Alexander Elder, or rather Dr Alexander Elder as he has a PhD in psychology, has had an exciting, some would say extraordinary, life.
Born in Leningrad, and growing up in Estonia, he entered medical school at what seems to be a remarkably tender age of sixteen. He became a ship’s doctor, but keen to leave communism behind and pursue the great American dream, he jumped ship in Africa and applied for political asylum in the United States.
The US was pleased to take him on board, and he took up a role as a psychiatrist in New York while teaching psychiatry at Columbia University. He was, however, to later apply his deep understanding of human psychology to trading, where it paid significant rewards.
Today he has a global reputation as one of the current leading trading experts. He has also authored numerous books on the subject and teachers trading to young aspiring traders.
Between 1993 and 2011, Alexander published six books:
- Trading for a Living – Psychology, Trading Tactics, Money Management published in 1993 and translated into twelve languages
- Making Money on Russia’s Exploding Financial Frontier (1999)
- Come into My Trading Room A Complete Guide to Trading (2002)
- Straying From The Flock – Travels in New Zealand (2005)
- Visits to Sixteen Trading Rooms (2006)
- The New Sell and Sell Short: How to Take Profits, Cutting Losses, and Benefit from Price Declines (2011)
In his introduction to his most recent book, “Sell and Sell Short” Alexander explains that “Amateurs don’t know how to short and are afraid of it, but professionals love shorting and profit from declines.”
One of his favourite mantras is that the way to make a profit is to have a slight edge and a lot of discipline. Alexander’s edge is an awareness of the ever-changing gap between “price” and “value”. The time to buy is when the value is rising and the time to sell short is when the price is too far above the value.
The three fundamental questions we must answer are:
- How to define value
- How to track its changes
- How to measure the distance between price and value
And in the remaining chapters, he describes how to do precisely that. You can download the book for free.
Alexander Elder’s triple screen trading system
One of Elder’s essential contributions to effective trading is his triple screen trading system. No single indicator, he believes, can consistently analyse the complexity of financial markets. Different indicators sometimes provide contradictory results.
The triple screen system combines different types of indicators, including trend indicators and oscillators:
- Screen One – a trend indicator using a time frame ten times greater the chart you will use to trade: the tide. The rule is to only trade in the direction of the wave. If it is an uptrend, you can only buy, and if it is a downtrend, you can only sell.
- Screen Two – an oscillator to your trading chart, which identifies a market moving in the opposite direction to the tide: the wave. When a wave is moving in the opposite direction to the tide, an entry point is indicated.
- Screen three – searches for short term deviations in the direction of the tide using a trailing stop: the ripple. When both screen one and screen two agree, for instance, if the tide is an upward trend and the wave is moving in the opposite direction so that buy is indicted, screen three is used to identify the exact entry point. The trailing stop is set one tick below (for shorting) or above (for buying) the high of the previous day.
Typically the system would use a weekly chart for the tide and a daily chart for the wave. While not foolproof, but then no trading is infallible, the Alexander Elder’s triple screen trading system is both effective and easy to use.
Many traders have learned their skills from the teachings of Dr Alexander Elder, either from his books, online lessons, or real-time training camps and conferences. He has also amassed a small fortune with a net worth well over £1 million.
His is a “rags to riches” story. But he claims the market is full of them, though he cautions “Most traders then give up their wins back to the market. The market is full of rags to riches to rags stories. The mark of a successful trader is the ability to accumulate.”