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Study Guide for The New Trading for a Living

by Alexander Elder (2014)

Quick summary -- an in-depth PhD-level extended summary (10-30 pages) for this book is coming soon.

Study Guide for The New Trading for a Living

Executive Summary

Alexander Elder's "Study Guide for The New Trading for a Living" is a structured educational companion to his classic text "The New Trading for a Living." The guide is designed to reinforce and deepen understanding of the original book's core concepts through rating scales, questionnaires, exercises, and self-assessment tools. Organized to mirror the original book's structure, it covers trading psychology, technical analysis indicators, trading systems (including Elder's proprietary Triple Screen system), and risk management through the lens of active engagement rather than passive reading. Elder, a psychiatrist turned professional trader, brings his clinical background to the pedagogical design, treating trading education as a progressive skill-building process.

Core Thesis

The study guide operates on the principle that reading about trading is insufficient for developing trading competence -- active engagement through self-assessment, problem-solving, and systematic review is required to internalize the three pillars of successful trading: psychology (the mind), method (technical analysis and trading systems), and money management (risk control). The guide forces traders to honestly evaluate their understanding and identify gaps in their knowledge before risking capital.

Chapter-by-Chapter Summary

Part I: Questions and Rating Scales

Introduction: Establishes the self-assessment framework and explains how to use the rating scales to honestly evaluate comprehension and readiness.

Individual Psychology: Questions probing the reader's understanding of trading psychology concepts including emotional discipline, the psychological challenges unique to trading, the role of self-destructive tendencies, and how a trader's personal psychology affects decision-making. Covers Elder's concept of market crowds and how group psychology creates predictable patterns.

Mass Psychology: Exercises examining how crowd behavior drives market movements, including the psychology behind trends, support and resistance levels, and how to identify when crowd sentiment is reaching extremes that precede reversals.

Classical Chart Analysis: Assessment of understanding of traditional chart patterns including head and shoulders, double tops/bottoms, triangles, flags, and channels. Questions test both pattern recognition and the psychological meaning behind these formations.

Computerized Technical Analysis: Evaluation of comprehension of moving averages, MACD, stochastics, RSI, force index, and Elder-Ray (Bulls Power and Bears Power). Each indicator is examined both mathematically and in terms of its practical application for trade timing.

Volume and Time: Questions on volume analysis as a confirmation tool, the relationship between volume and price movements, and time-based analysis including market cycles and the significance of different time frames.

Trading Systems: Deep assessment of Elder's Triple Screen Trading System, which uses three different time frames and indicator types to filter trades. The system uses a longer time frame for trend identification (first screen), an intermediate time frame for momentum oscillators to find entry points in the trend direction (second screen), and a short time frame for precise entry technique (third screen).

Risk Management: Exercises on position sizing, the 2% rule (never risk more than 2% of account equity on a single trade), the 6% rule (stop trading for the month if cumulative losses reach 6%), stop-loss placement, and the relationship between risk management and long-term survival.

Practical Details: Questions on record-keeping, trading journals, brokerage selection, and the practical logistics of implementing a trading plan.

Part II: Answers and Explanations

Provides detailed answers to all questions with explanations that reinforce the original text's teaching points. Each answer not only provides the correct response but explains why alternative answers are incorrect, deepening understanding through error analysis.

Key Concepts

  1. The Three Pillars of Trading: Psychology (mind), Method (technical analysis), and Money (risk management) form the indivisible foundation of successful trading. Weakness in any one pillar undermines the others.
  2. Triple Screen Trading System: A multi-timeframe approach using trend-following indicators on a longer time frame, oscillators on an intermediate time frame, and precise entry techniques on a short time frame to identify high-probability trades aligned with the trend.
  3. The 2% Rule: Never risk more than 2% of total trading capital on any single trade, ensuring that no individual loss can significantly damage the account.
  4. The 6% Rule: If cumulative monthly losses reach 6% of account equity, cease trading for the remainder of the month to prevent spiral losses during adverse conditions.
  5. Elder-Ray: A proprietary indicator combining Bulls Power (High minus EMA) and Bears Power (Low minus EMA) to measure buying and selling pressure relative to the exponential moving average consensus.
  6. Trading as Skill Acquisition: Trading competence develops through progressive stages requiring active practice, self-assessment, and honest evaluation of one's weaknesses.

Practical Applications

  • Use the rating scales to honestly assess your current understanding before risking capital
  • Implement the Triple Screen system across your preferred time frames
  • Apply the 2% rule to every trade without exception
  • Implement the 6% rule as a circuit-breaker for losing streaks
  • Maintain a trading journal for every trade, recording the psychological and technical rationale
  • Periodically reassess your understanding by revisiting the study guide questions

Critical Assessment

The study guide format is a genuinely innovative approach to trading education that few other authors have attempted. Elder's psychiatric background uniquely qualifies him to design self-assessment tools that probe both technical understanding and psychological readiness. The Triple Screen system, introduced in the original book and reinforced here, remains one of the most practical multi-timeframe frameworks available. However, the study guide is dependent on having read "The New Trading for a Living" and has limited standalone value. Some questions are overly simple for experienced traders, while others assume familiarity with Elder's proprietary indicators. The guide would benefit from more real-market examples and case studies.

Key Quotes

  • "A study guide is designed to help you internalize the lessons of the original book through active engagement rather than passive reading."
  • "The three pillars of trading success are psychology, method, and money management -- and they must all be strong."

Conclusion

The "Study Guide for The New Trading for a Living" is a valuable educational tool for traders committed to systematically developing their skills using Elder's framework. Its greatest contribution is forcing honest self-assessment through structured questioning, addressing the common problem of traders who read about trading without genuinely internalizing the principles. For readers of "The New Trading for a Living," this companion guide provides the active learning component necessary to translate knowledge into practice.