The New Trading for a Living: by Dr Alexander Elder

The New Trading for a Living: by Dr Alexander Elder | Book Summary
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The New Trading for a Living (2014) by Dr. Alexander Elder is an updated edition of his 1993 classic, Trading for a Living. A former psychiatrist and professional trader, Elder combines psychological insights with practical trading strategies to guide traders toward success. Spanning roughly 400 pages, the book focuses on three pillars: psychology, trading systems, and money management, unified by disciplined record-keeping. With full-color charts and real-world examples, it’s a comprehensive resource for navigating modern markets.

Core Concepts

1. Trading Psychology: Mind Over Market

Elder emphasizes that psychology drives trading success, as emotions like greed and fear often lead to poor decisions. He introduces the “trading triangle” (mind, method, money), arguing that mindset is over half the battle. Key points include:

Individual Psychology: Traders must master emotions to avoid self-sabotage. Elder compares losing trades to addiction, advocating self-awareness and discipline. Success comes from trading well, not chasing profits.

Mass Psychology: Markets reflect crowd behavior, with price movements driven by collective fear and greed. Elder explains support (where buying halts declines) and resistance (where selling stops rises), helping traders exploit these patterns.

Practical Advice: Trade calmly, test strategies in virtual accounts, and avoid overconfidence after wins. Elder warns that markets punish irrationality, urging traders to stay disciplined.

2. Technical Analysis and Trading Systems

Elder provides a clear guide to technical analysis, equipping traders to read charts and identify opportunities across stocks, futures, and forex. Key elements include:

Charts and Indicators: He covers support, resistance, trends, and indicators like moving averages, MACD, RSI, and his Force Index, which measures buying/selling pressure. For instance, a bullish Force Index divergence signals a buying opportunity in a downtrend.

Triple Screen System: Elder’s signature method uses three timeframes (e.g., weekly, daily, hourly) to confirm trades: the first identifies the trend, the second finds entry points, and the third refines timing, minimizing false signals.

Application: Focus on a few liquid, volatile assets, align strategies with market conditions, and avoid overtrading.

3. Risk Management: Preserving Capital

Risk management is critical for long-term success. Elder introduces two rules to limit losses:

2% Rule: Risk no more than 2% of capital per trade. For a $100,000 account, this caps losses at $2,000, preventing catastrophic “shark bites.”
6% Rule: If open trades risk 6% of capital, pause trading until the month ends to avoid “piranha bites” from multiple losses.
Stop-Losses: Use stop-loss orders to cap losses automatically, calculating position sizes based on risk tolerance. Elder stresses thinking in probabilities, not certainties.

4. Record-Keeping: Learning from Experience

Elder emphasizes meticulous record-keeping to refine strategies. He provides trading journal templates to log entry/exit details, trade rationale, and emotions. Reviewing these helps traders identify patterns, correct mistakes, and grow. Poor record-keeping, Elder warns, traps traders like “squirrels in a barrel.”

Strengths

The book’s holistic approach integrates psychology, strategy, and discipline, making it accessible yet profound. Elder’s psychiatric background offers unique insights into trader behavior, while full-color charts and templates enhance practicality.

Limitations

Some find the book’s broad scope lacks depth in specific strategies, better serving as an introduction than a specialized guide. Its limited focus on forex nuances and skepticism toward automated trading may feel dated amid algorithmic trends. Elder’s “cold” tone may not resonate with all, and some view the price as high, suggesting used copies or the original book.

Target Audience

Ideal for novice traders seeking structure and experienced traders struggling with consistency or emotions, the book appeals to those aiming for professional trading. Its global popularity, seen in translations and trading firm endorsements, reflects its impact. X posts highlight its enduring value, with users praising quotes on discipline.

Conclusion

The New Trading for a Living is a timeless guide that equips traders with the mindset, tools, and discipline to succeed. Elder’s blend of psychological insight, technical expertise, and risk management offers a roadmap for building a personalized trading system. By prioritizing emotional control and record-keeping, it empowers traders to thrive in volatile markets. A must-read for serious traders.

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