When you are completely immersed in the quest for something new, you begin to look for everything around the learning process. And with the desire to learn Algorithmic Trading with the help of

Essential Books on Algorithmic Trading,

there should be some questions that fill your mind, such as:

• How do I learn Algorithmic trading?
• What are the steps to start Algo trading?
• What books are important in Algorithmic trading?
• How do I start researching Algorithmic Trading?

These are just some of the questions that popular forums are flooding in from novice algorithmic traders around the world. If you wish to become a trader, it is a good idea to take a book from Algorithmic Trading and absorb all that the book can offer. In this article, you will find the key areas where applicants need to focus, as well as similar good readings.

We recommend that you take your first step in learning Algorithmic trading and arithmetic with Algorithmic Trading Book.

The book mentioned in this article is for those of you who want to learn Algorithmic Trading as a starting point because it contains relevant basic information. Here is a list to let you know who will get the best of this book:

• University students
• Technology professionals
• Professional traders
• Part-time traders
• Anyone eager about applied quantitative finance

Now, let’s go through the following broad sections where you will find some of the most important books on Algorithmic Trading:

• Market Microstructure
• Statistics & Econometrics
• Technical Analysis
• Options Trading
• Advanced Statistics
• Machine-Learning

First, let’s take a look at the books in Market Microstructure since we learned what is required before learning how to develop trading algorithms.

Market Microstructure

It tells us how trading/exchange happens in the markets. In addition, it applies to market participants, trading methods, monetization, acquisition price, transaction costs, etc. In addition, it brings you all the information about developing Algorithmic trading systems. Therefore, it concludes that sound knowledge of small market construction is an essential requirement for high-volume retailers and market makers. Speaking of a few readings, the following is what you can refer to:

• Trading and Exchanges: Market Microstructure for Practitioners by Larry Harris

In this book, you will find everything about trading and market performance. From people who sell securities to contracts, markets, and people who participate in trade securities and contracts, this book covers everything. The main purpose of the book, as stated by the author, is to understand the origin of market quality indicators such as payment, transaction costs, prices, volatility, and trading profitability. The book also explains how market structure – trading rules and information systems affect the market characteristics mentioned above.

• Market Microstructure Theory by Maureen O’ Hara

This book is a comprehensive guide to the theoretical work in market microstructure research and is an essential read for a high-frequency trader.

The book introduces readers to the general issues and problems in market microstructure and further delves into inventory, information-based, and strategic trader models of informed and uninformed traders. The concluding chapters in the book provide the details regarding the relationship between information and the price process, liquidity, and the relationship between markets.

• Algorithmic Trading: Winning Strategies and Their Rationale by Ernest P. Chan

This book serves as a practical guide to Algorithmic Trading strategies that can be implemented by both retail and institutional traders. Dr. Ernest Chan has covered a wide array of simple and linear strategies in this book. It starts with a chapter on backtesting and automated execution and covers the mean reversion strategies and their implementation for stocks, ETFs, currencies, and futures. Dr.Ernest Chan has also devoted chapters in the book for interday and intraday momentum strategies. The book concludes with a chapter on risk management.

• Algorithmic Trading and DMA: An Introduction to Direct Access Trading Strategies by Barry Johnson

This book is a complete guide to Algorithmic Trading and Direct Market Access (DMA) for buyers and sellers. This book contains detailed chapters on topics such as order, trading algorithms (TWAP, VWAP, Implementation Shortfall, and Adaptive Shortfall, etc.), transaction costs, strategic strategies, advanced trading strategies, and other topics.

Okay Now! Let us head to another main category in the books for Algorithmic Trading, which is Statistics & Econometrics.

Statistics & Econometrics

As Algorithmic Trading is highly competitive, Statistics and Econometrics provide the basis for formal and informal trading. Predicting market trading, this systematic trading system uses time series analysis and other types of statistics. In addition, if you are looking for a job in a firm, you need to have a good knowledge of Maths and Statistics. It is an important skill that new firms are looking for which is why the following books are good to read to start with:

• Schaum’s Outline of Statistics and Econometrics by Dominick Salvatore and Derrick Reagle

From introducing Statistics & Econometrics to adopting a problem-solving approach, this book covers everything you require for Algorithmic Trading. This book provides you with topics that include theory part and principles, which are fully illustrated with examples. For the reader to be provided with ‘easy to understand information, this book covers numerous theoretical and practical problems with detailed, step-by-step solutions.

• Analysis of Financial Time Series by Ruey S. Tsay

If you want a book that can provide you with the introduction to Econometric models and their applications to modeling and prediction of financial time series data, then this is the one. It covers important topics for you. You get to learn Linear Time Series Analysis, Nonlinear Models, Multivariate Time Series Analysis, High-Frequency Data Analysis, PCA, State-Space Models, Kalman Filter, and other related topics. Moreover, for making the application of the topics an easy task, this book has empirical examples demonstrating the application.

In addition, another comprehensive section includes other relevant publications in technical Analysis. Let’s see what books can be drawn to learn and apply technical analysis.

Technical Analysis

There is a very wide range of applications of technical analysis and technical indicators in trading. Used as additional filters in bulk trading, technical indicators play an important role. Not only in mass trading strategies for quants, but they also found use in Machine learning models where inputs are used.

• Technical Analysis of the Financial Markets: A Comprehensive Guide to Trading Methods and Applications by John J. Murphy

Since this book is considered the bible of technical analysis, it offers deep insight into the technical analysis of financial markets. Moreover, for your better understanding, it has been written in a simple and easy-to-understand language by the author. Recommended for day traders and long-term investors, this book provides a deep insight into the technical analysis of financial markets. It provides you with chart construction, basic concepts of trend, reversal patterns, moving averages, oscillators, stock market indicators, advanced technical indicators, and other important topics.

• Technical Analysis Explained: The Successful Investor’s Guide to Spotting Investment Trends and Turning Points by Martin J. Pring

This book is well-studied in terms of technical analysis. In addition, the practical examples illustrated in the book can be applied to real-world trade. For your in-depth understanding, this book is divided into three sections:

• Part 1 details trend determining techniques
• Part 2 describes the Market Structure, and
• Part 3 discusses other aspects of market analysis.

All of these ideas provide you with information on how to identify investor responses in the past through technical analysis. Also, this book helps you learn how to make the right strategies for increasing profits.

• Evidence-Based Technical Analysis – Applying the Scientific Method and Statistical Inference to Trading Signals by David Aronson

This book helps you to look at how to apply the scientific method and the most recent mathematical tests for technical trading signals. The author of the book explained the title and method so that you can see the trading signals that are doing very well.

Moving forward, there is another very important category known as ‘Options Trading’ which is necessary to be covered when it comes to learning Algorithmic Trading.

Options Trading

Options and futures are the best trading instruments in the market. Trading options have become very complex and demanding seekers and traders need to have a sound understanding of flexibility, Greeks, and various selection strategies. By giving you the right clues, we have written down the next two books that are readable in Options.

• Options, Futures, and Other Derivatives by John C. Hull

In quantitative finance, this book plays an important role. You will find the basics of derivative contracts in the initial chapters. In the chapters ahead, the author has explained difficult topics with numerous examples for making the explanations easier. Hull has covered different topics on the Options markets. They include the following topics and many others:

• Mechanics of Options markets, properties of stock Options
• Options Trading strategies, Black-Scholes-Merton model
• Options on stock indices, Futures Options, and currencies
• Greeks, Volatility smiles

You will find a well-read book if you want to explore more about topics related to the difficulty of options and be successful in options trading.

• Dynamic Hedging: Managing Vanilla and Exotic Options by Nassim Taleb

The book is a good read for traders and deals with the practicalities of hedging the risks of standard and exotic options, as part of the larger framework of risk management.

The book comprises four parts:

• Part 1 defines Market microstructure and products
• Part 2 defines the basics of vanilla option risk and measurement tools
• Part 3 describes the risks of exotic options, and
• Part 4 provides quantitative tools of analysis

Overall, it includes Greek ethics, Volatility and Correlation, Volatility Trading, Trading and Hedging Exotic Options, and various other topics. Advanced mathematical topics are discussed in the final section of the book under the ‘Modules’ section.

Well, now that some sections are achieving the goal when it comes to learning Algorithmic Trading, let’s take a look at the references to study from the perspective of ‘Advanced Statistics’.

Advanced Statistics

Advanced statistics is the concept of examining the relationship between two statistical databases. It helps to organize and represent data sets that contain numerical values. Often, statistics are based on facts. In this case, the facts are analyzed, and a database is created on them. In Algorithmic trading, the dataset plays an important role because past data helps predict future prices.

See the books on Advanced Statistics that you can refer to Algorithmic Trading:

• Elements of Statistical Learning by Trevor Hastie, Robert Tibshirani, and Jerome Friedman

This book is a complete package of important topics concerning statistical learning. Since it provides information about the fields such as medicine, biology, finance, etc, you will get a whole lot of information. The authors have collectively worked on the content of this book with graphical representations and real-world examples. In this book, you will find the most relevant techniques with useful concepts. The broad concepts include:

• Random forests
• Ensemble methods
• Least angle regression and
• Path algorithms for the lasso
• Non-negative matrix factorization, and
• Spectral clustering
• Introduction to Statistical Thought by Michael Lavine

This book consists of advanced knowledge of calculus and is also meant for all the students who are at the upper-undergraduate level as well as at the introductory graduate level. Everyone who has a good knowledge of calculus is sure to be benefitted from this book. Furthermore, this book makes use of computer calculations and simulation as a way of helping you learn in-depth topics.

Alright! Machine Learning is another critical category for making trading algorithms. Since it helps human beings by reducing their time and effort, you will see what all books are covered in it ahead.

Machine-Learning

Seen as a small collection of Artificial Intelligence, the concept of Maths learning machines, which means that computers are used to make predictions. Machine learning is also known as predictive analysis because it uses computer systems to analyze and predict future data values. In this sense, initially, human intervention is required in computer programming, but over time the computer makes improvements and decisions on its own based on the information provided in the past.

Let’s see what all the books can do to help you learn about Machine Learning algorithms:

• Advances in Financial Machine Learning by Marcos Lopez De Prado

Nowadays, the concept of Machine Learning is helping humans achieve important tasks which only people with expertise used to have control over. This book will provide you with an in-depth knowledge of structuring big data, conducting research with ML algorithms, and using computing methods that are much more improved. It has comprehensive content on real-life problems that are faced by those who use Machine Learning regularly. You can even test the solutions in a particular setting and be equipped with powerful tools to succeed.

• Hands-On Machine Learning for Algorithmic Trading: Design and Implement Investment Strategies Based on Smart Algorithms that Learn from Data Using Python by Stefan Jansen

This book helps you learn how to access the market, and learn algorithms like Bayesian. Also, it gives you in-depth knowledge about using pandas, statsmodels, xgboost, lightgbm, etc. Furthermore, you learn to take out features from text data with spaCy. Also, learning includes the classification of news and sentiment scores. With this book, you also learn how to build and evaluate neural networks successfully. And, it will provide you with reinforcement learning for trading strategies in the OpenAI Gym.

• Neural Networks & Deep Learning, Nielsen (FREE)

This is an online book focused on helping you find information on high-level ML concepts. It is certainly a good study to find information on Deep Learning and Neural Networks. Also, it is available for free!

This book contains rich content on the topic. It gives you a deeper understanding of the content.

Conclusion

As you should see, we have compiled many very important books for the relevant fields according to Algorithmic Trading. In this article, the aim was to review all of those important books when it comes to learning about the type of trade that is available and automated. Once you are done with these books, you are sure to succeed in Algorithmic Trading and if you wanted to start using some readily available algo trading tool you can visit the algotrading marketplace of Myalgomate™.

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