This revised and expanded edition brings time-tested concepts in gear with today's fast-moving markets, adding new studies and techniques for the modern trader. This classic guide teaches a calm and disciplined approach to the markets. It emphasizes risk management along with self-management and provides clear rules for both. Trading with fundamentals and Trading off the. Counter- trend traders capitalize on this chop of the markets as they fade.
Profit System and Dr. Stoxx's Trend Trading Toolkit! I won't go into specifics here, but those of us who actually trade for a living Recognition and Trend Trading in Nasdaq Biotechnology Carr Thomas, K. Alexander Elder Alexander Elder, M. He is the author of Trading for a Living and the Study Guide for Trading for a Living, considered modern classics among traders. Warrior Trading. Goodreads helps you keep track of books you want to read.
Want to Read saving…. Also, trading for a living makes you able to manage money in your accounts and kick away losses. Moreover, to help out this book has multiple choice questions and their answers are given. Alexander Elder is an American trader and trade teacher. Moreover, he is a writer of few trading books like Trading for a living, comes to my trading room. His entries, and exits. He was born in Russia and raised there.
Further, he did his graduation in medical. Also, did his first job on the Russian navy ship. After that, he succeeded to escape and in America, he started as a broker in the start market. We fail in our professional, personal, and business affairs not because of stupidity or incompetence, but to fulfill an unconscious wish to fail. A brilliant and witty friend of mine has a lifelong history of demolishing his success. As a young man, he was a successful industrial salesman and was sacked; he entered training as a broker and rose near the top of his firm but was sued; he became a well-known trader but busted out while disentan- gling himself from previous disasters.
He blamed all his failures on envious bosses, incompetent regulators, and an unsupportive wife. Finally, he hit bottom. He had no job and no money. He borrowed a quote terminal from another busted-out trader and raised capital from a few people who had heard that he had traded well in the past.
He knew how to trade and made money for his pool. As the word spread, more people brought in money. My friend was on a roll. At that point, he went on a speaking tour of Asia but continued to trade from the road. He took a side trip into a country famous for its prostitutes, leaving a very large open position with no protec- tive stop.
By the time he returned to civilization, the markets had staged a major move and his pool was wiped out. Did he try to figure out his prob- lem? Did he try to change? No- he blamed his broker! When traders get in trouble, they tend to blame others, bad luck, or anything else. A prominent trader came to me for a consultation.
His equity was being demolished by a rally in the U. He had grown up fighting a nasty and arrogant father. He had made a name for himself by betting large positions on reversals of established trends. This trader kept adding to his short position because he could not admit that the market, which represented his father, was bigger and stronger than he was. These are just two examples of how people act out self-destructive ten- dencies. We sabotage ourselves by acting like impulsive children rather than intelligent adults.
We cling to our self-defeating patterns even though they can be treated - failure is a curable disease. The mental baggage from childhood can prevent you from succeeding in the markets. You have to find your weaknesses in order to change. Keep a trading diary - write down your reasons for entering and exiting every trade. Look for repetitive patterns of success and failure. The Demolition Derby Almost every profession and business provides a safety net for its members.
Your bosses, colleagues, and clients can warn you when you behave danger- ously or self-destructively. There is no such support in trading, which makes it more dangerous than most human endeavors. The markets offer many opportunities to self-destruct without a safety net. All members of society make small allowances to protect one another from the consequences of our mistakes.
When you drive, you try to avoid hitting other cars and they try to avoid hitting you. If someone swings open the door of a parked car, you swerve. If someone cuts in front of you on a highway, you may curse, but you will slow down. You avoid collisions because they are too costly for both parties.
Markets operate without normal human helpfulness. Every trader tries to hit others. Every trader gets hit by others. The trading highway is littered with wrecks. Trading is the most dangerous human endeavor, short of war. Buying at the high point of the day is like swinging your car door open into the traffic. When your buy order reaches the floor, traders rush to sell to you - to rip your door off along with your arm. Other traders want you to fail because they get the money you lose.
Others structure their lives to succeed in one area while act- ing out internal conflicts in another. Very few people grow out of their prob- lems. You need to be aware of your tendency to sabotage yourself: Stop blaming your losses on bad luck or on others and take responsibility for the results.
Start keeping a diary-a record of all your trades, with reasons for entering and exiting them. Those who do not learn from the past are condemned to repeat it. You need a psychological safety net the way mountain climbers need their survival gear. I found the principles of Alcoholics Anonymous, outlined later in this chapter, to be of great help. Strict money management rules also pro- vide a safety net.
If you seek therapy for your trading problems, choose a competent thera- pist who knows what trading is about. You are ultimately responsible for your own therapy and must monitor its progress. I usually tell my patients that if a month goes by without clear signs of improvement, then therapy is in trouble. When therapy shows no progress for two months, it is time to seek a consultation with another therapist.
You may have a brilliant trading system, but if you feel frightened, arrogant, or upset, your account is sure to suffer. When you recognize that a gambler's high or fear is clouding your mind, stop trading. Your success or failure as a trader depends on controlling your emotions.
When you trade, you compete against the sharpest minds in the world. The field on which you compete has been slanted to ensure your failure. If you allow your emotions to interfere with your trading, the battle is over. You are responsible for every trade that you make. A trade begins when you decide to enter the market and grids only when you decide to take your- self out. Having a good trading system is not enough.
Most traders with good systems wash out of the markets because psychologically they are not pre- pared to win. Markets evoke powerful greed for more gains and a great fear of losing what we've got. Those feelings cloud our perceptions of opportunities and dangers. Most amateurs feel like geniuses after a winning streak. It is exciting to believe that you are so good you can bend your own rules and succeed. That's when traders deviate from their rules and go into a self-destruct mode.
Traders gain some knowledge, they win, their emotions kick in, and they self-destruct. Most traders promptly give their "killings" back to the markets. The markets are full of rags to riches to rags stories. The hallmark of a suc- cessful trader is his ability to accumulate equity. You need to make trading as objective as possible.
Keep a diary of all your trades with "before and after" charts, keep a spreadsheet listing all your trades, including commissions and slippage, and maintain very strict money management rules. You may have to devote as much energy to analyzing yourself as you do to analyzing the markets.
When I was learning how to trade, I read every book on trading psychol- ogy I could find. Many writers offered sensible advice. Some stressed disci- pline: "You cannot let the markets sway you. Do not make decisions during trading hours. Plan a trade, and trade a plan. Change your plans when markets change. Others advised being open-minded, keeping in touch with other traders and soaking up fresh ideas.
Each piece of advice seemed to make sense but contradicted other equally sensible advice. I kept reading, trading, and focusing on system development.
I also con- tinued to practice psychiatry. I never thought the two fields were con- nected-until I had a sudden insight. The idea that changed how I trade came from psychiatry. I also served as a consultant to a major drug rehabilitation program.
Psychotherapy, medications, and expensive hospitals and clinics can sober up a drunk but seldom succeed in keeping him sober. Most addicts quickly relapse. They have a much better chance to recover if they become active in Alcoholics Anonymous AA or other self-help groups. Once I realized that AA members were likely to stay sober and rebuild their lives, I became a big fan of Alcoholics Anonymous.
Now, if an alcoholic comes to me for treat- ment, I insist that he also go to AA. I tell him that to do otherwise would mean wasting our time and his money. One night, many years ago, I stopped by a friend's office on the way to a party at our department of psychiatry. We had two hours before the party, and my friend, who was a recovering alcoholic, said: "Do you want to take in a movie or go to an AA meeting?
I jumped at a chance to attend an AA meeting- it was a new experience. The meeting was held at a local YMCA. A dozen men and a few women sat on folding chairs in a plain room. The meeting lasted an hour. I was amazed by what I heard - these people seemed to talk about my trading! They talked about alcohol, but as long as I substituted the word "loss" for "alcohol," most of what they said applied to me! My account equity was still swinging up and down in those days.
Soon, the urge to drink overwhelms him again and he returns to the bottle. He cannot resist his urge because he continues to feel and think like an alcoholic. Sobriety begins and ends inside a person's mind. Alcoholics Anonymous AA has a system for changing the way people think and feel about drinking. AA members use a step program for changing their minds.
These 12 steps, described in the book Twelve Steps and Twelve Traditions, refer to 12 stages of personal growth. Any member can get a sponsor - another AA member whom he can call for support when he feels the urge to drink.
AA was founded in the s by two alcoholics - a doctor and a traveling salesman. They began meeting and helping each other stay sober. They developed a system that worked so well, others began to join them. AA has only one goal - to help its members stay sober. It does no fund-raising, takes no political positions, and runs no promotional campaigns. AA keeps grow- ing thanks only to word of mouth. It owes its success only to its effective- ness.
The step program of AA is so effective that people with other prob- lems now use it. There are step groups for children of alcoholics, smok- ers, gamblers, and others. I have become convinced that traders can stop los- ing money in the markets if they apply the key principles of Alcoholics Anonymous to their trading. Denial A social drinker enjoys a cocktail or a glass of wine or beer but stops when he feels he's had enough.
An alcoholic's chemistry is different. Once an alcoholic takes a drink, he feels an urge to drink more, until he gets drunk. A drunk often says that he needs to cut down on alcohol, but he cannot admit that his drinking is out of control.
Most drunks deny that they are alco- holics. Try telling an alcoholic relative, friend, or employee that his drinking is out of control and damaging his life and you will run into a wall of denial. An alcoholic often says: "My boss fired me 'cause I was hung over and came in late. My wife took the kids and left 'cause she had no sense to begin with. My landlord is trying to kick me out of the apartment 'cause I'm a little , behind on the rent.
I'm gonna have to cut down on my drinking, and every- thing will be all right. He is about to lose the roof over his head. His life is spinning out of control- but he keeps saying that he can cut down on his drinking. This is denial! Alcoholics deny their problems while their lives are falling apart. Most of them nurse the fantasy of being able to control their drinking. As long as an alcoholic believes that he can "control his drinking," he is headed downhill. Nothing will ever change, even if he gets a new job, a new wife, and a new landlord.
When they talk of reduc- ing drinking, they talk about managing the unmanageable. They are like a driver whose car spins out of control on a mountain road. When the car careens down a cliff, it is too late to promise to drive carefully. An alco- holic's life careens out of control while he denies he's an alcoholic. There is a starkparallel between an alcoholic and a trader whose account is being demolished by losses.
He keeps changing trading tactics, acting like an alcoholic who tries to solve his problem by switching from hard liquor to beer. A loser denies that he has lost control over his course in the market. Rock Bottom A drunk can begin his journey to recovery only after he admits that he is an alcoholic. He must see that alcohol controls his life and not the other way around. Most drunks cannot accept this painful truth. They can face it only after they hit rock bottom. Some alcoholics hit rock bottom when they develop a life-threatening ill- ness.
Others hit rock bottom after being rejected by their family or losing a job. An alcoholic needs to sink to a point so low, so deep down in the gutter, so unbearably painful that it finally penetrates his denial. The pain of hitting rock bottom feels intolerable. It makes an alcoholic see how deeply he has sunk. This pain penetrates his denial. He sees a stark and simple choice-either turn his life around or die. Only then is an alcoholic ready to begin his journey to recovery. Profits make traders feel powerful and give them an emotional high.
They try to get high again, put on reckless trades, and give back their profits. Most traders cannot stand the pain of a string of severe losses. They die as traders afrer hitting rock bottom and wash out of the markets. The few survivors realize that the main trouble is not with their methods, the trouble is with their thinking.
They can change and become successful traders. The First Step An alcoholic who wants to recover has to go through twelve steps - twelve stages of personal growth. He needs to change how he thinks and feels, how he relates to himself and others. The first step of AA is the hardest. He must admit that his life has become unmanageable, that alcohol is stronger than he is. Most alcoholics cannot take that step, drop out, and go on to destroy their lives.
If alcohol is stronger than you, then you can never touch it again, not a sip for as long as you live. You have to give up drinking forever. Most drunks do not want to give up that pleasure. They destroy their lives rather than take the first step of AA. Only the pain of hitting rock bottom can supply the motivation to take that first step. One Day at a Time You have probably seen bumper stickers on cars that say "One day at a time" or "Easy does it.
Planning for life without alcohol can seem overwhelming. That's why AA encourages its members to live sober one day at a time. AA meet- tonight. Recovering alcoholics receive - and give others - invaluable support and fellowship at these meetings. They are held at all hours, all over the world. Traders have much to learn from those meetings. I espe- cially recommend it to a trader on a losing streak.
Call Alcoholics Anonymous and ask about the next "open meeting" or "beginners' meeting" in your area. A meeting lasts about an hour. You can sit in the back of the room and lis- ten carefully. There is no pressure to speak, and nobody asks for your last name. Each meeting begins with a long-term member getting up and speaking about his or her personal struggle for recovery from alcoholism.
Several other members share their experiences. There is a collection to cover expenses-most people give a dollar. You will feel as if the people in the meeting are talking about your trading! He denies that alcohol controls and destroys his life - until he reaches a per- sonal crisis.
It may be a life-threatening illness, unemployment, desertion by a family member, or another unbearably painful event. AA calls it "hitting rock bottom. He sees a stark choice- to drown or to turn and swim up for air. His first step to recov- ery is to admit that he is powerless over alcohol. A recovering alcoholic can never drink again. Loss is to a loser what alcohol is to an alcoholic.
A small loss is like a sin- gle drink. A big loss is like a bender. A series of losses is like an alcoholic binge. A loser keeps switching between different markets, gurus, and trading systems. His equity shrinks while he is trying to re-create the pleasurable sensation of winning. Losing traders think and act like alcoholics, except that their speech is not slurred.
The two groups are so much alike that you can predict what a loser will do by using alcoholics as a model. Alcoholism is a curable disease-and so is losing. Losers can change if they start using the principles of Alcoholics Anonymous. The Urge to Trade Successful traders treat drawdowns the way social drinkers treat alcohol.
They have a little and stop. If they take several losses in a row, they take that as a signal that something is wrong: It is time to stop and rethink their analy- sis or methods. Losers cannot stop- they keep trading because they are addicted to the excitement of the game and keep hoping for a big win. One prominent trading advisor wrote that the pleasure of trading was higher than that of sex or flying jet aircraft.
Just as an alcoholic proceeds from social drinking to drunkenness, losers take bigger and bigger risks. They cross the line between taking a business risk and gambling. Many losers do not even know that line exists. They make impulsive trades, go on trading binges, and try to trade their way out of a hole. Losers bleed money from their accounts. Most of them bust out, but some turn to managing other people's money after they lose their own; still others sell advisory services, like burned-out drunks who wash glasses in a bar.
Most losers hide their losses from themselves and from everyone else. They keep shuffling money, keep poor records, and throw away brokerage slips. A loser is like an alcoholic who does not want to know how many ounces of liquor he drank. Into the Hole A loser never knows why he loses. If he knew, he would have done some- thing about it and become a winner. He keeps trading in a fog.
A loser tries to manage his trading the way an alcoholic tries to manage his drinking. Losers try to trade their way out of a hole. They switch trading systems, buy new software, or take tips from a new guru. They act out a rescue fan- tasy - a charming belief in Santa Claus.
Their desperate belief in magic solu- tions helps many advisors sell their services to the public. When losses mount and equity shrinks, a loser acts like an alcoholic threatened with an eviction or a firing.
A loser grows desperate and converts outright positions into spreads, doubles up on losing positions, reverses and trades in the opposite direction, and so on. Losers get as much good from these maneuvers as an alcoholic who switches from hard liquor to wine. A losing trader careens out of control, trying to manage the unmanage- able.
Alcoholics die prematurely, and most traders bust out of the markets and never come back. New trading methods, hot tips, and improved software cannot help you until you learn to handle yourself. You have to change how you think in order to stop losing and begin your recovery as a trader. Losers get drunk on losses; they're addicted to losses.
Traders prefer prof- its, but even losses provide plenty of excitement. The pleasure of trading is very high. Few losers are actively trying to lose - but then few alcoholics are consciously trying to end up in the gutter. A loser keeps getting high from trading while his equity shrinks. Trying to tell him that he is a loser is like trying to take a bottle away from a drunk. A loser has to hit rock bottom before he can begin to recover.
It is painful and humiliating. You hit it when you lose money you cannot afford to lose. You hit it when you gamble away your savings. You hit it after you tell your friends how smart you are and later have to ask them for a loan. You hit rock bottom when the market comes roaring at you and yells: "You fool!
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