The New Trading for a Living

What's The New Trading for a Living about?

• Comprehensive Trading Guide: The book serves as a detailed resource for traders, covering essential topics such as psychology, discipline, trading tools, risk control, and trade management.
• Focus on Psychology: It emphasizes the psychological aspects of trading, explaining how emotions like fear and greed can impact decision-making and trading performance.
• Practical Strategies: Dr. Alexander Elder provides practical strategies and systems, including the Triple Screen Trading System, to help traders make informed decisions.

Why should I read The New Trading for a Living?

• Expert Insights: Written by Dr. Alexander Elder, a seasoned trader and psychiatrist, the book combines psychological insights with trading strategies, making it unique and valuable.
• Structured Learning: The book is structured to guide readers from basic concepts to advanced trading techniques, making it suitable for both beginners and experienced traders.
• Real-World Applications: It includes practical advice and real-world examples, helping readers apply the concepts to their trading practices effectively.

What are the key takeaways of The New Trading for a Living?

• Risk Management is Crucial: The book emphasizes the importance of risk management, introducing the 2% Rule to limit losses and the 6% Rule to manage monthly drawdowns.
• Psychological Discipline: It highlights the need for psychological discipline in trading, encouraging traders to manage their emotions and stick to their trading plans.
• Multiple Timeframe Analysis: Elder advocates for using multiple timeframes in analysis, particularly through the Triple Screen Trading System, to make more informed trading decisions.

What are the best quotes from The New Trading for a Living and what do they mean?

• "Emotional trading is lethal.": This quote underscores the dangers of allowing emotions to dictate trading decisions. It serves as a reminder to maintain discipline and objectivity.
• "You can succeed in trading only if you handle it as a serious intellectual pursuit.": This emphasizes the need for a thoughtful and analytical approach to trading, rather than treating it as a game of chance.
• "A trader must support his broker and the machinery of exchanges before he collects a dime.": This highlights the inherent costs of trading, such as commissions and slippage, which can erode profits if not managed properly.

How does The New Trading for a Living address trading psychology?

• Understanding Emotions: The book delves into the psychological aspects of trading, explaining how emotions like fear and greed can lead to poor decision-making.
• Discipline and Control: It stresses the importance of discipline in trading, encouraging traders to stick to their plans and avoid impulsive decisions based on emotions.
• Self-Assessment Tools: Elder provides self-assessment tools, such as a psychological self-test, to help traders evaluate their readiness and emotional state before trading.

What is the Triple Screen Trading System in The New Trading for a Living?

• Three Screens for Trading: The Triple Screen Trading System involves analyzing three different timeframes: a long-term chart for trend direction, an intermediate chart for timing, and a short-term chart for entry points.
• Combining Indicators: It combines trend-following indicators on long-term charts with counter-trend oscillators on intermediate charts, allowing traders to filter out false signals.
• Strategic Decision Making: By starting with the long-term trend, traders can make strategic decisions that align with the overall market direction, increasing the likelihood of successful trades.

What are the 2% and 6% Rules in The New Trading for a Living?

• 2% Rule: This rule limits the maximum risk on any single trade to 2% of the trader's account equity, helping to prevent significant losses.
• 6% Rule: This rule prohibits opening new trades if the total losses for the month, combined with the risks of open trades, reach 6% of the account equity, encouraging traders to step back during losing streaks.
• Risk Management Framework: Together, these rules create a framework for effective risk management, ensuring traders protect their capital and maintain long-term viability in the markets.

How does Dr. Elder suggest managing risk in trading?

• Two Percent Rule: Dr. Elder introduces the "Two Percent Rule," which states that a trader should never risk more than 2% of their total account on a single trade. This helps protect capital and allows for long-term survival in the market.
• Setting Stops: The book discusses the importance of placing protective stops to limit potential losses. Traders should determine their stop-loss levels before entering a trade to avoid emotional decision-making.
• Emotional Awareness: Understanding the psychological aspects of risk management is crucial. Dr. Elder emphasizes that emotions can cloud judgment, leading to poor risk management decisions.

What is the Impulse System described in The New Trading for a Living?

• Market Movement Analysis: The Impulse System uses two indicators—an exponential moving average (EMA) for inertia and the MACD-Histogram for power—to assess market movements.
• Color-Coded Signals: It colors price bars based on the relationship between these indicators: green for bullish, red for bearish, and blue for neutral, guiding traders on when to enter or exit trades.
• Censorship Approach: Rather than providing direct buy/sell signals, the Impulse System acts as a censorship tool, prohibiting trades that go against the prevailing market trend.

What are kangaroo tails, and how are they used in trading as per The New Trading for a Living?

• Definition of Kangaroo Tails: Kangaroo tails are a specific chart pattern characterized by a tall bar flanked by two smaller bars, indicating a potential reversal. They signal that the market has rejected a certain price level.
• Trading Signals: An upward-pointing kangaroo tail suggests a failed bullish attempt, signaling a potential sell opportunity. Conversely, a downward-pointing kangaroo tail indicates a failed bearish attempt, suggesting a potential buy opportunity.
• Importance of Context: Dr. Elder emphasizes that kangaroo tails should be analyzed within the context of the overall market trend. They are more reliable when they occur at significant support or resistance levels.

How can I improve my trading discipline as suggested in The New Trading for a Living?

• Set Clear Rules: Establishing clear trading rules and sticking to them is essential for maintaining discipline and avoiding impulsive decisions.
• Keep a Trading Journal: Documenting trades, including the rationale behind each decision, helps traders reflect on their performance and learn from mistakes.
• Regular Self-Assessment: Conducting regular self-assessments, such as the psychological self-test mentioned in the book, can help traders gauge their readiness and emotional state before trading.

What is the significance of record-keeping in trading as discussed in The New Trading for a Living?

• Learning from Mistakes: Keeping detailed records of trades allows traders to analyze their performance, identify patterns, and learn from both successes and failures.
• Enhancing Discipline: A well-maintained trading journal promotes discipline by encouraging traders to follow their plans and reflect on their decisions.
• Tracking Progress: Regularly reviewing trade records helps traders track their progress over time, providing insights into their trading strategies and areas for improvement.