It’s another book from Dr. Elder published in 2002. Much of the content overlaps with his other book I already reviewed, but it makes sense as it also reflects the work of Dr. Elder. If you want to know more about his recent writing, check my review on Trading for a Living.
Come into My Trading Room was still an interesting read to me. Dr. Elder covers many indicators there that are not featured in his latest books. His Stop Zone, Elder Ray and different charts make it educational even after having read Trading for a Living.
Overall, much of the content is same, or to say at least similar. Risk management takes into account the 6% account and 2% per trade rules. The three M-s has its place: Mind, Method, Money. It means you need to have psychology (mind), technical edge (method) and risk management (money) in place.
How to be disciplined and organized, how to trade the plan, triple screen system, indicators and much more is covered in this book. He finishes the book with some content about staying in the game and going pro, so you might want to check that out what it takes to be at your best level.
Elder’s 2% and 6% rules, with numbers
The money part of the book comes down to two limits. The 2% rule: the risk in any one trade – the distance from entry to stop, times the position size – can’t be more than 2% of the account’s value at the end of last month. The 6% rule: when this month’s losses plus the risk in the trades still open add up to 6% of the account, you don’t open anything new until next month. Elder compares the first to protection from a shark bite and the second to protection from a school of piranhas.
A worked example. A $50,000 account at the end of September allows $1,000 of risk per trade and $3,000 in total for October. Buy a stock at $40 with the stop at $37, and the most you can hold is 333 shares ($1,000 / $3). If two trades are stopped out for $1,000 each and a third is still open with $1,000 at risk, you are at $3,000 and the month is over for new trades. I think the 6% rule is the more useful of the two. The 2% rule handles one bad trade; the 6% rule handles the losing streak, and a losing streak is where most accounts really get hurt.
It gives the feeling of an older book but the principles of trading have stand the test of time and studying charts is useful regardless of their age. If you’re not a heavy reader you might want to stick to the new Trading for a Living and proceed to other authors. However, Dr. Elder has also workbooks for his readings which all have different exercises and help to really verify one has studied the materials.
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