This book we rate in our top 10 investment books of all time and was written, by Jim Paul and Brendan Moynihan back in 1994 and is a book I reccomend as essential trading education, for any trader in the currency or any other investment market.
The Authors and Availability
Sadly Jim Paul who recovered from his losses, was killed in the 9/11 attack on the World Trade Centre. The book was out of print for many years but after the death of Jim Paul, Brendan Moynihan made limited copies available. You will find this book online but with the limited numbers, in circulation you will have to pay a bit more for the book but its worth the price, for what is one of the best investment books of all time.
While it focuses on a lose in commodity trading the book is applicable to any trader, in any market and that includes Forex trading. The book part auto biographical and also looks at the fact that there are many different ways to make money and holy grail system which is better any other but there is a sure fire way to lose money and that's to let your losses get out control.
The book is divided into three parts:
The first, “Reminiscences of a Trader” and starts with a quote which you know means trouble for the author:
“Experience is the worst teacher. It gives the test before it gives the lesson.”
It looks at Jim Paul’s personal life which outlines his background and the his psychological make up to which he believes helped him to lose as a trader, it also covers his entry into the brokerage business and his work as floor trader on the Chicago Mercantile Exchange and his loss 1.6 million dollars which turned his life upside down and you really feel for him, as his life crumbles around him.
The second section part of the book goers through the trading lessons that can be learned from his losing experience and probably many other people who have lost heavily. The major theme is that there are many ways to win but relatively few ways to lose. Most losses of significance are attributed to psychological factors within the trader which are part of our nature and its a traders failure to control these which causes losses
The third part of the book shows how to avoid losses taking these psychological failings into account. This section of the book is great becuase it present a simple trading plan to help any traders understand, accept and by doing this avoid losses which will destroy their trading accounts.
A Focus on Losses NOT profits
If you have ever wondered what it feels like to lose a huge amount of money, this book takes you there but the purpose of the book is not, to just describe the pain of the lose – it also helps you see, why traders run big losses and also, how you can avoid the fate of the majority. If you think that running a loss is something which is easy to avoid this book gives you the reality, of why people do it and ways to avoid suffering the same fate with your trading strategy.
The underlying theme of the book - is if you want to become a successful trader, it is more beneficial to study the mistakes that lead to losing than concentrating ways to make money. The reason for this is there are many different ways, to make money in the Forex markets but there are very few ways to lose. If you read books such as Market Wizards by Jack Shwager which interviews some of the all time great traders, you will notice how different they all are in terms of their trading methods.
Some trade long term, some short term, some are trend followers while others trade contrary at turning points, some use fundamental analysis, some are purely technical and some use both methods so you can see – there are many different ways to win but all these traders stress one key fact in their trading strategies which has helped them make so much money and its: Keep Losses small and focus on money management.
Profits and Losses
Most traders like to focus on making profits as its more fun and exciting than thinking about boring subjects such as where to place stops and money management but as the book points out, this is the area you MUST focus on to win – all the great traders do it so if its good enough for them – its good enough for you.
An Underrated Book
Many people would say that the greatest book on trading psychology is Reminiscences of a stock Operator and I do love the book but for me, this book is more real, easier to read and gives you far more answers, on how to overcome losses and become a successful trader. While its in our top 10 investment books of all time, this book and Market Wizards are my all time top books of all time. Below is a great quote which losing and novice traders might like to reflect on:
“Participating in the markets without a plan is like ordering from a menu that has no prices, then letting the waiter fill out and sign your charge card receipt. It’s like playing roulette without knowing in advance how much you had bet, and only after the wheel stopped, letting the croupier tell you how much you had lost or won.” (Jim Paul)
How many traders have no trading plan? Most and how many, have no idea of the psychological impact of losses? Most. Anyone who wants to become a successful trader should read this book but most won't, their to focused on trading success is easy to achieve and all you need is a good trading system to win but of course, this is why they lose.
I had didn't mention it till now but when I was trading, I made enough money to start a brokerage – I was confident arrogant and paid no attention to money management which led to a devastating loss. Just like Jim Paul,my life collapsed around me and suicide seemed the only way out. Thankfully, just like Jim Paul, I saw sense learned from my losses and recovered and now today I can look back at those dark times and realize, it wasnt my trading strategy which was wrong and the way it generated trading signals, it was my own psychology that caused the losses I took.
RIP Jim Paul
I wish I Had met him but his book I have read numerous times and my advice is – go get it and while, it might cost you a few dollars more than most books, its the best book on dealing with losses and our psychological failing that I have ever read.