The New Trading For A Living by Alexander Elder

Last updated: Aug 15, 2023

Summary of The New Trading For A Living by Alexander Elder

The New Trading For A Living by Alexander Elder is a comprehensive guide to successful trading in the financial markets. The book covers a wide range of topics, including technical analysis, risk management, and psychology, providing traders with the necessary tools and knowledge to become consistently profitable.

The author begins by emphasizing the importance of having a trading plan and following it diligently. He explains the different types of markets and how to identify trends using various technical indicators. Elder also introduces the concept of multiple time frame analysis, which involves analyzing charts of different time periods to gain a better understanding of market trends.

Risk management is a crucial aspect of trading, and Elder devotes a significant portion of the book to this topic. He explains how to calculate position sizes based on risk tolerance and provides guidelines for setting stop-loss orders to protect against excessive losses. The author also discusses the importance of diversification and the use of protective options strategies to manage risk.

Psychology plays a vital role in trading success, and Elder delves into the psychological aspects of trading in great detail. He explores common psychological biases that can hinder traders' decision-making and provides strategies for overcoming them. The author also emphasizes the importance of maintaining discipline and emotional control, as well as the need to develop a positive mindset and belief in one's abilities.

In addition to technical analysis and risk management, Elder also covers other important topics such as trading systems, money management, and trading psychology. He provides practical advice on developing and testing trading systems, as well as tips for managing capital and maximizing profits. The author also discusses the importance of continuous learning and self-improvement, encouraging traders to constantly adapt and evolve their strategies.

Overall, The New Trading For A Living is a comprehensive and practical guide for traders of all levels. It covers a wide range of topics and provides valuable insights and strategies for achieving consistent profitability in the financial markets. Whether you are a beginner or an experienced trader, this book is a valuable resource that can help you improve your trading skills and achieve your financial goals.

1. The Importance of a Trading Plan

In "The New Trading For A Living," Alexander Elder emphasizes the significance of having a well-defined trading plan. He explains that a trading plan acts as a roadmap, guiding traders through the ups and downs of the market. A trading plan should include specific entry and exit strategies, risk management techniques, and a clear set of rules to follow. By having a trading plan in place, traders can avoid impulsive and emotional decision-making, which often leads to poor trading outcomes.

Elder suggests that traders should regularly review and update their trading plans to adapt to changing market conditions. He emphasizes the importance of discipline and sticking to the plan, even when faced with tempting opportunities or unexpected market movements. By following a trading plan, traders can maintain consistency in their approach and increase their chances of long-term success.

2. The Three M's: Mind, Method, and Money

Elder introduces the concept of the Three M's: Mind, Method, and Money, which are essential components for successful trading. The "Mind" refers to the psychological aspect of trading, emphasizing the importance of maintaining a disciplined and focused mindset. Elder highlights the need to control emotions such as fear and greed, as they can cloud judgment and lead to irrational decision-making.

The "Method" refers to the trading strategy or system used by traders. Elder suggests that traders should develop a method that suits their personality and trading style. He emphasizes the importance of backtesting and refining the method to increase its effectiveness.

The "Money" aspect focuses on risk management and position sizing. Elder advises traders to determine the maximum amount of capital they are willing to risk on each trade and to set stop-loss orders to limit potential losses. By managing risk effectively, traders can protect their capital and ensure long-term profitability.

3. The Importance of Self-Reflection

Elder encourages traders to engage in self-reflection and learn from their trading experiences. He suggests keeping a trading journal to record trades, emotions, and thoughts. By reviewing past trades, traders can identify patterns, strengths, and weaknesses in their trading approach.

Elder emphasizes the importance of learning from mistakes and continuously improving. He suggests asking questions such as "What did I do right?" and "What could I have done better?" to gain insights and make necessary adjustments. By engaging in self-reflection, traders can refine their trading strategies and enhance their overall performance.

4. The Role of Technical Analysis

Elder discusses the significance of technical analysis in trading. He explains various technical indicators and chart patterns that can help traders identify potential entry and exit points. Elder emphasizes the importance of combining multiple indicators and confirming signals to increase the probability of successful trades.

He also highlights the importance of understanding market trends and using trend-following strategies. Elder suggests using moving averages and trendlines to identify the direction of the market and align trades accordingly. By incorporating technical analysis into their trading approach, traders can make more informed decisions and increase their chances of profitability.

5. The Psychology of Trading

Elder delves into the psychology of trading, emphasizing the impact of emotions on trading outcomes. He discusses common psychological biases that can hinder traders, such as confirmation bias and overconfidence. Elder suggests various techniques to overcome these biases, including maintaining a rational mindset, setting realistic expectations, and avoiding impulsive decision-making.

He also emphasizes the importance of patience and discipline in trading. Elder advises traders to wait for high-probability setups and avoid chasing trades based on emotions or short-term market fluctuations. By understanding and managing the psychological aspects of trading, traders can improve their decision-making and overall performance.

6. The Importance of Risk Management

Elder stresses the significance of risk management in trading. He advises traders to determine their risk tolerance and set appropriate stop-loss orders to limit potential losses. Elder suggests using a position sizing formula based on the percentage of capital at risk to ensure consistent risk management.

He also discusses the concept of pyramiding, which involves adding to winning positions while managing risk effectively. Elder suggests using trailing stops to protect profits and maximize returns. By implementing effective risk management techniques, traders can protect their capital and minimize the impact of losing trades.

7. The Role of Discipline

Elder emphasizes the importance of discipline in trading. He suggests that traders should follow their trading plans and stick to their predetermined rules, even in the face of tempting opportunities or unexpected market movements.

Elder advises traders to avoid impulsive and emotional decision-making, as it often leads to poor trading outcomes. He suggests maintaining a rational mindset and avoiding the influence of external factors such as news or market noise. By practicing discipline, traders can maintain consistency in their approach and increase their chances of long-term success.

8. The Importance of Continuous Learning

Elder highlights the importance of continuous learning in trading. He suggests that traders should constantly seek new knowledge, refine their strategies, and adapt to changing market conditions.

Elder encourages traders to read books, attend seminars, and engage with other traders to expand their knowledge and gain new insights. He emphasizes the need to stay updated with market trends and developments to make informed trading decisions. By embracing a mindset of continuous learning, traders can stay ahead of the curve and improve their trading performance.