ZF Capital » Alexander Elder

Thought of the Day (June 17, 2010)

ElfLord — Wed, 16 Jun 2010 21:53:09 +0000

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

Thought of the Day (June 2, 2010)

ElfLord — Tue, 01 Jun 2010 21:30:16 +0000

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

Thought of the Day (May 28, 2010)

ElfLord — Thu, 27 May 2010 21:41:46 +0000

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

Thought of the Day (May 21, 2010)

ElfLord — Thu, 20 May 2010 21:30:41 +0000

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

– Alexander Elder, Trading For a Living

Thought of the Day (May 18, 2010)

ElfLord — Mon, 17 May 2010 21:26:47 +0000

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

Thought of the Day (May 11, 2010)

ElfLord — Mon, 10 May 2010 21:17:00 +0000

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

Thought of the Day (April 30, 2010)

ElfLord — Thu, 29 Apr 2010 21:13:49 +0000

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

Thought of the Day (April 25, 2010)

ElfLord — Sat, 24 Apr 2010 21:06:01 +0000

When a beginner puts on a trade too big for his account, and it starts to swing, it floods him with adrenaline. A upswing gives him enough money to dream about moving to easy street. Feeling elated, he misses the signals of a top and gets caught in a downside reversal. A downswing puts him into such a state of fear that he misses the signals of a bottom and sells out right near the lows. Beginners pay more attention to their emotions than to the reality of the markets.

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

Thought of the Day (April 24, 2010)

ElfLord — Fri, 23 Apr 2010 21:04:45 +0000

When I ask traders at a seminar, “What is price?” some answer, “Price is perceived value.” Others say, “Price is what a person at one particular point in time is willing to pay another person for a commodity.” Someone says, “Price is what the last person paid for it. That’s the price right now.” Another suggests, “No, it’s what the next person will pay.”

Traders who cannot give a clear definition of price do not know what they are analyzing. Your success or failure as a trader depends on handling prices — and you had better know what they mean!

– Alexander Elder, Trading For A Living

Thought of the Day (April 19, 2010)

ElfLord — Sun, 18 Apr 2010 21:53:59 +0000

Raise your eyes from the keyboard and think about two goals– to learn to trade and to make money. Which comes first and which comes second? Stop killing yourself trying to make a lot of money in a hurry. Learn to trade, and the money will follow. An intelligent horse trainer does not overload a young horse. Training comes first, pulling heavy loads comes later.

– Alexander Elder, Come Into My Trading Room

Thought of the Day (April 11, 2010)

ElfLord — Sat, 10 Apr 2010 21:28:03 +0000

When a monkey hurts its foot on a tree stump, he flies into a rage and kicks the piece of wood. You laugh at a monkey, but do you laugh at yourself when you act like him? If the market drops while you are long, you may double up on your losing trade or else go short, trying to get even. You act emotionally instead of using your intellect. What is the difference between a trader trying to get back at the market and a monkey kicking a tree stump? Acting out of anger, fear, or elation destroys your chance of success. You have to analyze your behavior in the market instead of acting out your feelings.

We get angry at the market, we become afraid of it, we develop silly superstitutions. All the while, the market keeps cycling through its rallies and declines like an ocean going through its storms and calm periods.

– Alexander Elder, Trading for a Living

Thought of the Day (April 6, 2010)

ElfLord — Mon, 05 Apr 2010 21:21:09 +0000

Most fields of human endeavor have rules, yardsticks and professional bodies to enforce discipline. No matter how independent you feel, there is always some agency looking over your shoulder. If a doctor in private practice starts writing too many prescriptions for pain killers, he’ll soon hear from the health department.

Markets impose no restrictions, as long as you have enough equity. Adding to losing positions is similar to overprescribing narcotics, but nobody will stop you. As a matter of fact. other market participants want you to be undisciplined and impulsive. That makes it easier for them to get your money. Your defense against self-destructiveness is discipline. You have to set up your own rules and follow them in order to prevent self-sabotage.

Discipline means designing, testing, and following your system. It means learning to enter and exit in response to predefined signals rather than jumping in and out on a whim. It means doing the right thing, not the easy thing.

– Alexander Elder, Come Into My Trading Room

Thought of the Day (April 1, 2010)

ElfLord — Wed, 31 Mar 2010 21:27:54 +0000

Traders often ask me how much money they need to begin trading. They want to be able to withstand a drawdown, a temporary drop in the account equity. They expect to lose a large amount of money before making any! They sound like an engineer who plans to build several bridges that collapse before erecting his masterpiece. Would a surgeon plan on killing several patients while becoming an expert at taking out an appendix?

– Alexander Elder, Trading for a Living

Thought of the Day (March 29, 2010)

ElfLord — Sun, 28 Mar 2010 21:22:13 +0000

I saw the best example of how money can twist a player’s mind while teaching my oldest daughter to play backgammon. She was about eight at the time but very determined and bright. After a few months of practice she began beating me. Then I suggested we play for money– a penny a point, which in our scoring meant a maximum of 32 cents per game. She kept beating me, and I kept raising the stakes. By the time we reached 10 cents a point she started losing and soon gave back every last penny.

Why could she beat me playing for little or no money but lost when the stakes increased? Because for me $3.20 was pocket change, but for the kid it was real money. Thinking about it made her a little more tense and she played slightly below her peak level– enough to fall behind. A trader with a small account is so preoccupied with money that it impairs his ability to think, play, and win.

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

Thought of the Day (March 25, 2010)

ElfLord — Wed, 24 Mar 2010 21:15:10 +0000

Many traders believe that the aim of a market analyst is to forecast future prices. The amateurs in most fields ask for forecasts, while professionals simply manage information and make decisions based on probabilities. Take medicine, for example. A patient is brought to an emergency room with a knife sticking out of his chest– and the anxious family members have only two questions: “Will he survive?” and “When can he go home?” They ask the doctor for a forecast.

But the doctor is not forecasting– he is taking care of problems as they emerge. His first job is to prevent the patient from dying from shock, and so he gives him pain-killers and starts an intravenous drip to replace lost blood. Then he removes the knife and sutures damaged organs. After that, he has to watch against infection. He monitors the trend of a patient’s health and takes measures to prevent complications. He is managing– not forecasting. When a family begs for a forecast, he may give it to them, but its practical value is low.

To make money trading, you do not need to forecast 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 greed or fear. A trader who does all of this will succeed more than any forecaster.

– Alexander Elder, Trading for a Living

Thought of the Day (March 9, 2010)

ElfLord — Mon, 08 Mar 2010 21:37:17 +0000

When the market gives no clear signals to buy or sell short, many beginners start squinting at their screens, trying to recognize trading signals. A good signal jumps at you from the chart and grabs you by the face– you can’t miss it! It pays to wait for such signals instead of forcing trades when the market offers you none. Amateurs look for challenges; professionals look for easy trades. Losers get high from the action; the pros look for the best odds.

– Alexander Elder, Come Into My Trading Room

Thought of the Day (March 1, 2010)

ElfLord — Sun, 28 Feb 2010 21:14:25 +0000

Markets consist of huge crowds of people watching the same trading vehicles, mesmerized by upticks and downticks. Think of a crowd at a concert or in a movie theater. When the show begins, the crowd gets emotionally in gear and develops an amorphous but powerful mass mind, laughing or weeping together. A mass mind also emerges in the markets, only here it is more malignant. Instead of laughing or weeping, the crowd seeks each trader’s private psychological weakness and hits him in that spot.

– Alexander Elder, Come Into My Trading Room

Thought of the Day (January 25, 2010)

ElfLord — Sun, 24 Jan 2010 21:11:05 +0000

Trading a small account is like flying an airplane at treetop level. You have no room to maneuver, no time to think. The slightest slip of attention, a piece of bad luck, a freaky branch sticking out into the air- you crash and burn. The higher you fly, the more time you have to find your way out of trouble. Flying at low altitude is tough enough for experts, but deadly for beginners. A trader needs to gain altitude, get more equity, and buy some space for maneuvers.

– Alexander Elder, Come Into My Trading Room

Thought of the Day (January 19, 2010)

ElfLord — Mon, 18 Jan 2010 21:54:06 +0000

Beginners become emotional when they trade, but if you want to survive and succeed, you must develop discipline. The moment you become aware of feeling fear or joy, use that as a signal to tighten your discipline and follow your system. You developed that system when the markets were closed and you felt calm. Now it gives you your only chance of survival and success in the markets.

– Alexander Elder, Come Into My Trading Room

Thought of the Day (January 17, 2010)

ElfLord — Sat, 16 Jan 2010 21:51:08 +0000

You do not have to be more intelligent than other traders – only better disciplined.

– Alexander Elder

Thought of the Day (January 15, 2010)

ElfLord — Thu, 14 Jan 2010 21:47:26 +0000

You need to base your trades on a carefully prepared trading plan and not jump in response to price changes. I pays to write down your plan. You need to know exactly under what conditions you will enter and exit a trade. Do not make decisions on the spur of the moment, when you are vulnerable to being sucked into the couwd.

You can succeed in trading only when you think and act as an individual. The weakest part of any trading system is the trader himself. Traders fail when they trade without a plan or deviate from their plans. Plans are created by reasoning individuals. Impulsive trades are made by sweaty group members.

– Alexander Elder, Trading for a Living

Thought of the Day (January 10, 2010)

ElfLord — Sat, 09 Jan 2010 21:59:53 +0000

Keeping good records is the single most important contribution to your success. If you maintain scrupulous records, review them, and learn from them, your performance will improve. If your money management is in place to ensure survival during the learning process, you’re sure to become a success.

Records are more important to your success than any indicator, system, or technical tool. Even the best system is bound to have some holes, but good records will allow you to find them and plug them up. A person who keeps detailed records makes a huge leap in his development as a trader.

Show me a trader with good records, and I’ll show you a good trader.

– Alexander Elder, Come Into My Trading Room

Thought of the Day (January 8, 2010)

ElfLord — Thu, 07 Jan 2010 21:56:44 +0000

Imagine that a stranger walks into your driveway and tries to sell you an automatic system for driving your car. Just pay a few hundred dollars for a computer chip, install it in your car, and stop wasting energy on driving, he says. You can take a nap in the driver’s seat while the “Easy Swing System” whisks you to work. You would probably laugh the salesman out of your driveway. But would you laugh if he tried to sell you an automatic trading system?

Traders who believe in the autopilot myth think that the pursuit of wealth can be automated. Some try to develop an automatic trading system while others buy one from the experts. Men [and presumably women] who have spent years honing their skills as lawyers, doctors, or businessmen plunk down thousands of dollars for canned competence. They are driven by greed, laziness, and mathematical illiteracy.

– Alexander Elder, Trading For A Living

Thought of the Day (January 4, 2010)

ElfLord — Sun, 03 Jan 2010 21:48:07 +0000

Some people turn to gurus in search of a strong leader. They look for a parent-like omniscient provider. As a friend once said, “The walk with their umbilical cords in hand, looking for a place to plug them in.” A smart promoter provides such a receptacle, for a fee.

The public wants gurus, and new gurus will come. As an intelligent trader, you must realize that in the long run, no guru is going to make you rich. You have to work on that yourself.

– Alexander Elder, Trading for a Living

Thought of the Day (January 3, 2010)

ElfLord — Sat, 02 Jan 2010 21:46:39 +0000

Now you have a system, you’ve learned money management rules, you know the psychological rules for cutting losses. Now you must trade. Can you?Traders try to weasel out of making this decision. They papertrade for years, buy automatic trading systems, and so on. Several traders have even asked me to hypnotize them. These games must end. It is time to make an effort of will!

– Alexander Elder, Trading for a Living

Thought of the Day (December 30, 2009)

ElfLord — Tue, 29 Dec 2009 21:09:03 +0000

Traders come to the markets with great expectations, but few make profits and most wash out. The industry hides good statistics from the public, while promoting its Big Lie that money lost by losers goes to winners. In fact, winners collect only a fraction of the money lost by losers. The bulk of losses goes to the trading industry as the cost of doing business– commissions, slippage, and expenses– by both winners and losers. A successful trader must hop over several high hurdles– and keep hopping. Being better than average is not good enough– you have to be head and shoulders above the crowd. You can win only if you have both knowledge and discipline.

– Alexander Elder, Come Into My Trading Room

Thought of the Day (December 26, 2009)

ElfLord — Fri, 25 Dec 2009 21:02:34 +0000

The market is a loosely organized crowd whose members bet that prices will rise or fall. Since each price represents the consensus of the crowd at the moment of the transaction, all traders are in effect betting on the future mood of the crowd. That crowd keeps swinging from indifference to optimism or pessmism and from hope to fear. Most people do not follow their own trading plans because they let the crowd influence their feelings, thoughts, and actions.

Bulls and bears battle in the market, and the value of your investment sinks or soars, depending on the actions of total strangers. You cannot control the markets. You can only decide whether and when to enter or exit trades.

– Alexander Elder, Trading For A Living

Thought of the Day (December 23, 2009)

ElfLord — Tue, 22 Dec 2009 21:57:52 +0000

Brokers, exchanges, and advisors run marketing campaigns to attract more losers to the markets. Some mention that futures trading is a zero-sum game. They count on the fact that most people feel smarter than average and expect to win in a zero-sum game.

Winners in a zero-sum game make as much as losers lose. If you and I bet $10 on the direction of the next 100-point move in the Dow, one of us will collect $10 and the other will lose $10. The person who is smarter should win this game over a period of time.

People buy the trading industry’s propaganda about the zero-sum game, take the bait and open trading accounts. They do not realize that trading is a minus-sum game. Winners receive less than what losers lose because the industry drains money from the market.

– Alexander Elder, Trading For A Living

Thought of the Day (December 20, 2009)

ElfLord — Sat, 19 Dec 2009 21:49:44 +0000

You must dedicate a certain amount of time to the markets each day. Amateurs and gamblers make a typical mistake. When markets are inactive, they stop watching and lose touch. They wake up after hearing the news of a runaway move. By that time, the markets are running– the amateurs have missed yet another train and now they chase it, hoping to hop aboard a runaway trend.

An organized trader tracks his markets, whether he trades them at the moment or not. He notices when a listless range starts, rubbing against a resistance, buys early, and when amateurs start piling into the rally, he takes profits, selling to lazy latecomers. a serious trader is ahead of the game because he does his homework day in and day out.

– Alexander Elder, Come Into My Trading Room

Thought of the Day (December 14, 2009)

ElfLord — Sun, 13 Dec 2009 21:33:50 +0000

The secret of trading is that there is no secret. There is no magic password to profits. Beginners keep looking for a gimmick, and plenty of crafty vendors sell them. In truth, trading is about work– and a bit of flair. It is no different from any other field of human endeavor. Whether you do surgery, teach calculus, of fly an airplane, it all boils down to knowing the rules, having the discipline, putting in the work, and having a bit of flair.

– Alexander Elder, Come Into My Trading Room

Thought of the Day (December 1, 2009)

ElfLord — Mon, 30 Nov 2009 21:51:22 +0000

The first goal of money management is to ensure survival. You need to avoid risks that can put you out of business. The second goal is to earn a steady rate of return, and the third goal is to earn high returns– but survival comes first.

“Do not risk thy whole wad” is the first rule of trading. Losers violate it by betting too much on a single trade. They continue to trade the same or even a bigger size during a losing streak. Most losers go bust trying to trade their way out of a hole. Good money management can keep you out of the hole in the first place.

– Alexander Elder, Trading for a Living

Thought of the Day (November 29, 2009)

ElfLord — Sat, 28 Nov 2009 21:47:37 +0000

There is a definite cost of trading. The market maker has to get his edge. Your broker has to get her cost. And your profit is what remains, if anything, when these costs are deducted.

The cost per trade is really a part of the expectancy equation, but it is so important that I wanted to add a little more about cost reduction. The fewer trades you make, the less the cost per trade becomes a factor. Many long-term trend followers spend little time thinking about their trading cost. because it is so insignificant compared with the potential profit to be made. For example, if you are thinking about making $5,000 per trade, then you probably are not paying much attention to trade costs of $100.

However, if you are short term in your orientation and make lots of trades, then trade cost is a lot bigger consideration for you– at least it should be. For example, if your average profit per trade was $50, then you would pay much more attention to a $100 trading cost.

– Alexander Elder, Trading for a Living

Thought of the Day (November 26, 2009)

ElfLord — Wed, 25 Nov 2009 21:41:39 +0000

Why do most traders lose and wash out of the markets? Emotional and thoughtless trading are two reasons, but there is another. Markets are actually set up so that most traders must lose money.

The trading industry kills traders with commissions and slippage. Most amateurs cannot believe this, just as medieval peasants could not believe that tiny invisible germs could kill them. If you ignore slippage and deal with a broker who charges high commissions, you are acting like a peasant who drinks from a communal pool during a cholera epidemic.

You pay commissions for entering and exiting trades. slippage is the difference between the price at which you place your order and the price at which it gets filled. When you place a limit order, it is filled at your price or not at all. When you feel eager to enter or exit the market and give a market order, it is often filled at a worse price than prevailed when you placed it.

The trading industry keeps draining huge amounts of money from the markets. Exchanges, regulators, brokers, and advisers live off the markets while generations of traders keep washing out. Markets need a fresh supply of losers just as builders of the ancient pyramids of Egypt needed a fresh supply of slaves. Losers bring money into the markets, which is necessary for the prosperity of the trading industry.

– Alexander Elder, Trading for a Living

Thought of the Day (November 21, 2009)

ElfLord — Fri, 20 Nov 2009 21:33:09 +0000

A trade does not end when you close out your position. You must analyze it and learn from it. Many traders throw their confirmation slips into a folder and go looking for the next trade. They miss an essential part of growing to become a professional trader– review and self-analysis.

Have you identified a good trade? Which indicators were useful and which did not work? How good was your entry? Was the initial stop too far or too close? Why and by how much? Did you move your stop to a breakeven level too early or too late? Were your protect-profit stops too loose or too tight? Did you recognize the signals to exit a trade?

What should you have done diffeently? What did you feel at the various stages of the trade? This analysis is an antidote against emotional trading.

Ask yourself these and other questions and learn from your experiences. A cool, intelligent analysis does you more good than gloating about profits or wallowing in regrets.

– Alexander Elder, Trading for a Living

Thought of the Day (October 31, 2009)

ElfLord — Fri, 30 Oct 2009 22:40:58 +0000

Remember your goal is to trade well, not to trade often.

– Alexander Elder

Thought of the Day (October 19, 2009)

ElfLord — Sun, 18 Oct 2009 21:59:03 +0000

Traders are often surprised when I tell them that the single most important factor in their success or failure is the quality of their records. The records you keep have a greater impact on your performance than any indicator, system, or service.

Good records allow you to learn from your wins and losses, identify problem areas, and correct mistakes before they damage your account. Traders who keep bad records tend to be chronic losers, while successful professionals have good records.

– Alexander Elder

Thought of the Day (September 26, 2009)

ElfLord — Fri, 25 Sep 2009 22:13:13 +0000

The trouble with self-fulfillment is that many people have a self-destructive streak. Accident-prone drivers keep destroying their cars, and self-destructive traders keep destroying their accounts. Markets offer unlimited opportunities for self-sabotage, as well as for self-fulfillment. Acting out your internal conflicts in the marketplace is a very expensive proposition.

Traders who are not at peace with themselves often try to fulfill their contradictory wishes in the market. If you do not know where you are going, you will wind up somewhere you never wanted to be.

– Alexander Elder, Trading for a Living

Thought of the Day (September 17, 2009)

ElfLord — Thu, 17 Sep 2009 08:27:33 +0000

Trading is so exciting that it often makes amateurs feel high. A trade for them is like a ticket to a movie or a professional ballgame. Trading is a much more expensive entertainment than the cinema.

Nobody can get high and make money at the same time. Emotional trading is the enemy of success. Greed and fear are bound to destroy a trader. You need to use your intellect instead of trading on gut feeling.

A trader who gets giddy from profits is like a lawyer who starts counting cash in the middle of a trial. A trader who gets upset at losses is like a surgeon who faints at the sight of blood. A real professional does not get too excited about wins or losses.

The goal of a successful professional in any field is to reach his personal best — to become the best doctor, the best lawyer, or the best trader. Money flows to them almost as an afterthought. You need to concentrate on trading right —and not on the money. Each trade has to be handled like a surgical procedure —seriously, soberly, without sloppiness or shortcuts.

– Alexander Elder, Trading for a Living

Thought of the Day (July 11, 2009)

ElfLord — Sat, 11 Jul 2009 07:21:11 +0000

To be a good trader, you need to trade with your eyes open, recognize real trends and turns, and not waste time or energy on regrets and wishful thinking.

– Alexander Elder, Trading For A Living