Books for Algorithmic Trading I Wish I Had Read Sooner

A guide to influential algorithmic trading books, organized into beginner, risk management, indicators, strategies, system development, and niche categories, with commentary on each.

Key Takeaways

Overfitting is the most important concern in trading system development, and multiple recommended books emphasize it.
Modular system design and realistic expectations are key foundations for algorithmic trading.
Risk management, though often seen as dull, is central to long-term profitability and can be approached through engaging texts.
Reading order matters: starting with foundational or earlier works (e.g., Vince's 2005 book, Ehlers' later books) can improve understanding.

What the video covers

Presents a personal curated list of books that shaped the presenter's algorithmic trading knowledge.
Recommends Robert Carver's 'Systematic Trading' as a beginner starting point, emphasizing a modular framework for combining strategies across instruments.
Describes Perry Kaufman's 'Trading Systems and Methods' as a reference encyclopedia of trading systems and indicators rather than a cover-to-cover read.
Highlights Marcos López de Prado's 'Advances in Financial Machine Learning' as a must-read focused on overfitting, with Python code supporting the math.
Covers risk management books by Ralph Vince, 'The Leverage Space Trading Model' (2005) and 'The Mathematics of Money Management' (1992), recommending the former first.
Recommends John Ehlers' three books on digital signal processing indicators, with code in EasyLanguage for TradeStation, and suggests reading them in reverse chronological order.
Introduces trading strategy books such as Brent Penfold's 'Universal Tactics of Successful Trend Trading'.
Discusses trading system development texts including Timothy Masters' 'Testing and Tuning Market Trading Systems' on walk-forward methods and data mining.
Includes Brunton and Kutz's 'Data-Driven Science and Engineering' as a more recent and technical addition.
Notes the presenter's view that the most difficult books often turn out to be the most important.

Chapters

Which book does the presenter recommend as the first read for beginners?

The presenter recommends Robert Carver's 'Systematic Trading' as the first book for beginners. He says it gives a clear modular framework for combining strategies and would have saved him considerable confusion had he read it first.

Why does the presenter suggest reading the John Ehlers books in reverse chronological order?

Because the author's view of best practices evolves across the three books. Reading the later works first gives the most current perspective before the earlier ones.

What is the main concern highlighted in the machine learning book discussed?

'Advances in Financial Machine Learning' has a strong focus on overfitting, which the presenter calls the most important concern in trading system development. It also covers sampling, labeling, feature importance, and cross-validation.

Full Transcript — Download SRT & Markdown

Speaker A

In this video I'm going to go through my favorite books for algorithmic trading that were particularly influential to me. I've read a few books on the topic, and over the years I've put together a decent collection. There were several books that I've read that have made me think to myself, "Wow, I wish I had known about this book sooner."

Speaker A

books that I've read that have made me think to myself wow I wish I had known about this book sooner I included quite a few books in this video so I won't spend very long talking about each I

Speaker A

I included quite a few books in this video, so I won't spend very long talking about each. I organized the books into seven categories: beginner books, what I would recommend to someone just starting; books focused on risk management; books about trading indicators; books about trading strategies; books focused on trading system development; books that aren't about trading but I've still found useful; and books about niche topics.

Speaker A

useful and books about Niche topics the first book I would recommend to beginners is systematic trading by Robert Carver this book is a great starting point I wish it was the first book I read it would have saved me a lot

Speaker A

The first book I would recommend to beginners is Systematic Trading by Robert Carver. This book is a great starting point. I wish it was the first book I read. It would have saved me a lot of confusion. The book emphasizes simple trading rules and realistic expectations. It has a lot of good information that every algorithmic trader should know.

Speaker A

how to combine multiple strategies on multiple instruments the book gives a concrete solution to this problem while also explaining and emphasizing the modularity of different components in a trading system I've evolved how I do my trading over the years but my current

Speaker A

The main feature of this book is that it presents a modular framework for trading systems. When I started, I was very confused about how to combine multiple strategies on multiple instruments. The book gives a concrete solution to this problem, while also explaining and emphasizing the modularity of different components in a trading system. I've evolved how I do my trading over the years, but my current deployed trading system still roughly fits into the modular framework described in this book.

Speaker A

read cover to cover but have as a reference there are hundreds of different trading systems and indicators in this book I can't really summarize it because it pretty much has everything if I'm ever out of ideas I open this book

Speaker A

The second book is Trading Systems and Methods by Perry Kaufman. I imagine many of you already have this one. It's basically an encyclopedia of trading. This book is not something you read cover to cover, but have as a reference. There are hundreds of different trading systems and indicators in this book. I can't really summarize it because it pretty much has everything. If I'm ever out of ideas, I open this book to a random page and start reading. While this book does touch on many topics, it doesn't go very deep into any of them.

Speaker A

application of machine learning and finance it is a must read the whole book has a strong focus on overfitting which is the most important concern in trading system development it covers sampling labeling feature importance cross-validation and much more some may

Speaker A

The third book is Advances in Financial Machine Learning. It's quite popular, as the title suggests. It focuses on the application of machine learning in finance. It is a must-read. The whole book has a strong focus on overfitting, which is the most important concern in trading system development. It covers sampling, labeling, feature importance, cross-validation, and much more.

Speaker A

first started learning about algorithmic trading my brain would shut off when I saw stuff like this thankfully the book also provides python implementations for the math shown cross-referencing the math and code provided helped me to learn to decipher the seemingly cryptic

Speaker A

Some may disagree with me placing this book in the beginner category, as it is quite advanced in parts. But I've noticed the books I've found most difficult to read often end up being the most important. This book has a lot of math in it. When I first started learning about algorithmic trading, my brain would shut off when I saw stuff like this. Thankfully, the book also provides Python implementations for the math shown. Cross-referencing the math and code helped me learn to decipher the seemingly cryptic symbols of mathematics.

Speaker A

meant to be read cover to cover it takes you from managing risk in a coin flip game to managing risk for many trading strategies to maximizing the likelihood of profit risk management is typically interpreted as boring but the author is

Speaker A

The next category is risk management, typically viewed as the most boring topic in trading. The first book is The Leverage Space Trading Model by Ralph Vince. The author describes this book as a storybook. It is meant to be read cover to cover. It takes you from managing risk in a coin-flip game to managing risk for many trading strategies, to maximizing the likelihood of profit. Risk management is typically interpreted as boring, but the author is an excellent writer. The book really lives up to the promise of being a storybook. It's surprisingly engaging.

Speaker A

trading system if you are engaged in trading you are somewhere in the leverage space whether you like it or not being at different locations has certain consequences this book is a must read the author is also a programmer he

Speaker A

The book primarily focuses on what the author calls the leverage space, a mathematical space that describes the risk and terminal return of every trading system. If you are engaged in trading, you are somewhere in the leverage space, whether you like it or not. Being at different locations has certain consequences. This book is a must-read. The author is also a programmer. He explains and shows the math in a way that makes it straightforward to convert to code.

Speaker A

and the leveraged space book book is from 2005. I recommend reading the leveraged space book first before going through this one the author seems to have evolved in his thinking since this book but there's a lot of content in

Speaker A

The next book is The Mathematics of Money Management, also by Ralph Vince. This one is a textbook, mainly for reference. The book was published in 1992, and the Leverage Space Trading Model book is from 2005. I recommend reading the Leverage Space Trading Model book first before going through this one. The author seems to have evolved in his thinking since this book, but there's a lot of content in this one that's not covered in the Leverage Space book, such as trade dependence, arc sine loss, and risk under parametric distributions.

Speaker A

three books by John ehlers are full of indicators and techniques based on digital signal processing they contain several methods for detecting Cycles sophisticated smoothing filters and other novel indicators I originally read them in chronological order but if I

Speaker A

Moving on to books about indicators. Indicators are useful for constructing trading rules or as inputs to a predictive model. These three books by John Ehlers are full of indicators and techniques based on digital signal processing. They contain several methods for detecting cycles, sophisticated smoothing filters, and other novel indicators. I originally read them in chronological order, but if I could go back, I would read them in reverse chronological order. This is because throughout the books the author evolves in what he believes is the best practice. The books all provide code for the indicators in EasyLanguage, which is the native language of a trading platform called TradeStation. I've never used TradeStation, but I had little issue converting the code to other languages. My first trading system that actually made good money was based on the content in the third book.

Speaker A

the native language of a trading platform called tradestation which I've never used but I had little issue converting the code to other languages my first trading system that actually made good money was based on the content in the third book the next book is

Speaker A

The next book is Statistically Sound Indicators for Financial Market Prediction by Timothy Masters. This is my favorite author, and there will be more books by him in this video. All his books provide code in C++. But even if you don't understand C++, the text in his books is still enough to make them worth reading. This book covers tons of indicators. Some common ones, MACD, RSI, and stochastic, you've heard of, but many you've probably never heard of, like the Follow Through Index, Reactivity, and many more. In my opinion, the real value of this book is the sections on indicator stationarity, normalization, and information content. The techniques shown are extremely useful for utilizing indicators as inputs for machine learning models.

Speaker A

understand C plus plus the text in his books is still enough to make them worth reading this book covers tons of indicators some common macd RSI stochastic you've heard of them but many you've probably never heard of the

Speaker A

The next set of books are about trading strategies. The first book in this category is The Universal Tactics of Successful Trend Trading by Brent Penfold. I almost put this book in the beginner category, as it is easy to read and well written. It contains several classic trend-following strategies and covers the long history of trend following as a strategy.

Speaker A

are about trading strategies the first book in this category is the universal tactics of successful Trend trading by Brent penfold I almost put this book in the beginner category as it is easy to read and will written it contains

Speaker A

The next book is Stocks on the Move by Andreas Clenow. This book shows a single relative momentum strategy. It ranks stocks in the S&P 500 and selects the highest-performing ones to buy. The best-performing stocks tend to continue doing well into the future. I don't use the exact strategy shown in the book, but it's a good example to learn relative momentum from. I do use a few different relative momentum strategies in crypto, selecting the higher performers and rotating them in.

Speaker A

the highest performing ones to buy the best performing stocks tend to continue doing well into the future I don't use the exact strategy shown in the book but it's a good example to learn relative momentum from I do use a few different

Speaker A

The final book in this category is Cybernetic Trading Strategies by Murray Ruggiero. This book was published in 1997. It's almost older than me, but it was really ahead of its time, and it has a very cool cover. The book has a ton of content. It covers seasonality, intermarket analysis, genetic algorithms, and exit design. It even suggests the idea we now know as meta-labeling, before any other source I'm aware of. Though the book doesn't call it meta-labeling, some of the content is a little dated, but the sections on genetic algorithms and designing exits are very cool, and I haven't seen them anywhere else. I'd be surprised if you don't come out of reading this book with several ideas to try.

Speaker A

time and it has a very cool cover the book has a ton of content it covers seasonality intermarket analysis genetic algorithms and exit design it even suggests the idea we now know as meta labeling before any other source I'm

Speaker A

These next two books are about trading system development. Technically, Advances in Financial Machine Learning belongs in this category, but I stuck it in the beginner section. The first book I recommend is Testing and Tuning Market Trading Systems by Timothy Masters. This book has the most comprehensive survey of walk-forward meth

Speaker A

surprised if you don't come out of reading this book with several ideas to try these next two books are about trading system development technically advances in financial machine learning belongs in this category but I stuck it in the beginner section the first book I

Speaker A

recommend is testing and tuning market trading systems by Timothy Masters this book has the most comprehensive survey of walk forward methods I'm aware of nested walk forwards cross-validation nested inside a walk forward and avoiding overlap between in-sample and

Speaker A

out of sample data sets it discusses why analyzing completed trade returns is not a good idea a mistake I made for quite a while this book also presents an impressive version of the differential Evolution optimization algorithm that I

Speaker A

found useful on countless occasions the next book is permutation and randomization tests for trading system development also by Timothy Mass this book shows different ways to utilize Monte Carlo permutation tests for trading systems it also has some tests

Speaker A

to find the best parameter value for indicators the best market for a given indicator and much more this book is a must read if you want to do data mining based trading systems my copy is very used and abused I've spilled coffee on

Speaker A

it a number of times I like it very much these next three books are not about trading so not all their content is applicable but they have a lot of general information that can be applied to trading the first book in this

Speaker A

category is numerical recipes the art of scientific Computing this book is a huge reference for all kinds of different algorithms I have found these sections on optimization modeling and spectral analysis useful for my work but I'm confident as I learn more and have more

Speaker A

ideas other content in this book may become valuable as well this book is massive the next book is assessing and improving prediction and classification by Timothy Masters this book really lives up to its title and has several methods for assessing and improving

Speaker A

models it has a lot of content about combining multiple weaker models to build a powerful combined model reading this book really blurs the line between classification and regression they're not as different as I once thought if you are already using predictive models

Speaker A

in your trading I recommend picking this book up you'll find something to try and hear the final book in this category is data-driven science and engineering by Steve Brunton and Nathan Cuts I got this book fairly recently and I'm still

Speaker A

working through it but I included it because I very much like these sections on wavelets and dynamical systems it has good coverage of a technique called Dynamic mode decomposition which with the help of this book any paper written

Speaker A

by the author Nathan Coates I used to create a pretty promising trading strategy I've yet to deploy it though the final category is Niche books these books didn't really fit into the other categories and don't have much to do

Speaker A

with each other the first book Is technical analysis for algorithmic pattern recognition by these two authors this book shows automation techniques for Sharp patterns and it has a wealth of references to literature doing similar tasks in addition it shows quite

Speaker A

a few ways to test the predictive performance of creating techniques in my opinion this book has the most unbiased and scientific coverage of technical analysis you can find the next book is detecting regime change and computational finance this book uses the

Speaker A

directional change algorithm and a hidden Markov model to divide the market into regimes targeting essentially high and low volatility areas of the market it shows trading strategies built from this idea and it also has a valuable bibliography with references to a lot of

Speaker A

useful papers the final book is trading on sentiment by Richard Peterson the author explains his experience building sentiment indicators for trading the author works on a product called Market psych which I am too poor to use but he

Speaker A

explains different factors and emotions they Target in social media and news headline data and shares theories about how they affect the markets if you're looking to do trading on sentiment this is worth reading it gave me several ideas when I was building sentiment

Speaker A

indicators I have not updated my sentiment stuff since the chat gbt craze which I'm sure has changed the sentiment game quite a bit but I still think the info in this book is good stuff while I think reading is a very important part

Speaker A

of learning algorithmic trading nothing will replace experience if you want to be good at algorithmic trading you will need to sit for thousands of hours behind a computer screen trying and failing repeatedly and finally I have a channel announcement I like money and I

Speaker A

have no shame so I started a patreon I don't expect anything but if you like my videos and want to throw me a few bucks I'd appreciate it anyways that's it for this one thank you for watching

Topics:algorithmic tradingtrading bookssystematic tradingrisk managementoverfittingmachine learning financetechnical indicatorstrading system developmentleverage spaceJohn Ehlers

Get More with the SozAI App

Transcribe recordings, audio files, and YouTube videos — with AI summaries and speaker detection. 30 minutes free.

App Store Google Play

Or transcribe another YouTube video here →

Free tools: TXT to SRT · SRT Validator · Merge SRT · Subtitle to Text · All tools