Come into my Trading Room - A Review

The book “Come into my trading room” by Alexander Elder is an excellent guide to trading for both the novice and experienced trader. The book is written in clear and accessible language that keeps the reader engaged throughout.

The book is divided into 3 parts. Part 1 is the introduction and sets the stage for concepts covered in the rest of the book. A clear distinction is made between an Investor, Trader and a Gambler. Investing requires a great deal of patience and is long term. Traders make money by betting on short term price swings. There is only one rational reason to trade – to make money. However, some amateur traders get carried away by excitement and forget this fundamental objective.

Part 2 discusses the 3 M’s of successful trading: mind, method and money.

Mind – Trading Psychology

According to Elder, to be a successful trader requires discipline. This is true for most professions but especially true for the markets because there are no external controls. There is no boss to force discipline. You have to do it yourself. Good record keeping and sound training are a must.

Method – Market Analysis

This section concentrates on how to analyze markets using technical analysis. The author recommends using no more than 5 indicators. The key is to select a few core tools that suits one’s style of analysis and trading. Technical indicators can be divided into 3 groups: Trend following, oscillators and miscellaneous. It is important to combine trend following indicators which identify trends with oscillators which identify reversals.

Money – Risk Management

Money management has 2 important goals: survival and prosperity. Accumulate equity by cutting losses short and maximizing gains. A strategy is to determine maximum permissible loss for each trade and maximum loss per month. Elder recommends a maximum of 2% loss per trade and a maximum of 6% loss per month.

The importance of establishing exit points was also emphasized. It is critical to decide exit points before entering a trade. Entries are easy while exits are difficult and separate winners from losers.

Part 3 provides examples of recent trades executed by the author. The author emphasized the importance of keeping goods records of all trades. This helps the learning process and assists in making one a better trader.

In all, “Come into my trading room” is an excellent book and I recommend it to anyone seeking financial freedom through trading.