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

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SEVEN

Trading Systems

A trading system provides a decision-making tree for setting entries, targets, and stops. It is a useful instrument but not a magic device that can be fine-tuned on old data and then put on automatic for effortlessly pulling profits out of the markets.

You develop a trading system in the quiet of your office, when the noise of the markets has quieted down. A carefully crafted system becomes your island of stability and intelligence in the stormy environment of the market. A trusted system will help you maintain control at a time when the tide of mass emotion sweeps people off their feet.

This chapter will test your knowledge of several trading systems that have stood the test of time. While answering questions, consider whether to start trading with one of these systems or use them as a starting point for developing your own.

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Correct answers

 

Question 7-1

  1. Which of the following statements can be true at the same time in any given market?

    1. The trend is up.
    2. The trend is down.
    3. An indicator gives a buy signal.
    4. An indicator gives a sell signal.
      1. I and III
      2. II and IV
      3. I, II, III, and IV
      4. None of the above

Question 7-2

  1. When trying to find a trade on a daily chart,

    1. focus all your attention on that chart.
    2. identify the trend of the weekly ...

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