Its called The Zen of Trading.
So far, the Apprenticed Investor
series has discussed a lot of don’ts. Don’t do this, don’t do that; avoid
talking to these kinds of traders; don’t say or think these kinds of things.
Time to shift gears: since trading is an active enterprise,
we’ll discuss the things you should do. It includes my 10 rules for being a successful trader or investor.
Here’s the ubiquitous excerpt:
3. Predetermine Stops Before Opening Any Position: Sign a "prenuptial
agreement" with every stock you participate in: When it hits some point you have
determined before you purchased it, that’s it, you’re out, end of story. Once
you have come to understand that you will be frequently wrong, it becomes much
easier to use stop-losses and sell targets.
This is true regardless of your methodology: It may be below support or beneath a moving
average, or perhaps you prefer a specific percentage amount. Some people use the
prior month’s low. But whatever your stop-loss method is, stick to it
religiously. Why? The prenup means you are making the exit decision before you
are in a trade — while you are still neutral and objective
Prior columns can be found here.
NOTE: On the Street.com site, the article was renamed Tao of Trading. That’s a mistake; I am aware that monetary gain, especially at the expense of another’s losses, is in direct opposition to Lao Tsu’s philosophy in the Tao Te Ching. See also Principles of the Tao Te Ching.
Blame the name change from Zen of Trading to Tao of Trading on my editor’s lack of Far Eastern philosophical readings . . . (Although I failed to protest too loudly).