“There is only one rational reason to trade – to make money” – Dr. Alexander Elder
First on my list of the Essential Trader’s Library is Come Into My Trading Room: A Complete Guide to Trading by Dr Alexander Elder. I am starting with a review of this book simply because it is my favourite. Out of all the trading books that I have read, this is the one that I keep coming back to.
First published in 2002, Come into My Trading Room, is a classic of the trading genre. At just over 300 pages, the book is not particularly long, but it is packed with information. Unlike many other trading books, there is very little filler and repetition. In fact, the book needs to be read a number of times to fully absorb the contents.
Despite the fact that the book is information dense it is not difficult to read. It is very well written and full of useful information and great stories.
>Dr Elder is a fascinating character. Born and raised in Russia, his arrival in the US is something out of a thriller story. In his earlier book, Trading for a Living, he describes the moment when he jumped ship in the port of Abidjan, Ivory Coast. He was stationed on a Soviet Union ship and wanted to get to the US. Taking a huge risk, he left his ship and ran through the streets, being chased by his shipmates, finally reaching the US Embassy. He was eventually offered asylum and ended up in New York with $25 in his pocket.
After settling in the US, Dr Elder became a psychiatrist. Later, he became interested in the financial markets as an individual investor. From this beginning, he has become one of the world’s best-known trading instructors.
Dr Elder has an enjoyable and straightforward writing style. He quickly gets to the point but always makes it interesting.
Despite his professional background, he does not dwell too much on the psychological elements of trading. He is dismissive of the people who believe that their psychological expertise qualifies them to train traders – unless they are also successful traders. Instead, Dr Elder emphasises the importance of mental qualities like not blaming others, trading in a calm state and having a mature attitude.
What I Love about this Book
“Markets are like pumps that suck money out of the pockets of the poorly informed majority and pump it into the pockets of a savvy minority”
What strikes me most about Dr Elder’s book is the honesty. Readers of this book are under no illusion that to become a profitable trader is a tough process. There are going to be costs in terms of time, money and mental effort. As well as being a trader we need to become our own analyst, advisor, back office and manager.
He does not say the process is easy, but he does make it clear that if you do the right things and stay patient, you will be successful. This is a very positive message for traders just starting out. If I find my trading confidence slipping, this is the book I read to give me a boost and allow me to focus back on the markets.
“I had a friend who drove a tank in World War II, fighting his way from Stalingrad to Vienna. He maintained his tank with only three tools – a big hammer, a big screwdriver, and the the Russian version of ‘f… you.’ He won the war with a few simple tools, and we can apply his lessons to the dangerous environment of the markets.”
Dr Elder is a natural storyteller and is fond of using anecdotes and analogies to make his point. I like this; I find a story will stay with me long after I have forgotten a whole chapter of a textbook. One of my favourite anecdotes is the above paragraph that he uses to drive home the message that technical analysis does not need to be complicated.
Dr Elder is generous with his recommendations. As he deals with subjects, he gives his advice on how to improve knowledge in specific areas. His ‘where do I go from here’ sections give readers a reading list of books to develop their analytical and trading skills.
Structure of the Book
The book is divided into three parts:
- Financial Trading for Babes in the Woods
- The Three M’s of Successful Trading
- Come into My Trading Room
Financial Trading for Babes in the Woods
This section is for beginners, but even quite experienced traders will benefit from reading through. It provides a useful guide to different markets for traders. Inevitably parts of this section have been superseded by technological advances, but the underlying markets remain the same.
The Three M’s of Successful Trading – Mind, Method Money
“Buy low, sell high. Short high, cover low. Traders are like surfers, trying to catch good waves, only their beach is rocky, not sandy.”
This section deals with getting your head in the right place, technical analysis, trading and money management.
In dealing with the head, technical analysis and trading, Dr Elder advocates a common sense and flexible approach. He recommends keeping technical analysis simple and only using a few indicators. Likewise, his trading advice is straightforward and does not delve into complicated strategies.
In contrast, his approach to money management is rigid. He strongly suggests sticking to a maximum of 2% risk per trade. He also encourages traders to limit their maximum loss per month to 6%. If your trading equity drops by this amount, then stop trading until the end of the month to give you time to recover your emotions and recheck your analysis.
Come into My Trading Room
“A rational trader can make money by remaining calm and following his rules. Around him, the crowd chases rallies, hard with greed. It sells into falling markets, squealing from pain and fear. All the while, the intelligent trader follows his rules.”
The final section of the book deals with being organised and managing time. Dr. Elder is strongly committed to traders keeping good records and trading from a definite plan. He also describes the process of going from beginner to semi-professional to professional.
The final part of the book provides examples of recent trades including entry and exit charts and the reason for the trade. I found this part of the book very useful. Anyone who finds it useful to study actual trades should take a look at Entries & Exits: Visits to 16 Trading Rooms also by Dr. Elder
“Trading attracts us with its promise of freedom. If you can trade, you can live and work anywhere in the world, be independent from the routine, and not answer to anyone.”
The above quote contains the essence of why everyone become interested in trading. The dream of leaving the rat race and having no boss. Dr Elder fully understands this dream, but he does not sugar-coat the fact that this can only be achieved through hard work and dedication.
Come Into My Trading Room is the best all-round book on trading that I have read. It is an excellent introduction that provides a sound basis for anyone interested in learning how to trade well.
If you have any thoughts about this review or about the book please feel free to comment below. Also please leave any comments about other good trading books.
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