Study Guide for 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 reinvent- ing systems, others by getting back to basics. Whether you are a novice trader, professional or someone in-between, these books will deliver the advice and strategies you need to prosper today and in the future. For more on this series, visit our website at www.WileyTrading.com. Founded in 1807, John Wiley & Sons is the oldest independent publishing company in the United States. With offces in North America, Europe, Australia and Asia, Wiley is globally committed to developing and marketing print and electronic products and services for our customers’ professional and personal knowledge and understanding. Study Guide for 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 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 permis- sion 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) Printed in the United States of America 10 9 8 7 6 5 4 3 2 1 C O N T E N T S About This Study Guide ix PART I QueStioNS aNd ratiNG ScaLeS 1 Introduction 3 ONE Individual Psychology 7 TWO Mass Psychology 13 THREE Classical Chart Analysis 19 FOUR Computerized Technical Analysis 27 FIVE Volume and Time 37 SIX General Market Indicators 49 SEVEN Trading Systems 57 EIGHT Trading Vehicles 65 NINE Risk Management 71 TEN Practical Details 79 ELEVEN Good Record-Keeping 85 v vi Contents PART II aNSwerS aNd commeNtS 89 Introduction 91 ONE Individual Psychology 95 TWO Mass Psychology 99 THREE Classical Chart Analysis 103 FOUR Computerized Technical Analysis 107 FIVE Volume and Time 113 SIX General Market Indicators 119 SEVEN Trading Systems 123 EIGHT Trading Vehicles 129 NINE Risk Management 133 TEN Practical Details 137 ELEVEN Good Record-Keeping 141 Afterword 145 Sources 147 About the Author 149 A B O U T T H I S S T U D Y G U I D E xperienced traders seem to glide through the markets, swinging into and out Eof trades. Their trading appears efortless, like downhill skiing on TV. The illusion of ease vanishes when you clamp on a pair of skis and discover the bumps on the slope. If you want to improve your trading skills, you have to work, study, and do your homework. I created this Study Guide to help you grow and succeed as a trader. It is based on my years of experience as a trader and teacher of traders. The more you study the markets and your reactions to them, the more likely you are to succeed. You need to learn more about yourself as well as the markets—good traders always learn. Each question in this Guide is linked to a specifc chapter in The New Trading for a Living—psychology, risk management, indicators, and so on. Write down your answers and compare them with those in the book. When answering chart-related questions, cover each chart with a sheet of paper and move it slowly from left to right to imitate the unfolding of market action. Practice dealing with the uncertainty of the markets while working with this Guide. This Guide asks questions and provides answers—but reasonable people may dis- agree with some of them. Trading is partly a science and partly an art—partly objec- tive and partly subjective. Let this Guide challenge you to think deeper about the markets and your reactions to them. I am grateful to Henry Abelman and Jef Parker, both repeat winners of SpikeTrade’s Eagle Eye award, for reviewing all questions and answers. Carol Keegan Kayne did the fnal check for clarity and precision. vii viii ABOUT THIS STUDY GUIDE Thanks to my former professors and students at the universities in Estonia and the United States for providing many opportunities to teach and develop my educational style. Thanks to the members of SpikeTrade.com, who keep sending me trading-related questions. Posting answers to them week after week keeps me on my toes. I hope this Guide helps you to sharpen your skills and to become a better, more confdent trader. Dr. Alexander Elder NewY ork–Vermont, 2014