A review of one of the best introductions to trading
In this new recurring section we will be reviewing books on the topic of trading. All selections will give insight into its different aspects and what you need to know about the markets and yourself to become a better trader.
Alexander Elder’s “Come Into My Trading Room” is ranked among the most useful books for traders who want to identify and understand the vital components of what trading is and how they can position themselves to better understand its ins and outs.
Although this is the second book by Elder on this topic, in our opinion it is the better example with a more detailed and structured approach to the building blocks of what trading is about. In the first book he coins the term “the three M’s”, but here he manages to expand on all of them.
The first one is the Mind. With Elder being an ex-psychiatrist, he knows his way round the human psyche and mixed with his experience as a stockbroker, the intersections are quite fascinating. For him this is the foundation of trading – it’s how we take on the market, how we interpret it. It’s different with every person and he emphasises on improving your own capacity for understanding different situations and increasing your ability to take on calculated risks.
The second M is for Method and here the author presents his technically oriented analyses. It ranges from discussions on false breakouts, the strength of bulls and bears to “Safezone Stops” etc. All can be useful, but the one that stands out is the “Triple screen” section where he advocates the usage of multiple timeframes to confirm your predictions. It gives you context for the market movement and improves your tactics and strategy, protecting you from something that might be just temporary and unreliable.
Money Management comes in as the third M and covers how you control and observe your bottom line. It’s full of details, but one point is how commissions and slippage are usually looked upon as details but in the end they can add up to some serious numbers and shouldn’t be ignored.
Some criticise the book’s examples as unclear, or that the signals derived from the technical analysis aren’t reliable, but the value doesn’t come from those parts. It is indeed in the concise description of how the mind works when you put the challenge of trading in front of it, coupled with some very useful actions that place it on a more disciplined and straightforward path, increasing clarity and reducing risk.
Let us know in the comments if you found this review useful, as well as what other topics you’d like us to cover in the blog. One of you will receive “Come Into My Trading Room” as a gift from us for your feedback. We will contact the winner over email with details before the 26th of September, 2014.