Hot Features
Premium
Trade like a pro: Leverage real-time discussions and market-moving ideas to outperform.
LEARN FROM GENERALS OF THE MARKETS – PART 17
“You can be free. You can live and work anywhere in the world. You can be independent from routine and not answer to anybody.” – Dr. Alexander Elder
Dr. Alexander Elder was born in Russia and raised in Estonia. He attended a medical college when he was 16 years old. While working as a doctor on a USSR vessel, he absconded and sought asylum in America. Having worked as a psychiatrist in New York and as a lecturer at Columbia University, he got a good understanding of traders’ mindset. He’s written a number of books, articles and software reviews. He’s also credited with the creation of the Force Index indicator – a unique technical analysis tool.
He’s a top expert when it comes to technical analysis, position sizing, and trading psychology. Some of his books are titled: Trading for a Living, Come into My Trading Room, Entries and Exits, etc. which are popular among speculators. Those books have been translated into many languages. Dr. Elder’s official website is: Elder.com
Lesson
You’ll benefit greatly from the lessons below.
1. As a trader, it’s better for your to be realistic than to be idealistic. Many people approach the markets with terrible methodologies and unrealistic expectations. It’s possible to become a successful trader, but it’s not easy. For you to become successful, you’ll need to work hard at it and learn what it takes to be a successful trader.
2. According to Dr. Alexander 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. Losers try to build a stool with only one leg, or two at the most. They usually focus exclusively on trading systems. Your trades must be based on clearly defined rules. You have to analyze your feelings as you trade, to make sure that your decisions are intellectually sound. You have to structure your money management so that no string of losses can kick you out of the game.
3. Dr. Elder is a living proof that one can be a successful trader without being an expert in the area of fundamental analysis. Dr. Elder’s entry and exit criteria are usually chart-based, not something fundamental. Too many people have irrational belief in fundamental analysis as an open sesame to great riches – only to experience negativity continually in their portfolios. While fundamental analysis will always be a very useful and effective decision making tool, long-lasting trading triumph really boils down to risk and money management, self-control and trading only what you see.
4. There should always be a maximum amount of money you’ll to put at stake – as far as each trade is concerned. Dr. Elder believes that the use of stop loss is necessary. He’s a maximum amount he’d be willing to risk in a month. If he loses more than 6 per cent, he would stop trading for the month. This is very effective, especially in avoiding further drawdown during a losing streak: something every top trader encounters occasionally.
5. Safeguard your profits! After you’ve made a substantial profit on a position, you should try to safeguard it, so that it doesn’t turn into a loss. In one interview in the year 2008, Dr. Elder said he developed this rule after banging his head against the wall for 19 years. There are ways one could safeguard his decent profits, and prevent them from turning into losses. This is however, another topic. You can read my past articles on risk control.
Conclusion: Successful trading principles are like a rainbow for comeliness, like an oasis in the wilderness, and like an anchor in a stormy ocean. Taking time to learn the art of trading will enable you to control your future.
This piece is concluded with a quote from Dr. Elder:
“Markets offer unlimited opportunities for self-sabotage, as well as for self-fulfillment. Acting out your internal conflicts in the marketplace is an expensive proposition. Traders who are not at peace with themselves often try to fulfill their contradictory wishes in their market. If you do not know where you are going, you will wind up somewhere you never wanted to be. You can succeed in trading only if you can handle it as a serious intellectual pursuit. Emotional trading is lethal. To help ensure success, practice defensive money management. A good trader watches his or her capital as successfully as a professional scuba-diver watches his or her air supply.”
