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AFTER THE STOCK TRADE
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One hot summer, in the mountains of northern Italy , I sat down to draft the first outline of this book. Two and a half years later, on a frigid January in New York City , I printed out its last chart. I wrote and rewrote this book three times, to make it clearer and to reflect my growing experience.

I have changed as a person, and my methods continue to evolve. If I could work on this manuscript for another two and a half years, it would become a different book, but it is time to let go.

Pulling the Trigger

Traders sometimes confide in me that they have trouble "pulling the trigger" — buying or selling when their methods tell them to go long or short. I had this problem once, for a very short time. My friend Lou, to whom this book is dedicated, helped me get rid of it.

One Sunday afternoon I mentioned to Lou that I saw several attractive trades but doubted I'd take any of them the following week because I had recently gotten beat up in the markets. Lou, who is usually cool and mild-mannered, suddenly began yelling. "I want you to trade at the opening on Monday!" I did not feel like trading—I was afraid of losing. "I don't give a shit whether you win or lose — trade tomorrow at the open!" I seldom trade at the open, but I could trade 10 minutes later, looking for an opening range breakout. "10 minutes is OK, but trade tomorrow!"

I thought about what had happened and realized what my problem was. I was like a skier at the top of the hill who had taken a bad spill and was afraid to go down again. Whatever my technique, if I was afraid to go downhill, I could not be a skier.

Fear of placing an order is the biggest problem that a serious trader can

Keep moving it in the direction of the trade so that no more than 2 percent of your growing equity is ever exposed.

More aggressive traders use the 50 percent rule. If you follow it, half the paper profit is yours and half belongs to the market. You can mark the highest high reached in a long trade or the lowest low reached in a short trade, and place your stop halfway between that point and your entry point. For example, if prices move 10 points in your favor, place a stop to protect 5 points of profit.

If in doubt, use the Parabolic system (see Section 44) to help you adjust your stops. When you are not sure whether to stay in a trade or not, take profits and re-evaluate the situation from the sidelines. There is nothing wrong with exiting and re-entering a trade. People think much more clearly when they have no money at risk.

After the Trade

A trade does not end when you close out your position. You must analyze it and learn from it. Many traders throw their confirmation slips into a folder and go looking for the next trade. They miss an essential part of growing to become a professional trader—review and self-analysis.

Have you identified a good trade? Which indicators were useful and which did not work? How good was your entry? Was the initial stop too far or too close? Why and by how much? Did you move your stop to a break­even level too early or too late? Were your protect-profit stops too loose or too tight? Did you recognize the signals to exit a trade? What should you have done differently? What did you feel at the various stages of the trade? This analysis is an antidote against emotional trading.

Ask yourself these and other questions and learn from your experiences. A cool, intelligent analysis does you more good than gloating about profits or wallowing in regrets.

Start keeping a "before and after" notebook. Whenever you enter a position, print out the current charts. Paste them on the left page of your notebook and jot down your main reasons for buying or shorting. Write down your plan for managing the trade.

When you exit, print the charts again and paste them on the right page of your notebook. Write down your reasons for exiting and list what you did right or wrong. You will have a pictorial record of your trades and thoughts. This notebook will help you learn from the past and discover blind spots in yyour thinking. Learn from history and profit from your experiences.

The Endless Trail

Markets change, new opportunities emerge, and old ones melt away. Good traders are successful but humble people — they always learn. Being a trader is a lifelong challenge.

I hope this book helps you to grow as a trader. If you have read this far, you must be serious about your work. Take this book for what it is — a description of what's on one trader's mind and how he goes about solving problems that all of us face. Take the ideas that appeal to you, and shape them to fit your style.

If you believe that being a trader is worth the effort—as I decided years ago —my best wishes to you. I continue to learn, and like any trader, I reserve the right to be smarter tomorrow than I am today.

After finishing a project of several years, I owe a sweet debt of gratitude to hundreds of persons — teachers, friends, and clients. If you do not see your name here, please forgive me, and I'll thank you in person the next time we meet.

Thanks, first of all, to all the clients of Financial Trading Seminars, Inc. Often a phone would ring and a trader would ask for "Dr. Elder's book." The book was not written yet, not advertised anywhere—but clients expected a book from me. That was terrific encouragement.

Writing a book was a hard job, but it helped me organize my thoughts and become a better trader. Two friends provided a soft push at the birth of this project. First, Tim Slater invited me to seminars in Asia , and then Martin Pring introduced me to people at WEFA, which led to a conference in Italy . Walking with Tim through Snake Alley to a smoky restaurant in Taipei and, a few months later, sitting in a cafe in Milan with Martin, I felt friendly but unmistakable pressure to organize my thoughts and start writing.

The blank screen of a word processor seemed huge and forbidding. To get the job rolling, I offered a number of seminars and taped some of them. Those transcripts helped me flesh out the ideas for this book. Thanks to all the analysts and traders in New York and Toronto , London and Singapore who came to my seminars, listened, and asked hundreds of questions. Some were experts whose comments forced me to stretch my mind farther than I expected; others were beginners whose questions served as a reminder to keep my feet on the ground. I hope you are all making money trading.

Three persons, a colleague and two patients, have opened my mind to the idea of 12 Steps —a major factor in my improvement as a trader. Thank you, Dagmar O'Connor, Jim S., and Kathy H. (Kathy died last year, after a long battle with cancer, and visiting her for months in a hospice reinforced my belief that there are values more important than money.) Thanks to the professional traders who came to consult with me as a psychiatrist and entrusted me with their confidence. You reinforced my conviction that if you get your head in order, money tends to flow in.

Finally, I want to thank my friend from way back when, Nicolai Gorbunoff. A scientist, he was destroyed by the Soviet system when I was but a teenager. In the closed, Communist party-dominated world that we lived in, he planted a simple but revolutionary idea in my mind: that the only standard for research and work was the "world class." You had to strive to be among the best in the world, or else it did not pay to try. Thank you Nicolai, and thank you, all my friends.

Great thanks to everybody who works for my company, Financial Trading Seminars, Inc. It is a unique group of people — intelligent, dynamic, and fun to be with. Each has been selected from dozens if not hundreds of applicants—you are the best. Thanks especially to our managers — Carol Keegan Kayne and Inga Boguslavsky. Carol helped me edit every chapter. We had many passionate arguments about the language, most of which Carol won, and if you have any complaints about the clarity of this book, I'll give you her number.

Once the manuscript was ready, I divided it into a dozen sections and mailed each to a top expert in the field. These busy and successful people found time to review several chapters each and suggested many improve­ments. In addition to the friends already mentioned, they included Gerald Appel, Stephen Briese, Ralph Cato, Mark Douglas, John Ehlers, Perry Kaufman, Tony Plummer, Fred Schutzman, Bo Thunman, Ralph Vince, and David Weis. Thank you for being so generous with your time and advice. If the market is a minus-sum game, then having friends like you is an especially big plus!

Thanks to the analysts who wrote before me. It was often hard to find who was first —there is a thicket of conflicting claims in our field. As Henry Kissinger once said, "Academic fights are so bitter because the stakes are so small." Most charts in this book were drawn using CompuTrac software on an IBM-compatible and imported into PageMaker® for the Macintosh. Thanks to Norbert Rudek for helping to set up the system and for unstinting phone support. Thanks to the editors at Barron's, Futures, Technical Analysis of Stocks and Commodities, Futures and Options World, and other magazines for encouraging me to write articles and book and software reviews — it was a good training for the book.

Many thanks to Stephen Reibel, M.D., a fellow psychiatrist and a former boss at St. Luke's-Roosevelt Hospital Center for covering my practice. I can go and teach all over the world knowing that my patients in New York are in good hands.

Lou Taylor, to whom this book is dedicated, has offered a treasury of superb ideas. I wish he would write a book. His wise advice made a huge difference at several important turning points. My family, especially Miriam, Nicole, and Danny, provided cheerful support and a happy diversion from business.

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