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THE NEW TRADING FOR A LIVING Psychology • Discipline Trading Tools and Systems and Risk Control • Trade Management Dr. Alexander Elder www.elder.com www.spiketrade.com Cover design: Paul DiNovo Copyright © 2014 by by Dr. Alexander Elder. All rights reserved. Published by John Wiley & Sons, Inc., Hoboken, New Jersey. Published simultaneously in Canada. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 646-8600, or on the Web at www.copyright.com. 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Library of Congress Cataloging-in-Publication 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 Lou Taylor— a wise man, a savvy trader, and a true friend. CONTENTS 1. PREFACE 2. Introduction 1. 1. Trading—The Last Frontier 2. 2. Psychology Is the Key 3. 3. The Odds against You 3. PART 1: Individual Psychology 1. 4. Why Trade? 2. 5. Reality versus Fantasy 3. 6. Self-Destructiveness 4. 7. Trading Psychology 5. 8. Trading Lessons from AA 6. 9. Losers Anonymous 7. 10. Winners and Losers 8. Notes 4. PART 2: Mass Psychology 1. 11. What Is Price? 2. 12. What Is the Market? 3. 13. The Trading Scene 4. 14. The Market Crowd and You 5. 15. Psychology of Trends 6. 16. Managing versus Forecasting 7. Notes 5. PART 3: Classical Chart Analysis 1. 17. Charting 2. 18. Support and Resistance 3. 19. Trends and Trading Ranges 4. 20. Kangaroo Tails 5. Notes 6. PART 4: Computerized Technical Analysis 1. 21. Computers in Trading 2. 22. Moving Averages 3. 23. Moving Average Convergence-Divergence: MACD Lines and MACDHistogram 4. 24. The Directional System 5. 25. Oscillators 6. 26. Stochastic 7. 27. Relative Strength Index 7. PART 5: Volume and Time 1. 28. Volume 2. 29. Volume-Based Indicators 3. 30. Force Index 4. 31. Open Interest 5. 32. Time 6. 33. Trading Timeframes 7. Notes 8. PART 6: General Market Indicators 1. 34. The New High–New Low Index 2. 35. Stocks above 50-Day MA 3. 36. Other Stock Market Indicators 4. 37. Consensus and Commitment Indicators 5. Notes 9. PART 7: Trading Systems 1. 38. System Testing, Paper Trading, and the Three Key Demands for Every Trade 2. 39. Triple Screen Trading System 3. 40. The Impulse System 4. 41. Channel Trading Systems 5. Note 10. PART 8: Trading Vehicles 1. 42. Stocks 2. 43. ETFs 3. 44. Options 4. 45. CFDs 5. 46. Futures 6. 47. Forex 11. PART 9: Risk Management 1. 48. Emotions and Probabilities 2. 49. The Two Main Rules of Risk Control 3. 50. The Two Percent Rule 4. 51. The Six Percent Rule 5. 52. A Comeback from a Drawdown 12. PART 10: Practical Details 1. 53. How to Set Profit Targets: “Enough” Is the Power Word 2. 54. How to Set Stops: Say No to Wishful Thinking 3. 55. Is This an A-Trade? 4. 56. Scanning for Possible Trades 5. Note 13. PART 11: Good Record-Keeping 1. 57. Your Daily Homework 2. 58. Creating and Scoring Trade Plans 3. 59. Trade Journal 4. Note 14. CONCLUSION: A Journey without an End: How to Continue Learning 15. Sources 16. Acknowledgments 17. About the Author 18. INDEX 19. End User License Agreement