The Greatest Book Thread Ever

Hi guys, I'm starting a new thread about books. I'm going to be posting ideas and advice from books that I've read that can be applied to trading. The books that I'm going to feature aren't necessarily written by traders or about trading. Some of the things I'm going to be posting will not directly be applicable to trading, but they will be related to it. For example, developing a routine or keeping your mind fresh. I hope you get the idea.

If you have something to add, please join in. However, please keep in mind there are a few rules:
1. Try to be at your best behaviour, let's keep this place nice and clean. Use private messages for nasty talk.
2. No books about systems. Post that sort of stuff in the 'systems forum'.
3. When quoting a book, please post the name of the book as well as the page the quote appeared on.

Making Habits, Breaking Habits: How to Make Changes Stick by Jeremy Dean

I've added my personal notes in dark blue.

Habits & context (pp. 10-13)
Habits help protect us from 'decision fatigue': that fact that the mere act of making decisions depletes our mental energy. Whatever can be done automatically frees up our processing power for other thoughts. /... / The third important characteristic of a habit is so obvious that often we don't notice it. /.../ We tend to do the same things in the same circumstances. Indeed, it's partly this correspondence between the situation and behaviour that causes habits to form in the first place. ...people tend to perform the same actions in the same contexts.

Obviously, good habits are important for traders. The above quote demonstrates why making money gets easier, or alternatively, losing money becomes a routine - you get into the habit of doing it either right or wrong and once it's there, once it's a habit, it starts operating in the background, without you even being aware of it (more on that in a later post from a different book). For losing traders (who have unconsciously made it a habit to bet the farm in a losing situation) this is where the focus should be - on pinpointing those bad habits and making a plan on how to get rid of them, and how to replace them with good habits.

Habits vs intentions (pp. 23,24)
We have less intentional, conscious control over these types (ie. bad) of behaviours than we would like to think. For years, psychologists have tried changing people's bad habits by targeting their intentions. Hundreds of studies /.../ when the results are added up together, they don't look too clever. /.../ Although people intend to change, when habits are strong, actual behaviour change is relatively low. /.../ Studies show that it's normal for strong habits to override out conscious intentions. Combine that with how long habits take to from, and it's no wonder we find our everyday behaviours difficult to change.

It takes time to change habits. Forget about the 21 day or 30 day mantra. As the author lays out in the book, some habits are easier to change, while others need more time and commitment. Some habits take 60 days (or more) to change.

It's difficult to start a new habit if your goals are weak (p. 142)
People often charge into trying to make new habits without asking themselves what the new habit will do for them. There has to be an ultimate goal that is really worth achieving, or the habit will be almost impossible to ingrain. What we find in the research is that when people's goals start to weaken, or are weak in the first place, it's very difficult to start forming a new habit. A few minutes spent thinking about this before you dive in will pay dividends in the long run.

Fantasizing about success = less motivation (pp.142-3)

Let's start by giving one piece of bad advice a knock on the head. Many popular self-help books tell you that imagining successfully completing your goal is beneficial. The theory goes that if we can picture our future success then this will help motivate us. There is some truth to the idea that being positive about the future can be beneficial, but there are also pitfalls. One of the main ones is fantasizing about reaching our goals, which can be dangerous. /... / The problem with positive fantasies is that they allow us to anticipate success in the here and now. However, they don't alert us to the problems we are likely to face along the way and can leave us with less motivation – after all, it feels as if we've already reached out goal.

I've read about this before and as far as I can remember the usual advice is to avoid fantasizing about success, but rather visualize and think about what it takes - for traders this would be thinking about an average trading day, visualizing the winners and the losers, thinking about what to do in different situations.

continued from page 143
A word of caution about choosing a habit to establish. With habit change, people often try to bit off more than they can chew. One response to being unhappy with ourselves is to go for a complete reinvention – try to avoid this. Almost all research on making new habits only addresses quite simple behaviours, and still some people regularly fail. It's much better to start small, and if the procedure works, then run it again for the other habits you want to establish. Alternatively, you can break down a larger habit into its component parts and work on each part separately.

Contrast technique (p.146)
First, imagine a positive vision of the problem solved, then think about the negative aspects of reality. With both in mind, carry out a 'reality check', comparing your fantasy with the reality.

Satisfaction with a habit (pp.154-5)
Psychologists have looked at the factors that affect whether or not we keep going. As you'd imagine, satisfaction with the new habit is right up there. Consciously or otherwise, we ask ourselves whether our new habit is really how we imagined it. A feeling of satisfaction is like a message from our unconscious that we're going in the right direction, while dissatisfaction signals that something is wrong. When you start developing a new habit, ask yourself how you will cope with dissatisfaction. If you become dissatisfied, will you decide to give up, or will you decide to redouble your efforts? The usual suspects: lack of progress, motivation, tiredness and so on.

Self-control is a limited resource (p.170)
People consistently overestimate their ability to control themselves. This overconfidence can lead people to assume they'll be able to control themselves in situations in which, it turns out, they can't. This is why trying to stop an unwanted habit can be an extremely frustrating task. Self-control is a limited resource. It's like muscle strength: the more we use it, the less remains in the tank, until we replenish it with rest. /... / The mere act of exerting will-power saps the strength for future attempts.

We face these sorts of willpower-depleting events all day long. When someone jostles you in the street and you resist the urge to shout at them, or when you feel exhausted at work but push on with your email: these all take their toll. The worse you day, the more willpower muscle is exerted, the more we rely on autopilot, which means increased performance of habits. It's crucial to respect the fact that self-control is limited resource and that you are likely to overestimate its strength. Recognizing when your levels of self-control are low means you can make specific plans for those times.


Pre-commitment is one tool for winning the battle for self-control. Say you want to avoid your bad habit of wasting a weekend playing computer games. An excellent pre-commitment strategy would be to take your games console out into the garden and smash it to pieces. That's an extreme measure which represents serious commitment; an alternative might be leaving the console at a friend's house. By making the hard decision when your self-control is high, you can protect yourself against a later time when your self-control has taken a battering at work or from the commute. Even far less drastic measure like avoiding the procrastination habit by simply setting yourself deadlines can be effective in helping self-control.

Self-control is also related to blood glucose levels. Researchers have found that exerting self-control uses up glucose, which means that if you've got to make a lot of decisions and avoid blowing up your account in the process, you will be drawing down on your blood glucose levels and at some point there will be none left, which spells trouble. Google 'blood glucose self-control' for more.

Crash diets/massive shifts (pp.182-3)
Sustaining crash diets or massive shifts in what we do repeatedly is likely to be much too difficult for the vast majority of people. /... / They changed on small habit, say, eating an apple in the morning, established that, then moved on to other incremental changes.

Suggested this book before, worth mentioning again.

Tao of poker 285 rules to transform your game and life by Larry Phillips. This book had more impact on me than any trading book I've read. First few rules I listed below. Just replace the word hand with position and poker with forex.

1. Don't dig yourself into a hole when you first sit down.
2. If you think you are beat, get out.
3. Start with premium hands. When you get them, bet them. If the hand starts to deteriorate, get away from the hand.
4. If you don't think your hand is good enough, it probably isn't
5. If you do make a mistake, correct it as soon as you can.
6. It's important that a player starts seeing "staying too long on marginal hands" as where the money goes.
7. The money you don't lose from staying too long in a hand and the money another player does lose from doing this is often the profit you go home with.
8. The hand you really want to spend your money on may be right around the corner.
9. Don't arrive over eager to play.
10. How difficult is it to play tight ?
11. Discipline must be kept up until the end.
12. If you find that playing poker is thrilling, adventurous and exciting, there's a good chance you may be playing it wrong.