Trading for a Living - Alexandra Elder

Starting with Psychology which is pretty unique as a trading book but very powerful analysis on psychology

Psychology:
A successful trader must identify his fantasies and get rid of them. A loser is not undercapitalized - his mind is underdeveloped.

Undercapitalization myth
A loser can destory a big account almost as quickly as a small one. He overtrades, and his money management is sloppy. Your trades must be based on clearly defined rules. You have to analyse 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


The mental baggage from childhood can prevent from succeeding in the markets. You have to find your weakness in order to change. Keep a trading diary - write down your reason for entering and exiting every trade. Look for repetive patterns of success and failures.

Trading Psychology
There is a stark parallel between an alocholic and a trader whose account is being demolished by losses. He keeps changing trading tactics, acting like an alocholic who tries to solve his problem by switching from hard liquor to beer. A loser denies that he has lost control over his course in the market.

1. When you admit that you have a personal problem that causes you to lose, you can begin building a new trading life. You can start developing the discipline of a winner.

2. Your trading records must show the date and price of every entry and exit, slippage, commissions, stops, all adjustments of stops, reasons for entering, objectives for exiting, maxi paper profit, max paper loss after a stop was hit and other necessary data

3. If you let the market make you feel high or low, you will lose money. Ultimately, the one thing you can control is yourself.

To make money trading, you do not need to forcast the future. You have to extract information from the market and find out whether bulls or bears are in control. You need to measure the strength of the dominant market group and decide how likely the current trend is to continue. You need to practice conservative money management aimed at long-term survival and profit accumulation. You must observe how your mind works and avoid slipping into fear or greed. A trader who does all of this will succeed more than any forecaster.

Chart Analysis:
Trendlines:
1. Longer the timeframe, the more important the trendline
2. Longer the trendline, the more valid it is
3. The more contacts between prices and trendline, the more valid that line.