Recommended Reading

Readers repeatedly ask me for book and article recommendations, especially new traders who are interested in learning more about trading and investing.  Education is the single most important prerequisite for trading success.  As a result, I created this dedicated page on Trader Edge to provide recommendations from my personal finance library for books, articles, and other educational resources related to trading and investing.

When I write a new review in a blog post, I will also add a brief description here, which will include a purchase/download link whenever possible.

Reading Links:

The external links to the recommended books and articles are provided in this section.  Complete descriptions, reviews, author bios, and other information for each recommendation are also available below.

Author: Brian Johnson

Option Strategy Hedging & Risk Management: An In-Depth Article Introducing an Interactive Analytical Framework for Hedging Option Strategy Risk

Option Income Strategy Trade Filters: An In-Depth Article Demonstrating the Use of Trade Filters to Enhance Returns and Reduce Risk

Option Strategy Risk / Return Ratios: A Revolutionary New Approach to Optimizing, Adjusting, and Trading Any Option Income Strategy

Exploiting Earnings Volatility: An Innovative New Approach to Evaluating, Optimizing, and Trading Option Strategies to Profit from Earnings Announcements

Managing Yield Curve Risk in an Index Environment Financial Analysts Journal, November 1989

Modeling Implied Volatility Active Trader, June 2011 (Active Trader ceased publication; article no longer available)

The Science of Selling Options Active Trader, September 2012 (Active Trader ceased publication; article no longer available)

Option Strategies for Bull-Market Reversals Active Trader, January 2013 (Active Trader ceased publication; article no longer available)

Author: Thomas J. Dorsey

Point & Figure Charting: The Essential Application for Forecasting and Tracking Market Prices, Fourth Edition

Author: Lawrence G. McMillan

Options as a Strategic Investment

McMillan on Options

Author: Jack D. Schwager

Market Wizards: Interviews with Top Traders

The New Market Wizards: Conversations with America's Top Traders

Stock Market Wizards: Interviews with America's Top Stock Traders

Hedge Fund Market Wizards: How Winning Traders Win

Author: Euan Sinclair

Volatility Trading, 2nd Edition

Author: Various - Magazines

Technical Analysis of Stocks and Commodities Magazine

Active Trader Magazine

Brian Johnson's Books Are Available In Print and Kindle Versions On Amazon

Option Strategy Risk / Return Ratios: A Revolutionary New Approach to Optimizing, Adjusting, and Trading Any Option Income Strategy

by Brian Johnson

Option Strategy Risk / Return Ratios

Option Strategy Risk / Return Ratios

Option Strategy Risk/Return Ratios introduces a revolutionary new framework for evaluating, comparing, adjusting, and optimizing option income strategies. Drawing on my background in option-pricing and on decades of experience in investment management and trading, I developed these tools specifically to manage option income strategies.

Unlike crude rules-of-thumb, these revolutionary new tools can be applied to any option income strategy, on any underlying security, in any market environment. Risk and return are timeless concepts in finance and trading, but this is the first time both concepts have been integrated successfully into a consistent approach for managing option income strategies.

Option Strategy Risk/Return Ratios is written in a clear, easy-to-understand fashion and explains how to apply risk/return ratios to condors, butterflies, calendars, double diagonals, and even hybrid income strategies.

Option Strategy Risk/Return Ratios is available in paperback and and as an E-book on the Kindle.

In the interim, if you do not have a Kindle, Amazon offers free Kindle viewer app for many devices.


Exploiting Earnings Volatility: An Innovative New Approach to Evaluating, Optimizing, and Trading Option Strategies to Profit from Earnings Announcements

by Brian Johnson

Exploiting Earnings Volatility

Exploiting Earnings Volatility

The analytical framework introduced in Exploiting Earnings Volatility will allow you to evaluate, compare, and even optimize option earnings strategies on any underlying security, in any market environment.

The accompanying Excel spreadsheets will help every trader integrate these new tools into their investment process. The spreadsheets include a comprehensive volatility model and a strategy optimizer. The toolset even calculates "True Greeks," including a new Greek risk metric designed specifically for earnings strategies.

Brian Johnson's Articles:

Managing Yield Curve Risk in an Index Environment Financial Analysts Journal, November 1989

This article introduced the first parametric approach used to quantify and manage risk in fixed income portfolios.

Modeling Implied Volatility Active Trader, June 2011 (Active Trader ceased publication; article no longer available)

This technique for estimating the expected changes in options implied volatility before and immediately after the release of quarterly earnings can also help you identify undervalued and overvalued options. It also can be used to estimate the forward term structure of implied volatility.

The Science of Selling Options Active Trader, September 2012 (Active Trader ceased publication; article no longer available)

The article explains how to use directional volatilities to find the best strike prices for selling out-of-the-money vertical spreads.

Option Strategies for Bull-Market Reversals Active Trader, January 2013 (Active Trader ceased publication; article no longer available)

This article evaluates a number of different option strategies for capitalizing on market pull-backs after sustained advances.

Disclosure: Trading Insights, LLC is a member of the Amazon affiliate referral program.

Recommendations: Books by Thomas J. Dorsey

Point & Figure Charting: The Essential Application for Forecasting and Tracking Market Prices, Fourth Edition

by Thomas J. Dorsey

Point & Figure Charting is a practical guide to understanding and applying Point & Figure charting to all aspects of trading across a wide range of instruments.  It begins with a detailed introduction to point and figure charting that assumes no prior knowledge of the subject. Dorsey then delves deeper into the fundamentals and objective chart patterns that can be used to manage both short-term and long-term trades.  The point and figure tools are then applied to an analysis of relative strength and general market direction.  Finally, Dorsey explores sector rotation, fixed income, ETFs, and even commodity trading.  Dorsey is one of the leading experts on point and figure charting and the book and accompanying CD provide a educational and practical guide to using these fascinating tools.

To learn more about point and figure charting, please revisit my article on this subject titled "The Easiest Way to Identify Trends."

Point & Figure Charting: Editorial Reviews

From the Inside Flap

The Point and Figure method of investment analysis is not new by any stretch of the imagination. While little has changed in terms of its basic principles over the years, there are new and interesting ways of implementing this proven method—especially with the help of today's rapidly evolving computing technology.

Nobody understands this better than top Point and Figure Charting expert Tom Dorsey. Now, in the fourth edition of Point and Figure Charting, he returns to explain how traders and investors alike can use this classic technique—borne out of the irrefutable law of supply and demand—to identify and capitalize on market trends.

Within these pages, Dorsey offers valuable insights on establishing an "operating system" mindset—a belief in your method of analysis that you understand and embrace wholeheartedly—using the Point and Figure method. This will help carry you through your investment endeavors. Along the way, he provides step-by-step guidance on how to create, maintain, and interpret your own Point and Figure charts with regard to markets, sectors, and individual securities. He also explains how to use these findings to effectively track and forecast market prices and develop an overall investment strategy.

Divided into three comprehensive parts, Point and Figure Charting, Fourth Edition provides you with the insights to excel in many different markets, and under various conditions. Through a thorough discussion of everything from recognizing reliable chart patterns and the adaptability of Relative Strength (RS) to primary/secondary market indicators and using options as a risk management tool, this practical guide will allow you to make more of your time in today's markets by answering such important questions as: Is the market in a mode to support higher prices? Did you search the right sector? Which asset classes are in favor? And what countries are the best places to invest?

This book also comes with a companion website. It brings the concepts covered to life with additional examples and discussions, as well as exercises and tests to refine your skills. In using this interactive resource, you will have an important technical analysis tool to enhance your investments and portfolio performance.

Many people have forgotten or ignored the fact that having a logical, organized, well-founded method of investing in the markets is the only way to achieve success. So if you're looking for an investment approach that has stood the test of time—during both bull and bear markets—and is easy enough to learn, whether you're eighteen or eighty, then Point and Figure Charting, Fourth Edition is the book for you.

From the Back Cover

Praise for Point and Figure Charting

"I have spent five decades in the financial services industry, and it is a hard thing to navigate the markets; but Tom's Point and Figure method is the most straightforward, logical way that I've seen of analyzing the markets. He has expanded my understanding of the stock market and the way I look at my investments."
—Hugh L. McColl Jr., retired CEO, Bank of America

"Everyone who's involved in financial markets must understand Point and Figure charting in order to get the full picture, whatever your view of technical analysis."
—Jim Rogers, author of Hot Commodities and Investment Biker

"Tom Dorsey's industry-leading technical research has survived the test of time and continues to adapt to the new and ever-changing world of the investment advisor. I have counted Tom as a friend and business partner for the last two decades, and continue to learn at the feet of the master. Once again, Tom is equipping the advisor, through this book, with the armor needed to both defend a client's assets and outperform when the markets look impossible."
—Ben Fulton, President and CEO, Elkhorn Investments

"The key to successful investing is to adhere to a disciplined, time-proven method for entering and exiting a stock, a sector, or the market as a whole. Point and Figure Charting provides that discipline and there is no better champion than Tom Dorsey. In clear concise language, Tom has, once again, explained the dispassionate barometer that can give every investor the confidence to know when to buy and when to sell."
—Joshua B. Parker, President, Gargoyle Investment Advisor LLC

"The three cornerstones of our high-net-worth/ultra-high-net-worth financial advisory practice are macro, fundamental, and technical analyses. When it comes to technical analysis, we use Dorsey, Wright & Associates daily to monitor both portfolios and dynamic changes in asset classes and make decisions based on the data and trends we see. We think in this post—global financial crisis world that the Point and Figure methodology is extremely important in navigating markets."
—Stephanie Twomey, Director, Twomey, Zell & Gibbons Group, Morgan Stanley Private Wealth Management; Barron's Top 100 Women Financial Advisors

Recommendations: Books By John J. Murphy

Technical Analysis of the Financial Markets: A Comprehensive Guide to Trading Methods and Applications (New York Institute of Finance)

by John J. Murphy

This may be the best single resource book on technical analysis.  It assumes no prior knowledge of technical analysis and provides a comprehensive look at many of the popular tools used by market technicians.  It is one of the first books I purchased when I began learning about technical tools and I highlighted or dog-eared nearly every page for future reference.  I continue to be fascinated by the potential of technical indicators and this book provided the inspiration for much of my own proprietary research work.

I personally believe that every investor should become proficient in technical analysis, even those who primarily use fundamental analysis in their investment process.  Fundamental screening strategies or ranking services may help you identify what to buy or sell, but only technical analysis can help you determine the optimal times to buy and sell.  Technical Analysis of the Financial Markets is one of the bestselling books on technical analysis, written by one of the leading practitioners in the field.

John J. Murphy Amazon Biography

"John J. Murphy is a former technical analyst for CNBC and has over forty years of market experience. He is the face of, which provides financial information to online investors via technical analysis tools. Murphy has appeared on Bloomberg TV, CNN's Moneyline, Nightly Business Report, and Wall $treet Week with Louis Rukeyser. In 1992, he was given the first award for outstanding contribution to global technical analysis by the International Federation of Technical Analysts, and was the recipient of the 2002 Market Technicians Association Annual Award. In addition to the First Edition of The Visual Investor, he is also author of Intermarket Technical Analysis and Intermarket Analysis, all of which are published by Wiley. He also authored Technical Analysis of the Financial Markets. Murphy has a bachelor of arts in economics and a master of business administration from Fordham University."

Recommendations: Books by Lawrence G. McMillan

Options as a Strategic Investment

by Lawrence G. McMillan

Options as a Strategic Investment is considered by many to be the single best book on options ever written.  It is a comprehensive work covering all aspects of options, option strategies, options trading, volatility, and many related topics.  Every option trader should own this reference book and refer to it often.

McMillan on Options

by Lawrence G. McMillan

McMillan on Options is a practical guide to implementing, managing, and trading actual option strategies.  Practical real-world trading examples are used to demonstrate pricing strategies, risk management, hedging, volatility trading, and McMillan's own personal option philosophy. This is an excellent companion to Options as a Strategic Investment.

Lawrence G. McMillan Amazon Biography

"Lawrence G. McMillan is the author of Options As a Strategic Investment, the best-selling work on stock and index options strategies, which has sold over 200,000 copies. The fourth edition of this work was released in March, 2002. In addition, he has written two other books, McMillan On Options (2nd edition, 2004) and Profit With Options and co-authored another, New Insights On Covered Call Writing. He currently authors a unique daily advisory service - Daily Volume Alerts - which selects short-term stock trades by looking for unusual increases in equity option volume. He also edits and publishes "The Option Strategist", a derivative products newsletter covering equity, index, and futures options, as well as "The Daily Strategist", covering much the same strategies but on a daily basis. In addition, he trades his own account actively, and he manages option-oriented accounts for certain individuals. In these capacities, he is the President of McMillan Analysis Corporation, which he founded in 1991.

Mr. McMillan is the recipient of the Sullivan Award for 2011, awarded by the Options Industry Council in recognition of his contributions to the Options Industry.

He has spoken on option strategies at many seminars and colloquiums in the United States, Canada, and Europe. He also writes frequently and is quoted in publications such as Barron's, Technical Analysis of Stocks and Commodities, Data Broadcasting's "Exchange" magazine, Futures Magazine,, and Active Trader Magazine.

Mr. McMillan received the prestigious Joseph W. Sullivan Award in 2011, recognition of outstanding contributions to the U.S. options industry.

Prior to founding his own firm, Mr. McMillan was a proprietary trader at two major brokerage firms. He began his Wall Street career as the retail option strategist at Thomson McKinnon Securities, Inc., from 1976 to 1980, and then traded the firm's proprietary account beginning in 1980. From 1982 to 1989, he was a Senior Vice President in charge of the Equity Arbitrage Department. Following that, he was in charge of the Proprietary Option Trading Department at Prudential-Bache Securities in 1989-90. In those positions, he traded the firm's own money - primarily in advanced option strategies and risk arbitrage at Thomson McKinnon, and primarily in convertible Euro-bonds and Japanese warrant arbitrage at Prudential.

He initially worked for Bell Telephone Laboratories in Whippany, NJ, from 1972 to 1976. He also published a weekly newsletter, entitled "Hedged Option Strategies" from 1974 to 1976.

Mr. McMillan holds a B.S. degree in mathematics from Purdue University (1968) and an M.S. in applied mathematics and computer science from the University of Colorado (1972)."

Recommendations: Books by Jack D. Schwager

Market Wizards: Interviews with Top Traders

The New Market Wizards: Conversations with America's Top Traders

Stock Market Wizards: Interviews with America's Top Stock Traders

Hedge Fund Market Wizards: How Winning Traders Win

by Jack D. Schwager

All of the Market Wizards books contain valuable insights and war stories from some of the top proprietary, equity, and hedge fund traders.  Not only are these books informative, but they are enjoyable and even inspirational.  They contain invaluable lessons on what to do and even more important, what not to do.

Most of these traders have failed in spectacular fashion at some point in their careers and the insights gained from their experiences could save you thousands and thousands of dollars.  The key is to take these lessons and make specific, objective changes to your investment process to prevent similar mistakes in your own trading.  Great stuff. Description of Market Wizards

The world's top trader's reveal the secrets of their phenomenal success!

How do the world's most successful traders amass tens, hundreds of millions of dollars a year? Are they masters of an occult knowledge, lucky winners in a random market lottery, natural-born virtuosi—Mozarts of the markets? In search of an answer, bestselling author Jack D. Schwager interviewed dozens of top traders across most financial markets. While their responses differed in the details, all of them could be boiled down to the same essential formula: solid methodology + proper mental attitude = trading success. In Market Wizards Schwager lets you hear, in their own words, what those super-traders had to say about their unprecedented successes, and he distils their responses down into a set of guiding principles you can use to become a trading star in your own right.

  • Features interviews with superstar money-makers including Bruce Kovner, Richard Dennis, Paul Tudor Jones, Michel Steinhardt, Ed Seykota, Marty Schwartz, Tom Baldwin, and more
  • Tells the true stories behind sensational trading coups, including the one about the trader who turned $30,000 into $80 million, the hedge fund manager who's averaged 30% returns every year for the past twenty-one years, and the T-bond futures trader who parlayed $25,000 into $2 billion in a single day!

"Market Wizards is one of the most fascinating books ever written about Wall Street. A few of the 'Wizards' are my friends—and Jack Schwager has nailed their modus operandi on the head."
--Martin W. Zweig, Ph.D., Editor, The Zweig Forecast

Jack D. Schwager Biography

"Jack Schwager is a recognized industry expert in futures and hedge funds and the author of a number of widely acclaimed financial books. He is currently the co-portfolio manager for the ADM Investor Services Diversified Strategies Fund, a portfolio of futures and FX managed accounts. Previously, Mr. Schwager was a partner in the Fortune Group, a London-based hedge fund advisory firm, which specialized in creating customized hedge fund portfolios for institutional clients. His prior experience includes 22 years as Director of Futures research for some of Wall Street's leading firms and 10 years as the co-principal of a CTA.

Mr. Schwager has written extensively on the futures industry and great traders in all financial markets. He is perhaps best known for his best-selling series of interviews with the greatest hedge fund managers of the last two decades: Market Wizards (1989), The New Market Wizards (1992), and Stock Market Wizards (2001). The latest book in the series, Hedge Fund Market Wizards is due to be released in May 2012. Mr Schwager's first book, A Complete Guide to the Futures Markets (1984) is considered to be one of the classic reference works in the field. He later revised and expanded this original work into the three-volume series, Schwager on Futures, consisting of Fundamental Analysis (1995), Technical Analysis (1996), and Managed Trading (1996). He is also the author of Getting Started in Technical Analysis (1999), part of John Wiley's popular Getting Started series.

Mr. Schwager is a frequent seminar speaker and has lectured on a range of analytical topics including the characteristics of great traders, investment fallacies, hedge fund portfolios, managed accounts, technical analysis, and trading system evaluation. He holds a BA in Economics from Brooklyn College (1970) and an MA in Economics from Brown University (1971)."

Recommendation: Book by Euan Sinclair

Volatility Trading, 2nd Edition

by Euan Sinclair

The second edition of Volatility Trading by Euan Sinclair is one of the most comprehensive and insightful books on volatility trading that I have ever read. While the book uses formulas to convey mathematical and theoretical concepts, the insights in the book were clearly gained from years of practical trading experience.

The author wisely begins with an explanation of the Black-Scholes-Merton and even more importantly includes a discussion of the BSM model assumptions and its deficiencies. In his chapter on "Stylized Facts about Returns and Volatility," Sinclair explains how volatility actually behaves in the real world and offers numerous graphs to illustrate these relationships. "Implied Volatility Dynamics" goes into even more detail on how implied volatility evolves over time.

I particularly enjoyed his chapters on "Generating Returns through Volatility" and the "VIX." These chapters investigate the variance premium, its sources, and how to exploit it in practice.

There are many pearls of wisdom in the book, but perhaps the most important is Sinclair's continuous emphasis on the need to identify and systematically exploit a trading edge. When trading options, this typically means exploiting anomalies between implied and forecasted future realized volatility.

Finally, Sinclair goes beyond volatility trading and includes several detailed chapters on risk management, position sizing, and psychological pitfalls.

I have been an investment professional for over 30 years and still found new insights in this book as well as several interesting research and strategy ideas to explore.

Editorial Reviews

From the Inside Flap

Volatility, by definition, is indicative of underlying randomness. But there are patterns within the noise that can be measured and exploited. No one knows this better than author Euan Sinclair, a highly successful options trader with a doctorate in quantum chaos.

But the Second Edition of Volality Trading isn't just about the numbers. Drawing upon his fifteen years as a professional trader, Sinclair provides a fully fleshed-out approach to trading that relies as much on the all-important "human element" and the psychological and emotional biases that drive trading decisions, as it does on quantitative analysis.

Ultimately, says Sinclair, trading is about having a coherent trading philosophy and developing a rigorous system. It's about setting a goal that can be clearly expressed in one sentence, and about finding trades with a clear statistical edge. And, finally, it's about capturing that edge and sizing each trade in a way that is consistent with your goal. Everything you do as a trader must be done within this framework.

Taking an accessible, straightforward approach, Sinclair provides you with the knowledge and tools you need to create just such a framework. He walks you through the basics of option pricing, volatility measurement, hedging, money management, and performance evaluation. And he develops a Black-Scholes-Merton-based quantitative model for measuring volatility that can easily can be adapted to trading virtually any type of financial instrument.

Responding to major changes in the markets since the first edition, Sinclair has expanded his scope in this Second Edition to include coverage of the many new opportunities available in VIX futures, ETNs, and leveraged ETFs. He also:

  • Analyzes the benefits and shortcomings of an array of historical volatility measurements
  • Clearly shows how volatility behaves in the real world and how it relates to returns on underlying assets
  • Outlines methods for forecasting volatility over the lifetime of a trade
  • Supplies proven techniques for knowing when to hedge and by how much
  • Delivers strategies for aggregating positions so as to reduce the need to hedge
  • Shares priceless tips on how to boost returns through trade sizing—including techniques borrowed from the worlds of futures trading and professional gambling
  • Arms you with powerful tools for evaluating the ongoing performance of your trading activity
  • Fills you in on the latest research on cognitive and emotional biases that influence trading decisions and how to leverage them to your advantage
  • Delineates time-tested strategies for trading VIX futures, ETNs, and leveraged ETFs
  • Provides access to a companion website containing valuable spreadsheets, models for calculating volatility cones for different time periods, and simulation engines

Bringing volatility trading down to earth for even the most numbers-shy traders, as well as hard-nosed quants interested in acquiring a deeper understanding of options trading, Volatility Trading, Second Edition is an indispensable "tool of the trade."

From the Back Cover

Praise from experts for the Second Edition of Volatility Trading

"Benefitting from his experience as an option trader and his background as a physicist, Euan Sinclair gives a comprehensive and detailed treatment of theoretical and practical aspects involved in volatility trading. The style is to-the-point, focused, and honest. The book includes something rarer than a CD-ROM: humor. Heartily recommended for the practitioner, as well as the academic who wants to know."
—JESPER ANDREASEN, Danske Markets, Copenhagen

"Over the last five years, this has become the classic work on practical options trading. It has been updated to cover innovations in markets as well as additional material on behavioral finance and capturing risk premium Everyone who trades options should read this book."
—AARON BROWN, Risk Manager, AQR Capital Management, and author of Red-Blooded Risk

"Practical, engaging, and concise, Euan Sinclair's Volatility Trading remains the best book I have seen about options trading from the practitioner's standpoint. A far cry from the standard textbook treatment, Sinclair's discussion of practical topics such as trade sizing, exit criteria, and P&L management—peppered with relevant trading anecdotes—educates while countering many of the trader myths and fallacies one hears over the years. New material on trading the VIX and volatility ETFs is particularly timely and useful."
—STEVE CRUTCHFIELD, Head of U.S. Options, NYSE Euronext


Recommendations: Trading Magazines

Technical Analysis of Stocks and Commodities Magazine

Technical Analysis of Stocks and Commodities (TASC) is an outstanding source of new ideas. In addition to new issues each month, a subscription also allows you to access past TASC articles, which makes it one of the best values in the industry. Description of Technical Analysis of STOCKS & COMMODITIES

Technical Analysis of STOCKS & COMMODITIES, The Traders Magazine, has been published since 1982. Every issue of STOCKS & COMMODITIES provides the latest, most detailed information on technical trading strategies, charting patterns, indicators, and computerized trading methods.

Disclosure: Trading Insights, LLC is a member of the Amazon affiliate referral program.

Modern Trader Magazine

Modern Trader is another excellent source of new trading ideas. Their articles have provided the inspiration for several of my proprietary trading strategies. Modern Trader is the new version of Futures Magazine. I read Futures magazine every month, but I find the Modern Trader Version even more valuable to my trading. They offer digital and print subscriptions.




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