The New Trading for a Living

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The New Trading for a Living

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 a novice trader, professional or somewhere in-between, these books will provide the advice and strategies needed to prosper today and well into the future. For more on this series, visit our website at www.WileyTrading.com.

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The New Trading for ^a Living

Psychology • Discipline Trading Tools and Systems Risk Control • Trade Management

Dr. Alexander Elder

www.elder.com www.spiketrade.com

Cover design: Paul DiNovo

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.

Published simultaneously in Canada.

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Library of Congress Cataloging-in-Publication Data:

ISBN 978-1-118-44392-7 (Hardcover) ISBN 978-1-118-96367-8 (ebk) ISBN 978-1-118-96368-5 (ebk)

Printed in the United States of America 10 9 8 7 6 5 4 3 2 1

To the memory of Lou Taylor—

a wise man, a savvy trader, and a true friend.

CONTENTS

	Preface	xiii
	Introduction	1
	1. Trading—The Last Frontier	1
	2. Psychology Is the Key	3
	3. The Odds against You	5
ONE	Individual Psychology	9
	4. Why Trade?	9
	5. Reality versus Fantasy	10
	6. Self-Destructiveness	16
	7. Trading Psychology	19
	8. Trading Lessons from AA	21
	9. Losers Anonymous	23
	10. Winners and Losers	27
TWO	Mass Psychology	31
	11. What Is Price?	32
	12. What Is the Market?	33
	13. The Trading Scene	36
	14. The Market Crowd and You	39
	15. Psychology of Trends	43
	16. Managing versus Forecasting	46
THREE	Classical Chart Analysis	49
	17. Charting	50
	18. Support and Resistance	55

	19. Trends and Trading Ranges	60
	20. Kangaroo Tails	65
FOUR	Computerized Technical Analysis	69
	21. Computers in Trading	69
	22. Moving Averages	74
	23. Moving Average Convergence-Divergence:
	MACD Lines and MACD-Histogram	80
	24. The Directional System	89
	25. Oscillators	95
	26. Stochastic	95
	27. Relative Strength Index	99
FIVE	Volume and Time	103
	28. Volume	103
	29. Volume-Based Indicators	107
	30. Force Index	112
	31. Open Interest	117
	32. Time	121
	33. Trading Timeframes	126
SIX	General Market Indicators	133
	34. The New High–New Low Index	133
	35. Stocks above 50-Day MA	139
	36. Other Stock Market Indicators	140
	37. Consensus and Commitment Indicators	142
SEVEN	Trading Systems	149
	38. System Testing, Paper Trading, and the
	Three Key Demands for Every Trade	151
	39. Triple Screen Trading System	154
	40. The Impulse System	162
	41. Channel Trading Systems	166
EIGHT	Trading Vehicles	173
	42. Stocks	175
	43. ETFs	176
	44. Options	178
	45. CFDs	186
	46. Futures	187
	47. Forex	194