Transcription
THE NEWTRADING FOR A LL
The Wiley Trading seriesfeatures books by traders whohave survived the market’sever-changing environmentand have prospered—somebyreinventingsystems,others by getting back tobasics. Whether you are anovice trader, professional orsomeone in-between, these
books will deliver the adviceand strategies you need toprosper today and in thefuture. For more on thisseries, visit our website atwww.WileyTrading.com.Founded in 1807, John Wiley& Sons is the oldestindependentpublishingcompany in the United States.With offices in NorthAmerica, Europe, Australiaand Asia, Wiley is globally
committed to developing andmarketing print and electronicproducts and services for ourcustomers’ professional andpersonal knowledge andunderstanding.
THE NEWTRADING FOR ALIVING
Psychology DisciplineTrading Tools andSystemsand Risk Control Trade ManagementDr. Alexander Elder
www.elder.comwww.spiketrade.com
Cover design: Paul DiNovoCopyright 2014 by by Dr. AlexanderElder. All rights reserved.Published by John Wiley & Sons, Inc.,Hoboken, New Jersey.Published simultaneously in Canada.No part of this publication may bereproduced, stored in a retrieval system,or transmitted in any form or by anymeans,electronic,mechanical,photocopying, recording, scanning, orotherwise, except as permitted underSection 107 or 108 of the 1976 UnitedStates Copyright Act, without either theprior written permission of thePublisher, or authorization throughpayment of the appropriate per-copy fee
to the Copyright Clearance Center, Inc.,222 Rosewood Drive, Danvers, MA01923, (978) 750-8400, fax (978) 6468600,orontheWebatwww.copyright.com. Requests to thePublisher for permission should beaddressedtothePermissionsDepartment, John Wiley & Sons, Inc.,111 River Street, Hoboken, NJ 07030,(201) 748-6011, fax (201) 748-6008, t of Liability/Disclaimer ofWarranty: While the publisher andauthor have used their best efforts inpreparing this book, they make norepresentations or warranties withrespect to the accuracy or completeness
of the contents of this book andspecifically disclaim any impliedwarranties of merchantability or fitnessfor a particular purpose. No warrantymay be created or extended by salesrepresentatives or written salesmaterials. The advice and strategiescontained herein may not be suitable foryour situation. You should consult witha professional where appropriate.Neither the publisher nor author shallbe liable for any loss of profit or anyother commercial damages, includingbut not limited to special, incidental,consequential, or other damages.For general information on our otherproducts and services or for technicalsupport, please contact our Customer
Care Department within the UnitedStates at (800) 762-2974, outside theUnited States at (317) 572-3993 or fax(317) 572-4002.Wiley publishes in a variety of print andelectronic formats and by print-ondemand. Some material included withstandard print versions of this book maynot be included in e-books or in printon-demand. If this book refers to mediasuch as a CD or DVD that is notincluded in the version you purchased,you may download this material athttp://booksupport.wiley.com. For moreinformation about Wiley products, visitwww.wiley.com.Library of Congress Cataloging-inPublication Data:
ISBN 978-1-118-46745-9 (Paperback)ISBN 978-1-118-98470-3 (ebk)ISBN 978-1-118-98471-0 (ebk)
To the memory of LouTaylor—a wise man, a savvy trader,and a true friend.
CONTENTS1. PREFACE2. Introduction1. 1. Trading—TheLast Frontier2. 2. Psychology Isthe Key3. 3. The Odds against
You3. PART 1: IndividualPsychology1. 4. Why Trade?2. 5. Reality versusFantasy3. 6. SelfDestructiveness4. 7. TradingPsychology5. 8. Trading Lessonsfrom AA
6. 9. LosersAnonymous7. 10. Winners andLosers8. Notes4. PART 2: MassPsychology1. 11. What Is Price?2. 12. What Is theMarket?3. 13. The TradingScene
4. 14. The MarketCrowd and You5. 15. Psychology ofTrends6. 16. Managingversus Forecasting7. Notes5. PART 3: Classical ChartAnalysis1. 17. Charting2. 18. Support andResistance
3. 19. Trends andTrading Ranges4. 20. Kangaroo Tails5. Notes6. PART 4: ComputerizedTechnical Analysis1. 21. Computers inTrading2. 22. MovingAverages3. 23. MovingAverage
ConvergenceDivergence:MACD Lines andMACD-Histogram4. 24. The DirectionalSystem5. 25. Oscillators6. 26. Stochastic7. 27. RelativeStrength Index7. PART 5: Volume andTime
1. 28. Volume2. 29. Volume-BasedIndicators3. 30. Force Index4. 31. Open Interest5. 32. Time6. 33. TradingTimeframes7. Notes8. PART 6: GeneralMarket Indicators1. 34. The New High–
New Low Index2. 35. Stocks above50-Day MA3. 36. Other StockMarket Indicators4. 37. Consensus andCommitmentIndicators5. Notes9. PART 7: TradingSystems1. 38. System Testing,
Paper Trading, andthe Three KeyDemands for EveryTrade2. 39. Triple ScreenTrading System3. 40. The ImpulseSystem4. 41. ChannelTrading Systems5. Note10. PART 8: Trading
Vehicles1. 42. Stocks2. 43. ETFs3. 44. Options4. 45. CFDs5. 46. Futures6. 47. Forex11. PART 9: RiskManagement1. 48. Emotions andProbabilities
2. 49. The Two MainRules of RiskControl3. 50. The TwoPercent Rule4. 51. The Six PercentRule5. 52. A Comebackfrom a Drawdown12. PART 10: PracticalDetails1. 53. How to Set
Profit Targets:“Enough” Is thePower Word2. 54. How to SetStops: Say No toWishful Thinking3. 55. Is This an ATrade?4. 56. Scanning forPossible Trades5. Note13. PART 11: Good Record-
Keeping1. 57. Your DailyHomework2. 58. Creating andScoring TradePlans3. 59. Trade Journal4. Note14. CONCLUSION: AJourney without an End:How to ContinueLearning
15.16.17.18.19.SourcesAcknowledgmentsAbout the AuthorINDEXEnd User LicenseAgreement
List of Illustrations1. PART 31. Figure 17.1 TSLAdaily. (Chart byStockcharts.com)2. Figure 18.1 NFLXweekly. (Chart byStockcharts.com)3. Figure 18.2 Goldweekly. (Chart byStockcharts.com)
4. Figure 18.3 EGOand the Euro daily.(Chart byStockcharts.com)5. Figure 19.1 FBdaily, 22-day EMA.(Chart byStockcharts.com)6. Figure 19.2 UNPdaily, 22-day EMA,Directional system,MACD-Histogram.(Chart by
Stockcharts.com)7. Figure 20.1 BIIBand FDO daily.(Chart byStockcharts.com)8. Figure 20.2 IGTDaily. (Chart byStockcharts.com)2. PART 41. Figure 22.1 DISdaily 22-day EMA.(Chart by
Stockcharts.com)2. Figure 22.2 DISdaily, 26- and 13day EMAs. (ChartbyStockcharts.com)3. Figure 23.1 ABXweekly, 26- and 13week EMAs, 1226-9 MACD Lines.(Chart byStockcharts.com)4. Figure 23.2 DJIA
daily, 26- and 13day EMAs, 12-26-9MACD Lines.(Chart byStockcharts.com)5. Figure 23.3 DJIAweekly, 26- and 13day EMAs, 12-26-9MACD Lines andMACD-Histogram.(Chart by TC2000from the book TwoRoads Diverged:
TradingDivergences)6. Figure 23.4 DJIAweekly, 26- and 13day EMAs, 12-26-9MACD Lines andMACD-Histogram.(Chart by TC2000from the book TwoRoads Diverged:TradingDivergences)7. Figure 24.1
DirectionalMovement.8. Figure 24.2 ANVdaily, 22-day EMA,Directional System(13). (Chart byStockcharts.com)9. Figure 24.3 LULUdaily, 21 EMA,volume with 8EMA, ATRchannels. (Chart byTradeStation)
10. Figure 26.1 CVXdaily, 26-day EMA.5-day SlowStochastic. (ChartbyStockcharts.com)11. Figure 27.1 CVXdaily, 13-day RSI.(Chart byStockcharts.com)3. PART 51. Figure 28.1 BIDdaily, 22-day EMA,
volume. (Chart byStockcharts.com)2. Figure 29.1 MCDdaily, 22-day EMA,On-Balance volume(OBV). (Chart byStockcharts.com)3. Figure 29.2 GOOGdaily,Accumulation/DistribIndex. (Chart byStockcharts.com)4. Figure 30.1 ADBE
daily, 26-day EMA,2-day Force Index.(Chart byStockcharts.com)5. Figure 30.2 SSYSdaily, 26-day EMA,13-day Force Index.(Chart byStockcharts.com)6. Figure 31.1 TYH14daily, 13-day EMA,open interest. (Chanby TradeStation)
7. Figure 32.1 VRTXdaily, MACDHistogram 12-26-9.(Chart byStockcharts.com)8. Figure 33.1 AAPLweekly. (Chart byStockcharts.com)9. Figure 33.2 Fmonthly, 26- and13-months EMAwith the Impulsesystem,
Autoenvelope,MACD Lines andMACD-Histogram(12-26-9), andForce Index 13months EMA withATR channels.(Chart byTradestation)10. Figure 33.3 HESdaily, 26- and 13day EMA with 4%envelope, MACD
Lines and MACDHistogram (12-269), the Impulsesystem, and 2-dayForce Index. (ChartbyStockcharts.com)11. Figure 33.4 TRQdaily, 22- and 12day EMA with 11%envelope, MACDLines and MACDHistogram (12-26-
9), and 20-day RSI.(Chart byStockcharts.com)4. PART 61. Figure 34.1 S&P500 daily, 26- and13-day EMAs,Autoenvelope, NHNL daily. (Chart byTradeStation)2. Figure 34.2 S&P500 weekly, 26week EMA, NH-
NL weekly. Greenline at 2,500,purple line at 4,000. (Chart byTradeStation)3. Figure 35.1 S&P500 weekly and 26week MA; Stocksabove 50 MA withreference lines at75% and 25%.(Chart byTradeStation)
4. Figure 36.1 S&P500 daily and theAdvance/Declineline. (Chart byStockcharts.com)5. Figure 37.1Monthly total dollarvalue of OTCstocks. (CourtesySentimenTrader.com6. Figure 37.2 AAPLand GMCRshorting data.
(Source:Shortsqueeze.com)5. PART 71. Figure 38.1 Threekey demands forevery plannedtrade. (Source:SpikeTrade.com)2. Figure 39.1 Goldweekly, with 26and 13-EMAs andMACD-Histogram(12-26-9). (Chart
byStockcharts.com)3. Figure 39.2 Golddaily, with 26- and13-EMAs and 2day Force Index.(Chart byStockcharts.com).4. Figure 39.3 Golddaily, with 26- and13-EMAs. (ChartbyStockcharts.com).
5. Figure 39.4 On theleft: AMZN 30-minchart with a 13-barEMA and 12-26-9MACD-Histogram.On the right:AMZN 5-min chartwith a 13-bar EMA,0.6% channel, and2-bar Force Index.(Charts byStockcharts.com)6. Figure 40.1 The
colors of theImpulse system.7. Figure 40.2 SSYSweekly with 13and 26-weekEMAs, 12-26-9MACD-Histogramand the Impulsesystem. (Chart byStockcharts.com)8. Figure 41.1 Eurofutures, with 26and 13-day EMAs,
the Impulse system,and Autoenvelope.(Chart byTradestation)9. Figure 41.2 RSOLdaily with 21-dayEMA and 1-, 2-,and 3-ATRchannels, MACDHistogram 12-26-9,and the Impulsesystem. (Chart byTradestation)
10. Figure 41.3 SIXdaily with 26- and13-day EMAs, 6%channel, MACDHistogram 12-26-9,and the Impulsesystem. (Chart byStockcharts.com)6. PART 81. Figure 43.1 VIX,the volatility index,and VXX, avolatility ETF,
weekly. (Charts byStockcharts.com)2. Figure 43.2 NaturalGas Spot and UNG,a natural gas ETF,monthly. (Charts byStockcharts.com)7. PART 91. Figure 50.1 TheIron Triangle ofrisk control.2. Figure 50.2 Daily
charts with 13- and26-day EMAs andAutoenvelopes. TheImpulse system andMACDHistogram12-26-9. (Charts byTradestation).8. PART 101. Figure 53.1 VRSNwith 13- and 26-dayEMAs, the Impulsesystem, and a 4%envelope. MACD
12-26-9. (Chart byStockcharts.com)2. Figure 53.2 EGO25- and 5-minutecharts with 13- and26-bar EMAs, theImpulse system,and Autoenvelope.MACD 12-26-9.(Chart byTradeStation)3. Figure 53.3 IGOIwith 13- and 26-day
EMAs, the Impulsesystem, and a 4%envelope. MACD12-26-9. (Chart byStockcharts.com)4. Figure 54.1 Dailycharts with 13-dayEMA, the Impulsesystem, andMACD-Histogram12-26-9. (Charts byStockcharts.com)5. Figure 54.2 S&P
500 and a 20-dayNew High–NewLow Index. (Chartby TradeStation,programming byKerry Lovvorn)6. Figure 55.1 ADSKdaily with 13- and26-day EMAs and a7% envelope.Impulse systemwithMACDHistogram
12-26-9. (Chart byStockcharts.com)7. Figure 55.2 TheStrategy box in theTrade Journal.(Source:SpikeTrade.com)8. Figure 55.3 SLBdaily with 13- and26-day EMAs and a6% envelope.Impulse systemwith
MACDHistogram12-26-9. (Chart byStockcharts.com)9. Figure 56.1 WFMdaily with 13- and26-day EMAs.Impulse systemwith MACDHistogram 12-26-9.Red dots—potentialor actual bearishdivergences. Greendots—potential or
actual bullishdivergences. (Chartby TradeStation,scanner by JohnBruns/elder.com)9. PART 111. Figure 57.1 Dailyhomeworkspreadsheet.(Source: elder.com)I begin by lookingat the overseasmarkets, then major
news, keycurrencies andcommodities, andthe key stockmarket indicators.With practice, theentire process canbe handled in about15 minutes. Let'sexplore it, line byline.2. Figure 57.2 “Am Iready to trade?”
self-test. (Source:elder.com)3. Figure 58.1 TradeApgar for goinglong, using astrategy of “falsebreakout with adivergence.”(Source: elder.com)4. Figure 58.2 TradeApgar for shorting,using strategy of“divergence with a
false breakout.”5. Figure 58.3Tradebill for goinglong, using thestrategy“divergence with afalse breakout.”(Source: elder.com)6. Figure 59.1 TradeJournal (a partialview). (Source:Spiketrade.com)7. Figure 59.2 DISCA
daily with 13- and26-day EMAs and a6% channel.Impulse systemwith MACDHistogram 12-26-9.(Chart byStockcharts.com)8. Figure 59.3 MCPdaily with 13- and26-day EMAs and a16% channel.Impulse system
with MACDHistogram 12-26-9.(Chart byStockcharts.com)
PREFACETradingfor a Living waspublished in 1993 andbecame an international bestseller. It remains at the top ofmany reading lists, as friends
recommend it to friends andtrading firms give it to theirnew hires. All these years, Iresisted revising my bookbecause I trusted and liked itsinternal logic. I traded,traveled, wrote other books,and taught a few classes.Now, 21 years later, I agreedto update my most popularbook so that you can benefitfrom the new technologies aswell as the lessons I'velearned.
My late great friend LouTaylor, to whom this book isdedicated, used to joke: “If Iget half a percent smartereach year, I'll be a genius bythe time I die.” Revising myvery first book felt likereliving my youth with thebenefit of experience.In planning this update, Ithought of a buildingcomplex in Vienna, Austriacalled the Gasometer. At its
core are multistory storagetanks, erected by Austrianbricklayers in 1927. Whenmodern technology madehuge gas cylinders obsolete,architects converted them intomodern apartments. Theypunched wide openings inbrickwalls,creatingpanoramic views, installedfloors and elevators, andaddedglass-enclosedpenthouses. I used to stay inone of them and
The Wiley Trading series features books by traders who have survived the market’s ever-changing environment and have prospered—some by reinventing systems, others by getting back to basics. Whether you are a novice trader, professional or someone in-between, these. books will deliver the advice and strategies you need to prosper today and in the future. For more on this series, visit our .
