Book Review: Come Into My Trading Room by Dr. Alexander Elder

One of the books that I read when I began learning trading is: Come Into My Trading Room: A Complete Guide to Trading, authored by Dr. Alexander Elder.

In my opinion, this is one of the best books for beginners, as it provides a comprehensive introduction to trading essentials as a solid foundation to build upon.

In this book, Dr. Elder shares three important pillars of trading: Mind, Method, and Money (3M).

The first M, Mind, refers to your trading psychology. Here he stresses the importance of discipline in trading,
In order not to let emotions (fear and greed) to lead you astray, you must instill discipline to stick to your own trading system and follow your trading plan prepared beforehand. Dr. Elder explains how to develop discipline in trading and avoid the traps caused by emotional trading, and also the importance of trading diary.

Discipline means designing, testing, and following your trading 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.

And the first challenge down the road to disciplined trading involves setting up a record-keeping system.

The second M, Method, discusses how you about finding the trades and making entry and exit decisions. Basically, in order to achieve long term success, you have to develop a good system that gives you an edge over the market, and you must trade consistently based on your system.
In this section, Dr Elder covers technical analysis and trading indicators, and how to use and combine them to develop your own trading system.
He also shows using various examples on how to identify good trades and determine entries and exits (i.e. stops & targets).

The third M, Money, refers to how you manage your trading capital for long-term survival and success (i.e. money management).
Here Dr. Elder explains the importance of money management. Basically, a successful trader always manages his risks properly.
He then lays down the rules / formula of a good money management and provides the detail steps of proper money management.


Good quotes from the book with regards to how important the 3M is for trading success:

Every winner needs three essential components of trading: a sound individual psychology, a logical trading system and a good money management.

These essentials are three legs of a stool – remove one and the stool will fall together with the person who sits on it.

Losers try to build a stool with only one leg, or two at the most. They usually focus exclusively on trading systems.

Your trade must be based on clearly defined rules.
You have to analyze 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.

In addition, Dr Alexander Elder also provides some ideas on how to how to set up a good trading diary. Trading diary is very important from a trader. Because by having a good trading diary, you can learn from your own trades & experiences, both good & bad.

At the end of his book, Dr Elder discloses his own trading diary, which shows the details of some of his real trades (charts & indicators, trading signals, entry, stop, target, exits, etc.).

The bottom line is that, I HIGHLY recommend all beginners to read this book.
As I said earlier, this book can equip you with a complete introduction to trading essentials, which would serve as a solid foundation to build upon.

In case you’re interested, for your info, another popular & excellent book from Dr Alexander Elder is Trading for a Living: Psychology, Trading Tactics, Money Management

Related Post:
* Why Trading Psychology Is Very Important
* Book Review: When The Market Moves, Will You Be Ready?

You might be interested in the following topics:
* Learning Candlestick Charts
* Learning Charts Patterns
* Options Trading Basic – Part 1
* Options Trading Basic – Part 2
* Understanding Implied Volatility (IV)
* Option Greeks

Read More

ABANDONED BABY BULLISH vs. BEARISH

Both Abandoned Baby Bullish & Bearish are 3-day reversal patterns.
Whether a pattern is bearish or bullish reversal, it depends upon whether it appears at the end of a downtrend (Abandoned Baby Bullish) or an uptrend (Abandoned Baby Bearish).

As you may have noticed, Abandoned Baby Bullish & Bearish patterns resemble Morning Doji Star & Evening Doji Star patterns, respectively.

The main difference between Abandoned Baby Bullish / Bearish patterns and Morning / Evening Doji Star patterns are as follow:
For Abandoned Baby patterns, the shadows of the Doji on the 2nd day must completely gap below / above (or separated from) the shadows of the 1st and 3rd day candles.
In other words, there must no overlapping shadows between the Doji on the 2nd day and the 1st & 3rd day candles.



ABANDONED BABY BULLISH
Abandoned Baby Bullish is a bottom reversal pattern / bullish reversal pattern.
It may be formed at the end of a downtrend, or during a pullback within an uptrend, or at the support.

Abandoned Baby Bullish pattern consists of 3 candlesticks:
1) A long-body black/red candle, extending the existing declining trend.
2) A doji that gapped down on the open below the low of the previous candle.
3) A long-body white candle that gapped up on the open above the high of the doji.

When the price is in the midst of a downtrend or a pullback within an uptrend, the long black/red candle confirms that the sellers (bears) remain strong.
Subsequently, on the 2nd day, the price gaps down sharply below the low of the previous day’s candle, providing further evidence of strong selling pressure. However, after the gap down, the decline does not continue and the price closes at or very near to the open, forming a doji candlestick. The doji signals indecision and indicates that selling pressure starts to weaken and a reversal of trend could be happening soon.
On the 3rd day, the price gaps up significantly above the high of the doji and then rallies, forming a long white candle. This candle confirms the bullish reversal, particularly when accomplished by strong volume.

ABANDONED BABY BEARISH
Abandoned Baby Bearish is a top reversal pattern / bearish reversal pattern.
It could be formed at the end of an uptrend, or during a bounce within a downtrend, or at the resistance.

Abandoned Baby Bearish pattern consists of 3 candlesticks:
1) A long-body white candle, extending the existing uptrend.
2) A doji that gapped up on the open above the high of the previous candle.
3) A long-body black/red candle that gapped down on the open below the low of the doji.

When the price is in the midst of a uptrend or a bounce within an downtrend, the long white candle confirms that the buyers (bulls) are still in control.
Subsequently, on the 2nd day, the price gaps up sharply above the high of the previous day’s candle, providing further evidence of intense buying pressure. Nevertheless, after the strong gap up, the rally does not continue and the price closes at or very near to the open, forming a doji candlestick. The doji signals indecision and indicates that buying pressure begins to subside and a reversal of trend should be nearing.
On the 3rd day, the price gaps down significantly below the low of the doji and then continue to drop, forming a long black/red candle. This candle confirms the bearish reversal, particularly when accomplished by strong volume.

To read about other Candlestick Patterns, go to: Learning Candlestick Charts.

Related Posts:
* Learn Technical Analysis from Linda Raschke for FREE
* Learning Charts Patterns
* Options Trading Basic – Part 1
* Options Trading Basic – Part 2
* Understanding Implied Volatility (IV)
* Option Greeks

Read More

MORNING DOJI STAR vs. EVENING DOJI STAR

Morning Doji Star & Evening Doji Star resembles Morning Star & Evening Star.
Morning & Evening Doji Star patterns can be seen as the variation of Morning & Evening Star patterns.
The main difference is that for Morning & Evening Doji Star, the 2nd candle is a Doji.

When the 2nd day candlestick is a Doji (i.e. Morning & Evening Doji Star), the chances of reversal are higher, and hence the reversal patterns are usually deemed more significant.



MORNING DOJI STAR (BULLISH)
Morning Doji Star is a bottom reversal pattern / bullish reversal pattern.
It may be formed at the end of a downtrend, or during a pullback within an uptrend, or at the support.

Morning Doji Star pattern consists of 3 candlesticks:
1) A long-body black/red candle, extending the existing downtrend.
2) A Doji candlestick that gapped down on the open below the close of the previous candle.
3) A long-body white candle that gapped up on the open and closed above the midpoint (half) of the black/red body of the first day.

The selling pressure has been dominating the market for some time. The appearance of yet another long black/red candle confirms that the sellers (bears) remain strong.
On the next day (2nd day), the price gaps down below the closing price of the previous day’s candle, providing further evidence of selling pressure.
However, after the gap down, the decline ceases. The price might move only in a small range and closes at the opening level at the end of the day. As a result, a Doji forms, indicating market indecision and a potential trend reversal. The volume of the Doji’s day should also shrink, reflecting complete market indecision.
On the 3rd day, the price gaps up and then rallies, forming a long white candle that closes above the midpoint level the black candle on the 1st day. This confirms the bullish reversal, particularly when accompanied by a surge in volume.

EVENING DOJI STAR (BEARISH)
Evening Doji Star is a top reversal pattern / bearish reversal pattern.
It could be formed at the end of an uptrend, or during a bounce within a downtrend, or at the resistance.

Evening Doji Star pattern consists of 3 candlesticks:
1) A long-body white candle, extending the existing uptrend.
2) A Doji candlestick that gapped up on the open above the close of the previous candle.
3) A long-body black/red candle that gapped down on the open and closed below the midpoint (half) of the white body of the first day.

The market has been overwhelmed by strong buying pressure for some time. The appearance of yet another white candle confirms that the buyers (bulls) are still dominating.
On the following day (2nd day), the price gaps up above the closing price of the previous day’s candle. Nevertheless, after the gap up, the price does not continue to rally further. The price might only move in a small range and closes at the opening level at the end of the day. Consequently, a Doji is formed, signaling market indecision and a potential trend reversal. The volume of the Doji’s day should also shrink, reflecting complete market indecision.
On the 3rd day, the price gaps down and then declines, forming a long black/red candle that closes below the midpoint level the white candle on the 1st day. This confirms the bearish reversal, particularly when there is a surge in volume.

To read about other Candlestick Patterns, go to: Learning Candlestick Charts.

Related Topics:
* Learning Charts Patterns
* FREE Trading Educational Resources You Should Not Miss
* Options Trading Basic – Part 1
* Options Trading Basic – Part 2
* Understanding Implied Volatility (IV)
* Option Greeks

Read More