Trading for a Living (Alexander Elder, 1993)

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  • Market is a zero-sum game, the  $10 you win is the $10 lost from someone else.
  • Slippage is the price difference when you enter or exit the market.
  • Traders are looking for an edge over other traders.
  • The strength of support and resistance increases each time that area is hit, the taller or greater in volume the support or resistance zone, the stronger it is.
  • False breakouts can be seen by divergences between prices and indicators.
  • The longer the time frame, the longer the trendline, the more contacts between prices and trendline = the more important and valid it is.
  • Exhaustion gap is like a sprinter who run away from his pack but once they catch up he know he will lose, it is common for reversal.
  • Major groups of indicators
    • Trend-following indicators: MACD, MACD-histogram, directional system, on-balance volume, accumulation/distribution.
    • Oscillators: Stochastic, rate of change, smoothed rate of change, momentum, relative strength indicator, elder-ray, force index, Willams %R, commodity channel index.
    • Miscellaneous: new high-new low index, put-call ratio, bullish consensus, commitments of traders, advance/decline index, traders' index.
  • The longer the trend you are trying to catch, the longer the moving average you need.
  • Type of divergences
    • Class A: when price reaches a new high/low, an oscillator reaches a lower high/higher bottom, it will be an reversal.
    • Class B: prices make a double top/bottom, oscillator traces a lower/higher top/bottom.
    • Class C: to new high/low but indicator stops at same level.
  • RSI Pop: when RSI high oversold/overboard level, follow the same trend for a quick scalp.
  • Herrick Payoff Index (HPI): detect accumulation and distribution.
  • Triple screen
    1. 1st screen: market tide (trend).
    2. 2nd screen: market wave (oscillator).
    3. 3rd screen: intraday breakout (buying action).
  • Most traders get killed by emotion or ignorance.

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