Mastering Trading with Dr. Alexander Elder's Book
Mastering Trading with Dr. Alexander Elder's Book
Insights from a Legendary Trader on Psychology, Tactics, and Money Management
Hello and welcome to Momentum Alpha! In this review, we delve into Dr. Alexander Elder's renowned book, "Trading for a Living." Dr. Alexander Elder is a professional trader and author with a fascinating background. Born in Leningrad and raised in Estonia, he pursued a medical career before seeking political asylum in the United States at age 23. Initially working as a psychiatrist in New York, Elder now consults private traders and financial institutions through his company, which also produces books on stock trading
"Trading for a Living," translated into twelve languages, has become one of the most popular books in stock market history. The book explores the three pillars of success: psychology, trading tactics, and money management, all tied together by the essential practice of record-keeping.
Key Aspects of the Book
1. Psychology
Dr. Elder, a trained psychiatrist, emphasizes the importance of understanding both individual and crowd psychology in trading. He notes that people change when they join crowds, becoming more impulsive and less capable of independent thought. Elder suggests that traders must have a strategy and plan in place before entering a trade, allowing them to think rationally and avoid the pitfalls of crowd behavior.
2. Risk Management
Elder proposes two fundamental rules for risk management: the 2% and 6% rules.
The 2% Rule: This rule limits the risk on any single trade to 2% of the trader’s account equity. For example, with a trading capital of £50,000, you should not risk more than £1,000 on a single trade. If a stock price is £10 and you set a stop-loss at £9, you can invest up to £10,000 in this trade, risking only 2%.
The 6% Rule: This rule stops traders from opening new trades when their monthly losses reach 6% of their trading capital. This precaution helps preserve capital and prevent significant drawdowns.
3. Record-Keeping
Disciplined record-keeping is paramount, according to Dr. Elder. Keeping a trading diary where you document the reasons for entering and exiting trades helps identify patterns of success and failure. This practice ensures you remain disciplined and can continually refine your trading strategies.
Chart and Technical Analysis
Dr. Elder emphasizes the importance of trading with your eyes open, recognizing real trends and turns without wasting energy on regrets. Understanding support and resistance levels is crucial. Support levels exist due to traders' memories of price patterns, while resistance levels occur when an uptrend is interrupted by selling.
Bar charts are a fundamental tool in technical analysis. Key elements include opening and closing prices, highs and lows, and the distances between these points. Dr. Elder explains that opening prices reflect amateur traders' opinions, while closing prices indicate professional traders' sentiments. Observing these elements helps traders identify market trends and make informed decisions.
Summary
Dr. Elder's message can be distilled into a single paragraph: If you understand individual and crowd trading psychology, are proficient in classic chart analysis, and maintain discipline in your approach and risk management, you are on your way to becoming a professional trader.
I leave you with this insightful quote from Dr. Elder: "Every winner needs to master three essential components of trading: a sound individual psychology, a logical trading system, and good money management. These essentials are like three legs of a stool; remove one, and the stool will fall together with the person who sits on it."
Thank you for reading! To discuss this strategy further and connect with like-minded traders, join our Discord chat. Your journey to mastering trading starts here with Momentum Alpha. Subscribe to get access to exclusive content, research and tools.
Become a Professional Funded Trader for Less Than $150/Month with These 4 Essential Tools
Ready to take your trading to the next level? Here’s how you can start building your trading career with minimal investment:
Subscribe to Momentum Alpha
Unlock expert trading insights for as low as $9/month (even less with an annual plan). Gain access to actionable trading setups that can help you make smarter decisions in the market.
Get Funded
Start trading with a remote stock prop firm that gives you $20,000 in buying power or more for just a one-time payment of $97. Trade The Pool is the best option to scale your trading.
Trade with the Best Charting Platform
Take your analysis to the next level with TradingView, the most powerful charting software available. Whether you’re a beginner or a pro, TradingView has the tools you need to succeed.
Analyze Your Trades and Improve Daily
Get better every day by reviewing your trades with the TraderSync Trading Journal. Learn from your wins and losses with detailed analytics. Check out the article I’ve written to see how TraderSync can elevate your trading performance.
With over 8 years of market experience, $20k spent on books and courses, and managing multiple six-figure portfolios, these are the tools I would use if I were starting my trading journey today.
Stop waiting and start your journey to becoming a professional funded trader now!
Disclaimer