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Book Review: Trading for a Living by Dr. Alexander Elder

Trading for a Living by Dr. Alexander ElderYou probably encountered a lot of positive reviews of a rather old trading book by a psychiatrist and trader Alexander Elder called Trading for a Living. It is mentioned in a praising manner in Brandt's Diary of a Professional Commodity Trader and remains quite a popular book on Amazon. Naturally, you might decide to fill a gap in your trading education and read Elder's first book.

The first thing that would impress you negatively is the price — more than $40 for a Kindle version of a 30 years old book. It is just too much even if the book is really good. Such a high price might raise your expectations regarding the book's content but, admitting the fact that it is a good book, it should also be said that the abundance of the outdated information turns out to be a huge drawback.

So what will you learn from this book? Quite a lot in terms of the general trading psychology and market behavior, something on money management and technical indicators, and almost nothing on modern Forex trading techniques. The author of Trading for a Living makes the following points in the book:

  • Psychology is the key to understanding how the markets work and to explaining the behavior of the crowds of bulls and bears.
  • Trading is a minus-sum game contrary to zero-sum, which many traders prefer to believe in. It means that your trading strategy have to beat the commission, spreads, and slippage of a broker and still have an edge to be profitable.
  • Trading is both hard and difficult. There is no easy money in financial markets:
    The market is not your mother. It consists of tough men and women who look for ways to take money away from you instead of pouring milk into your mouth.
  • Losing in trading is psychologically very similar to alcohol addiction and thus can be treated with similar methods.
  • Successful trading is based on three pillars: discipline, money management, and the ability to find balance between bulls and bears.
  • Elder gives detailed descriptions and explanations of many technical indicators, such as: moving averages, MACD, directional system, new high / new low index, etc.
  • Volume is very important in markets where it is known.
  • It is also useful to know who is buying and selling in a given market at a given moment. It pays to follow the "big money" and trade against "small money" traders.
  • The author also introduces two indicators developed by himself — Elder Ray and Force Index.
  • Triple Screen (using three timeframes) is recommended as a general trading method.
  • Losers often "marry" to their losing positions, afraid to close them, in hopes for a reversal.
  • Not even a great money management technique can rescue a losing system (one with negative expectancy), but poor money management practices can hurt even a great trading system.

While you might dislike paying such a high price for this book, it won't be money spent uselessly. If you can borrow this book from your friend, reading it is definitely worth your time. We can point out the following advantages of Trading for a Living:

  • The parts on psychology are perfect. Elder is a good psychiatrist and he manages to capture and explain the psychological part of financial trading very well.
  • The author speaks the truth about losing, winning, failures, and success. Trading is difficult but is viewed as some El Dorado by the newbie traders.
  • If you wonder how basic market indicators work, this book will serve an excellent explanation to them.
  • The book will also teach you a complete trading system that can be adjusted to almost any trader's needs and almost any market.
  • The book is written in a simple language and doesn't require much previous trading experience for understanding.

Despite the mentioned advantages, this book might not be worth its money, unfortunately. That is because there are few but strong disadvantages in it:

  • The biggest disadvantage is that it is very, very outdated. It was published back in 1993, so it is about 30 years old. To help you understand how old it is, I just mention that the author uses two pages of text to persuade a reader to use computers in technical analysis.
  • It has little to do with the Forex market, but that is hardly the author's fault. OTC trading wasn't that popular in early 1990s, but the closest thing to Forex you will read about in this book will be the currency futures market, which gets only two or three mentions in the book.
  • Alexander Elder looks to be strongly biased against automated trading systems and says that they don't work, but, as we know, high-frequency trading is very profitable to many institutions, and HFT is possible only using automated trading systems.
  • There are two important factual errors that catch your eye in the book. The first one is in the Trading Rules part of the Trendlines chapter: "Steep trendlines precede sharp breaks. If a trendline is steeper than 45 degrees, place your stop right at the trendline and adjust it daily." Obviously, measuring the absolute angles in degrees doesn't make any sense in technical analysis as the time and price scales are independent and can be zoomed in and out separately; thus, any angle can be produced for a trendline simply by scrolling the scales. The second one is in the Rectangles part of the Chart Patterns chapter: "The maximum target is obtained by taking the length of the rectangle and projecting it vertically from the broken wall in the direction of the breakout." Adding time to price makes no sense — it's like using your body temperature to calculate a stop-loss.

This is all that you need to know about the book Trading for a Living by Alexander Elder. If you can borrow one from a friend or buy a used one for $10-$20, go ahead and do it. Spending its full current price is a bad trade. Avoid bad trades.

Did you know? There is a newer version of the book by Dr. Alexander Elder called The New Trading for a Living.

If you have any questions, comments, or opinion regarding Trading for a Living by Dr. Alexander Elder, please feel free to discuss the book on our Forex forum.

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