Trading Psychology Lessons from Alexander Elder’s Trading for a Living

Most traders lose money not because of bad analysis, but because of bad behavior. That’s the core message of Trading for a Living by Dr. Alexander Elder. In this week’s newsletter, I’ll break down Elder’s essential lessons on psychology and self-management, the foundation of any real trading edge.

You’re Not Competing With the Market. You’re Competing With Yourself

Elder, a psychiatrist turned trader, says the real enemy is internal. Markets trigger emotional extremes: greed, fear, hope, regret. If you don’t have a plan for handling them, you’ll get chewed up, even with good setups.

His rules:

• Don’t trust your gut unless it’s backed by your system

• Don’t trade when you’re upset, stressed, or overly excited

• Keep a trading diary, not for your charts but for your mind

The 3 M’s: Mind, Method, and Money

Elder’s framework is simple but brutal:

1. Mind: Control your emotions. Stay disciplined.

2. Method: Have a system you’ve tested and trust it.

3. Money: Risk management. No more than 2% per trade.

Most beginners obsess over #2 (indicators, setups, signals). Professionals focus on #1 and #3.

The Danger of the “Inner Crowd”

Elder introduces a subtle idea: traders often act like a crowd even when trading alone.

• Overconfidence after a win.

• Revenge trading after a loss.

• Chasing trends because everyone’s talking about it.

All classic crowd behavior. If you can’t step outside it, you’ll act like a herd animal and buy tops, sell bottoms.

Your edge comes from being able to observe yourself and act contrary to these patterns.

Your Equity Curve Reflects Your Psychology

Your P&L is a mirror.

Elder suggests looking at your equity curve like a mental health chart.

• Big spikes = impulsive trades.

• Deep dips = revenge or panic trades.

• Flatline = fear or hesitation.

Your goal isn’t constant profits. It’s a smooth, rising curve. That requires consistent, rational behavior. Your job is to act like a trading business, not a gambler on tilt.

Self-Sabotage Is Real

One of Elder’s strongest insights is that traders seek emotional highs, even when it costs them money.

• Some need the thrill.

• Others need to be punished.

• Many feel guilt when they win.

He calls this “self-sabotage,” and it’s common among traders who haven’t worked on their mental game.

How to fight it:

• Stop trading when you feel off

• Use stop losses with zero discretion

• Keep journaling, especially your feelings before and after each trade

Key Takeaways

You don’t need better indicators. You need better discipline. Elder’s edge is about self-control, not secrets. Think clearly. Risk little. Track everything. Repeat.

• Master your mind before your method

• Protect your capital with iron discipline

• Journal like your money depends on it (because it does)

Forward this to someone who’s blown up an account or two. They’ll thank you.