Which are the Best Books to Learn Algo Trading?

"The more that you read, the more things you will know. The more that you learn, the more places you’ll go."

Are you eager to dive into the world of algo trading but don’t know where to start? You're not alone! Many aspiring traders seek reliable resources to learn about this exciting and complex field. And books can be a great place to start! In today’s article, we will look at books which can help you master algo trading from the basics.

Top Books on Algo Trading for Beginners

If you are a beginner and want to learn the basics of algo trading, these books are for you:

1. “Building Winning Algorithmic Trading Systems” by Kevin J. Davey

Kevin Davey is a professional trader and a top-performing systems developer. He is the author of 4 best-selling books on trading & investing and is recognised as a thought leader in algorithmic trading system development. This book is like a journal or diary that describes his adventure in the world of trading. It clearly describes the development of trading systems and talks about practical strategies & potential dangers. This is a good starter for beginners in the iterative process of designing and testing feasible algo trading systems.

2. "Algorithmic Trading: Winning Strategies and Their Rationale" by Ernie Chan

Ernie Chan is considered a legend in the world of algo trading. He holds a PhD in Physics from Cornell University and has extensive experience working as a quantitative researcher for prominent investment banks such as Credit Suisse, Morgan Stanley, and Millennium Partners. In this book, he lays out the basics of the field for a beginner. It provides a solid volume of strategies and risk management tools. Moreover, Chan’s approach is practical and accessible to people who have no background in programming.

Top Books on Algo Trading for Intermediates

If you're someone who knows the basics of the stock market/algo trading and is looking to improve your knowledge, then these are the books you can check out:

1. “Machine Learning for Algorithmic Trading” By Stefan Jansen

Stefan is the founder and CEO of Applied AI, which builds solutions using machine learning for leading industries. This book forms an important link between machine learning and trading. Jansen shows how one can comprehensively implement machine learning techniques in algorithmic trading. Handling data, feature engineering, and model optimisation make the book an important tool for traders who aim to add advanced analytical means to their trading strategies.

2. "Python for Finance: Mastering Data-Driven Finance" by Yves Hilpisch

Dr Yves J. Hilpisch is the founder and managing partner of The Python Quants, a group that focuses on using open-source technologies for financial data science, algorithmic trading, and computational finance. This book will be useful for any trader who’s serious about improving their coding skills. It focuses on Python for financial applications, with special emphasis on algo-trading.

3. "Algorithmic Trading and DMA: An Introduction to Direct Access Trading Strategies" by Barry Johnson

This is a foundational text that provides a comprehensive overview of algorithmic trading and direct market access (DMA). It is designed to introduce both beginners and experienced traders to the intricacies of these rapidly evolving fields. The book explains how markets function at a granular level, providing a solid base for understanding algorithmic trading strategies. It covers a variety of strategies, from basic to advanced, equipping readers with practical knowledge.

Top Books on Algo Trading for Advanced Learners

If you are someone who wants to master algo trading, then you definitely need to check these books out:

1. “Advances in Financial Machine Learning” by Marcos López de Prado

Marcos López de Prado currently serves as Global Head of Quantitative Research & Development at the Abu Dhabi Investment Authority. This book is for professional traders who know machine learning and want to implement it in financial markets. De Prado raises practical issues with the implementation of machine learning in trading, discussing typical risks and solutions. The book is full of deep insights and will be highly relevant to mature traders in the Indian market who want to use big data in their strategies.

2. “The Science of Algorithmic Trading and Portfolio Management” by Robert Kissell

Robert Kissell has over 20 years of professional experience specialising in economics, quantitative modelling, statistical analysis, and risk management. He has written a comprehensive book on advanced trading analytics, model validation, and risk analysis. If you are an advanced trader looking to get deeper into the intricacies of algorithmic trading systems and portfolio management, it’s a must-read. The book is aimed at those who intend to improve their trading strategies and analytical skills.

Conclusion

The algo trading domain is vast. The books described in the article— the foundational ones that introduce the basics to advanced works on cutting-edge machine learning applications— are of great value to traders at all levels. These books will help you build a strong theoretical base and give you insights to apply them in live markets. Moreover, you can upskill on risk management strategies and portfolio optimisations. 

Books give you great knowledge, but hands-on practice is just as important in algo trading. As you learn, remember that markets change often. You'll need to keep learning and trying new things. You might come back to these books many times. You'll also find new information as this exciting field grows and changes. Keep exploring and learning as you go on your algo trading journey!