For those eager to take their trading to the next level, I highly recommend the following four books listed in chronological order of how you should read them. These books prepare you to think and run your trading like a hedge fund. You will have a tremendous edge in developing a winning trading system and contribute much to one's endeavor to be a quantitative systems architect. Be warned though the books listed below are not for new traders, these are for serious and experienced traders who want to take it to the next level.
1. New Trading Systems And Methods – New Trading Systems & Methods provides a comprehensive overview of trading systems, systems testing, money management, and risk management education. The book provides chapters dedicated to each type of method to be used in trading, such as momentum systems, trend-following systems, regression systems, time-based systems, etc., and many more in an encyclopedia-like fashion. It includes each system's reasoning, and method of use, and provides implementable examples of each. It also is full of information on how to appropriately implement, evaluate, measure performance, and analyze trading systems. This book is great for getting ideas and methods for developing your own system.
2. Quantitative Trading Strategies – Quantitative Trading Strategies begins with a complete historical background on quantitative systems trading and builds the book chapter by chapter teaching the reader how to create a trading system following a scientific process and then how to correctly assess evaluation and optimization of trading strategies. Kestner also presents many profitable trading systems that can be used and implemented by the reader in the financial markets. This book goes into specific details in the design and creation process of algorithmic trading systems.
3. Evidence-Based Technical Analysis- This book brings about the statistical and mathematical validity and methodological background that goes into the quantitative analysis, and technical analysis. It brings the reader the mathematical conceptual processes behind quantitative and technical finance to help the reader have realistic and statistical knowledge and expectations when in the designing process of creating a trading system.
4. The Evaluation & Optimization of Trading Strategies – Perhaps my favorite quantitative systems book of all time. Pardo shows that the benefits of correct testing and optimization vastly outweigh the effort required to learn and master their proper application, and sets forth in detail the correct way to formulate, test, and evaluate a trading strategy. He explains how to properly optimize a trading strategy, incorporate out-of-sample data in the testing of a strategy, perform a Walk-Forward Analysis, develop a trading strategy profile, and judge real-time trading performance concerning the trading strategy profile developed via historical testing. In addition, he identifies the symptoms of overfitting & backfitting. This book is for the advanced to beginner quantitative systems architect and truly addresses all possible issues with evaluating a system. If the methods read in this book are successfully implemented your system will be statistically sound and valid if properly tested using the guidelines in this book.
Also, check out the article on the best stock trading books.