ZF Capital

People become primitive and action-oriented when they join crowds. Crowds feel simple but strong emotions such as terror, elation, alarm, and joy. Crowds swing from fear to glee, from panic to mirth. A scientist can be cool an rational in his lab but make harebrained trades after being swept up in the mass hysteria of the market. A group can suck you in, whether you trade from a crowded brokerage office or from a remote mountaintop. When you let others influence your trading decisions, you lose your chance of success.

– Alexander Elder, Trading for a Living

The mature trader arrives at a stage where most trading actions have become nearly automatic. This gives you the freedom to think about strategy. You think about what you want to achieve, and less about tactics of how to achieve it. To reach that point, you need to trade for a long time. The longer you trade and the more trades you put on, the more you’ll learn. Trade a small size while learning and put on many trades. Remember, the first item on the agenda for a beginner is to learn how to trade, not to make money. Once you’ve learned to trade, money will follow.

– Alexander Elder, Come Into My Trading Room

Most people start out with too little money, and most traders do not give themselves enough time to learn. Trading is very different from physics or mathematics, where genius reveals itself early. In science, if you’re not a star by the time you’re 25, you’ll never be one. Trading, on the contrary, is an old man’s game, and now increasingly a woman’s. Patience is a virtue and memory a great asset. If you slightly improve each year, you can grow into a brilliant trader.

– Alexander Elder, Come Into My Trading Room: A Complete Guide to Trading

A successful trader does not forecast the future – he monitors the market and manages his trading position.

– Alexander Elder, Trading For a Living

Markets operate in an atmosphere of uncertainty. Trading signals are clear in the middle of the chart, but as you get closer to the right edge, you find yourself in what John Keegan, the great military historian, called “the fog of war.” There is no certainty, only odds.

Here you have two goals– to make money and to learn. Win or lose, you have to gain knowledge from a trade in order to be a better trader tomorrow. Scan your fundamental information, read technical signals, implement your rules of money management and risk control. Now you are ready to pull the trigger. Go!

– Alexander Elder, Come Into My Trading Room

If eight or ten people place their hands on your head and push you down, your knees will buckle, no matter how strong your are. The crowd may be stupid, but it is stronger than you. Crowds have the power to create trends. Never buck a trend. If the trend is up, you should only buy or stand aside. Never sell short because “the prices are too high” — never argue with the crowd. You do not have to run with the crowd — but you should never run against it.

Respect the strength of the crowd — but do not fear it. Crowds are powerful, but primitive, their behavior simple and repetitive. A trader who thinks for himself can take money from crowd members.

– Alexander Elder, Trading for a Living

Emotional decisions are lethal in the markets. You can see a good model of emotional trading by going to a racetrack, turning around, and watching the humans instead of the horses. Gamblers stomp their feet, jump up and down, and yell at horses and jockeys. Thousands of people act out their emotions. Winners embrace and losers tear up their tickets in disgust. The joy, the pain, and the intensity of wishful thinking are caricatures of what happens in the markets. A cool handicapper who tries to make a living at the track does not get excited, yell, or bet the bulk of his roll on any race.

– Alexander Elder, Trading for a Living