, "trade stock options." It's not that there isn't money to be made in the stock market, it's just that for the vast majority of people looking to make a buck trading stocks options trading is the better alternative. I have to answer this way because people who typically want to know how to make money in the stock market really want to know how to make money in the stock market fast - and truth be told, trading stocks is simply not fast enough for most people wanting to dabble in the stock market.

So Why Is Options Trading a Better Way to Make Money in the Stock Market?

I thought you'd never ask. Options trading is FASTER. Options trading is also exceedingly efficient. Most importantly of all, options trading provides the highest return for a fixed amount of risk (in the case of cash options). A trader working in the cash options market (going long / purchasing puts or calls) limits the amount of potential loss to the amount of the cash invested, while leaving the maximum profit potentially unlimited. The beauty of this system is that in many cases a worthwhile amount of trading profit (over and above transaction costs) is possible for a retail trader (with a small amount to invest) in the options market, whereas the retail investor (for all intents and purposes) is shut out of making decent money (in a short time) in the stock market. I cover this elsewhere, but suffice to say options trading leverage makes all the difference.

It's Still Important to Learn How to Make Money in the Stock Market

One consolation for learning how to make money in the stock market is that the knowledge gained is not lost when a trader makes the jump to options trading. Many of the terms you learn when trading stocks (bid, ask, commission, spread, return on investment, leverage/margin) mean the very same thing in options trading (see a glossary of options trading terms). The principal difference between the two is that owning a call option (for example) gives the option holder the right to BUY the underlying stock, rather than outright owning the stock itself.

Learn more about options trading:

Teach Me to Trade
Options Trading Tutorial
Binary Options