The New Sell and Sell Short (Wiley Trading) by Alexander Elder
How To Take Profits, Cut Losses, and Benefit From Price Declines
I am pleased that Dr. Elder took the time to update this gem of a book detailing how traders can profit from volatility in this 2nd edition printing. He recognized the warning signs of the 2007 bull market coming to an end and had the foresight to write a book about the importance of timing exits and the value of shorting stocks when the time was appropriate. It appears Dr. Elder equally skilled with his entries and exits in regards to publishing as he is in trading. He could not have given the trading community a better book at a better time when it was first published during May 08′.
This second edition is a more complete book on trading that covers all the critical areas that traders must focus on to ensure long time success in the markets. Below is a sample of the wisdom Dr. Elder shares:
1. All trader, including discretionary traders must have a trading plan
2. Detailed record keeping is a must to analyze one’s successes as well as their failures.
3. Trade is small lots first then increase to avoid excessive stress and bad judgment.
4. A good rule is to cut every loss to a maximum of 2% or less, to limit the risk of ruin.
5. Trading with discipline will put you ahead of the majority of traders.
6. Your trading plan must fit your own personality and risk tolerance.
7. If you use fundamental ideas for a trade, cross check it with the technicals of the chart.
8. Stock option buyers are net losers in the market.
9. False breakouts and rallies off support are two of the best trading opportunities.
The trading style of the book’s author is to trade with a fast and slow exponential moving averages (13,26), along with envelopes. He explains how to use short term swing trades using the MACD and Force Index to trade when a stock is technically above or below its value zone. This style is not to catch the huge trends, it is just to have winning high probability trades by catching half or more of the stocks average range. This is the way of professionals trade in a normal market environment. Risk management and the 2% rule using stops will protect you from any trend that does take off and behave as it should.
While as the title suggests it teaches when to sell your stocks for profits, and also does the best job I have seen of explaining short selling and which technical indicators to use to illustrate weakening chart patterns. The main lessons of this book focus on when to lock in profits, and how to double your potential for profits by not only buying stocks, but also selling stocks short while buying them back at a lower price.
Professionals sell short because while overall the stock market drifts upward, when a stock falls it falls over twice as fast as it rises. I sell short and it is a powerful tool when used correctly. This book will show you when it is appropriate to short. Dr. Alexander Elder is the only author I am aware of that integrates trading psychology, money management,technical analysis, and record keeping into one book. These four factors will determine whether you are successful in the market or not, even more than the trading method you choose.
If you are going to be a trader you must follow the money management suggestions in this book, such as never risking more than 2% of your total equity on a trade. If you follow the 2% rule from the book, it will save you from learning the disheartening lesson of massive equity draw-downs the hard way.
Your success as a trader is determined by your ability to learn from your mistakes and not repeat them. The best way to do this is to keep detailed chart records on a spreadsheet with each trade and a reason why you traded that particular instrument. You must look squarely at each loss and win. If you learn from each bad trade and limit your loss to less than 2%, your equity curve can’t help but be an up-trending chart.
I was also grateful that Dr. Elder added in trades from the bear market of 2008-2009 and found his explanation of his trades very interesting and informative. There were reviews of some charts from that time period that showed signals of the bottom and when it was time to quit selling and selling short and start buying again. Just as winter follows
Stephen Burns a trend follower and break out trader that specializes in the Darvas System. To learn more about him and his trading style you can pick up his recent book at Amazon.co
