Sunday, October 28, 2012

To Trade or Not To Trade - Alexander Elder

Alexander Elder on “To trade or not to trade” on 11 Feb 2012. 

The first session on Saturday morning was held at Marina Bay Sands and was attended by a crowd of more than 800 people.

The session also included a market outlook segment given by Joshua Tan from Phillip Securities, and a brief introduction to warrants given by Henry Ng from Macquarie.

Dr Elder was given two hours to complete his presentation “To trade or not to trade”.

The first question that Dr Elder posed was whether anyone could become a successful trader. He commented that those people who had addiction problems, or were very obsessed over every single cent, or were impulsive should not trade.

Trading by itself is not intellectually difficult. But once money is involved, it becomes emotionally very difficult. Whatever your weakness is, the market will find it and hit at it. If you are fearful, the market will make you afraid and if you are greedy, the market will exploit your greed.

It is better for someone new to trading to do it part-time while still keeping his or her day job. A beginner does not really need live data as he can trade using a longer time-frame. In fact, using live data should only be used by the professionals. Looking at live prices can induce impulsive trades, which is a bane to any traders.

Dr Elder then started showing some charts (he relies on technical analysis more than fundamental analysis) to give a rough idea of some of his methods and thinking.

Not to be confused by all the charts, one point he made that stood out was that the best trading decisions are usually negative decisions. ie deciding not to do anything. You might look at ten charts and eight of them do not trigger your buy or sell condition. In those instances, you should not do anything. You only act when your chart tells you to.

A lot of amateurs make the mistake of looking a chart, and then trying to decide whether to take a long or short position based on what they see. Often, doing nothing might be the best policy as you really only want to take trades that have a high probability of success.

Dr Elder ended his talk by answering some questions and giving a 1-minute recap of some important points in trading.
  1. Keep a trading journal.
  2. Know the difference between price and value.
  3. Look at the chart of a longer time frame to decide your overall strategy before looking at the shorter time frame chart to make your tactical decisions.
  4. Risk no more than 2% of your risk capital on every trade.
  5. Stop trading for a while if you have a 6% drawdown on your capital.

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