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Study Guide for The New Trading for a Living by Dr. Alexander Elder

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THREE

Classical Chart Analysis

  1. Answer 3-1: I = C; II = D; III = B; IV = A

    Amateurs tend to get their information after work and trade in the morning. Professionals respond to changing conditions throughout the day and tend to dominate the market near closing time. Buying pushes prices up, and the highest price of the day marks the maximum power of bulls. Selling pushes prices down, and the lowest price of the day marks the maximum power of bears. This reasoning also applies to weekly and intra-day charts.

  2. Answer 3-2: C (I, II, and III)

    Wishful thinking is rampant among analysts, especially those who don't trade. Keeping basic definitions fuzzy contributes to the confusion. It is quite common for the markets to be trending higher and lower at the same time in different timeframes. Good analysts who focus on different timeframes may come to different conclusions, and all can make profitable trades.

  3. Answer 3-3: C

    Slippage tends to be lower on quiet, narrow-range days. That's when you can get a better entry, but it doesn't change your commissions.

  4. Answer 3-4: 4 (A, B, C, and D)

    MDT is tracing a pattern of rallies and declines. As soon as prices begin to decline from the latest peak, draw a horizontal line across that peak, marking a resistance level. As prices rally again, they sometimes slow down at the resistance level. After they penetrate it, they usually pull back—what used to be resistance becomes a support level.

  5. Answer 3-5: D (I and IV)

    Support lines are drawn ...

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