O'Reilly logo

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

Stay ahead with the world's most comprehensive technology and business learning platform.

With Safari, you learn the way you learn best. Get unlimited access to videos, live online training, learning paths, books, tutorials, and more.

Start Free Trial

No credit card required

NINE

Risk Management

  1. Answer 9-1: B

    Emotional trading is the enemy of success. Nobody can get high and consistently make money. A trader can get away with emotional trading for a short while, but unchecked greed and fear will destroy any account. Your goal must be to make the most intelligent trades, calmly weighing potential gains and limiting risks.

  2. Answer 9-2: C

    We all like to think we're smart—taking losses hurts our egos. Taking a loss means giving up hope that a trade will work out—and nobody likes to live without hope. Good traders are realists; hanging onto a losing trade is not a sound tactic.

  3. Answer 9-3: B

    A reluctance to take a loss is a sign of emotional trading. Adding to a losing trade shows that the trader is hanging on to a fantasy of winning rather than facing the reality of a loss. For a loser, a dream is alive as long as he holds his position. In fact, if you entered a trade on a set of indicator signals and those indicators reversed, what's the rationale for staying in that trade? It is not working out—get out to preserve your capital and look for a better trade.

  4. Answer 9-4: C

    A series of three losses can wipe out trader A, but trader B can survive a streak of 9 losses. Trader A is only three throws away from going bust, while trader B has enough capital to sustain him through 9 unlucky throws. All other factors being equal, the poorer of the two traders will go broke first.

  5. Answer 9-5: B (II, III, I)

    The first goal of money management is to ...

With Safari, you learn the way you learn best. Get unlimited access to videos, live online training, learning paths, books, interactive tutorials, and more.

Start Free Trial

No credit card required