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

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TEN

Practical Details

  1. Answer 10-1: B

    Depending on how bullish you feel, you may buy a breakout above yesterday's high, a pullback to value, or a penetration of the value zone to the depth at which previous pullbacks bottomed out. It is generally not a good idea to go long above the channel. The upper channel line marks the zone where bullishness becomes manic, and even though it may continue, it is more likely to reverse.

  2. Answer 10-2: B

    When the trend is up, it makes sense to buy pullbacks below value. The average of the previous three months' penetrations was less than $3. There is no point in being greedy and trying to nail the very bottom of a pullback—catching a $1 penetration would be more reliable than a $3 one.

  3. Answer 10-3: A

    A well-designed channel contains the majority of market swings, making its upper boundary a good target for rallies. A trade that captures 30% of the channel height earns an A. In an uptrend, we should expect prices to rise by a greater amount above the EMA than they dipped below it on a pullback. By the time the moving average turns down, a paper profit may turn into a loss.

  4. Answer 10-4: D

    With long-term position trades, one has to be leery of using such profit-taking tools as moving averages, envelopes, and indicator divergences. If you plan to hold for several months, those sensitive tools would get you out of the trade too soon. It's better to set profit targets using support and resistance zones.

  5. Answer 10-5: C

    Setting stops and ...

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