Fundamental headwinds due to the government shutdown along with technical weakness, a break of risin...
Entries & Exits
07/01/2006 12:00 am EST
At investment conferences around the world, I have had the opportunity to talk to many traders with varying levels of experience. There are those who have years of experience and, on the other end of the spectrum, there are those who have just started trading. Of course, the largest group has three to five years of experience, and, when questioned about their trading, the emotions run the gamut from euphoria to despair, but a common theme is frustration. These passing discussions rarely delved into the specifics of the traders, however, which is exactly what Dr. Alexander Elder has done in his insightful new book, Entries & Exits.
Now, it should be noted that I have known Alex for over 20 years, and that we have spoken at many conferences together, so I was very interested to see what new path he had embarked upon. This book features in-depth "visits" to the trading rooms of 16 successful traders. In each visit, the trader in question discusses their background and methods, and reveals the specifics of two trades: one winner and one loser. For each of these trades, Alex provides his comments on both the entry and the exit.
Though some of the traders Alex interviews are well-known market experts, most are not; it is the trading wisdom of these relative-unknowns that most traders will identify with and benefit from. Despite their diverse approaches to trading, one thing that they all share is that they keep a detailed record of each of their trades. If you are already trading and not doing this, the purchase of his companion book, Study Guide for Entries & Exits, is an investment you can?t afford to miss.
I think the best way to give you some insight into this book is to share with you some quotes that I found especially important. Sherri Haskell, who has been trading for over 20 years, reveals that, after realizing that her search for the Holy Grail was futile, she says, "I understood that I needed to determine my game and that the right system had to be my own system." She also emphasizes that to be successful it requires not only the discipline to follow your own system, but also the discipline to avoid the influence of others in your trading decisions. Her thoughts are echoed by Kerry Lovvorn, who feels that as a trader, you must "adapt your trading style to your personality."
Money management is also discussed by many of the traders and is a key ingredient to consistent, successful trading. Of course, a main part of money management is limiting the risk on any one trade; "use stops, use stops, and use stops," says Sohail Rabbani, one of the featured traders, referring to what he calls "the three main rules of trading." Mike McMahon, another featured trader, has developed a program called the "Trader's Governor," which allows you to easily monitor position and portfolio risk in a variety of situations, including multiple accounts.
The trading styles described in this book are widely diverse: while Michael Brenke spends much of his efforts on daytrading, William Doane, former head technical analyst for Fidelity, focuses on long-term bases that may take five or ten years to develop. Some of the traders discussed in this book use a precise system that generates orders while others, like Alex, use more discretionary methods to make their decisions. Additionally, each of the book's traders provides a list of books, which they recommend, giving reader's insight into the origins of each of their trading philosophies, as well as a solid reading list.
Lastly, Alex has a very relevant section called Trader's Rehab, where he gives step-by-step suggestions for how someone who has stopped trading because of severe losses can get started again. Drawing from both his training as a psychiatrist and his experience in the markets, his suggestions have a good chance of putting a trader on the road to recovery.
In summary, if you are just starting out as a trader, the wisdom of these individuals will make the steep learning curve of successful trading seem quite a bit easier. Or, if you have been trading for some time, but feel you can improve your performance, there are plenty of concepts and ideas to help refine your trading methods.
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