Why do I love books by Alexander Elder? Here’s the second sentence in Sell and Sell Short (Wiley Trading):
“That cute puppy bouncing up and down in your living room will some day become an old, decrepit dog whom you will have to drive to the vet’s office to put it out of its misery.”
True enough, I guess! So, as Elder goes on to say: “Take off those rose-colored glasses and learn to sell.”
Not Just a Selling Book, After All
The book doesn’t just talk about selling, though. I was pleased to see that the whole first section of the book goes over trading in general. In fact, it makes for a concise guide to much of Elder’s earlier work (in Trading for a Living, Come Into My Trading Room, and Entries & Exits). Though I’ve read his earlier books, it was nice for me to see as a refresher on his methodology.
Elder always comes across as a trader, first and foremost. He knows that you can’t always get in at the bottom and get out at the top, so he’s pragmatic about choosing between “fast dimes and slow dollars.” He’s also strongly in favor of monitoring your performance, and the book has a pretty neat way to grade trades based on the quality of the entry and the exit in terms of their position in the trading channel.
The cool thing about reading books from experienced traders (or experienced people in any profession, really), is the way they manage to cut issues down to their essential qualities. For instance: At the level above specific approaches that fall in and out of favor, Elder frames the trading problem simply in terms of exploiting the gap between price and value. After that, all you need to figure out is how to define value, how to track its changes, and how to measure the gap. It’s good every now and again to step back and view an issue from a higher perspective like that. Psychology and risk management are given similar treatment.
Of course Elder touches on his triple-screen method, which you’ve seen me use many times in the course of this blog. I’ve always kept reference charts up, ever since I read Elder’s earlier work. Reading this book has inspired me to put up a strict three-chart method for a while, and as you’ve seen, it’s gone pretty well!
Selling, and Selling Short
After that wonderful overview section, we get to the meat of this book, which is all about selling. Again, Elder cuts through the complexity and says you will either sell at a target, or sell with a stop, or sell because of a change in conditions. Of course there is infinite variation possible in each category, and Elder devotes chapters of his book to each one.
In each chapter, you get a breakdown of the approach, and it’s pros and cons. You’ll also get several illustrated trades that Elder has made, with commentary. I was particularly pleased that several of the profiled trades did not go as planned, or suffered from poor exits and the like. On the other hand, I don’t remember any trading losses covered, so there couldn’t have been many in that category. That’s too bad, but I do understand… The book isn’t about how to take a loss. It’s about when to take profits.
Then we get to selling short. There’s some obligatory text about what on earth short selling is, which any serious trader probably already knows. But I can forgive that, and it makes the book accessible to beginners. Again, in the short-selling section, Elder does not disappoint. He covers topics like the fact that declines in price are often much faster than rises. He goes on to explain how bottoms in price tend to look different than tops in price… which makes you wonder why almost every strategy you see published says “…and do the opposite for shorts of course.” It seems to me like perhaps strategies shouldn’t be so symmetric, if price patterns aren’t. Food for thought…
The emphasis throughout the book is stocks, but Elder does touch on differences in futures, options, and forex worlds. And, I find much of what he says to be applicable in all three arenas.
Summary
Being familiar with Alexander Elder’s earlier work, I expected Sell and Sell Short to be a treat. I wasn’t disappointed. Thanks to the nice and concise introductory chapter on finding entries, keeping records, and psychology, I can now suggest that new traders pick up this book as an introduction to all of Elder’s work. The material on when and why to sell has the ring of experience and pragmatism to it, and the provided example trades are delightfully imperfect. The charts and approach outlined are easy to grasp, and I appreciated the way the issues under discussion were distilled to their essence.
