Apprenticed Investor: The Zen of Trading

Tscm_1The latest "Apprentice Investor" column is up at

Its called The Zen of Trading.

So far, the Apprenticed Investor
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 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).


The Zen of Trading
Barry Ritholtz, Apprenticed Investor
The, 6/1/2005 11:37 AM EDT

Print Friendly, PDF & Email

What's been said:

Discussions found on the web:
  1. John commented on Jun 2

    As a Taoist myself, I must disagree.

    A Taoist does not hunger for material gain over spiritual gain, but folks gotta eat, and commerce is the way of humanity. In fact, when one considers the fact that in markets, some positions work for you and some against you, when I read Chris Schumaker and Rev Shark speak of their up and down cycles (Yin and Yang!) I would say that there is a definite Tao of markets themselves. Lao Tzu always advocates going with the flow, and the idea of not fighting the markets, but seeking to flow with them and thus find prosperity, fits nicely within this concept.

    The folks who are not within the Tao are the big money players who shove the markets around, the Market Makers who manipulate and the other types of dirty pool players. But that is between them and the Tao.

    My preferred translation of the Tao Te Ching is by Red Pine. It is simply excellent. I’ll also take this opportunity to recommend Alfred Huang’s translation of the I Ching, which is also superb.

  2. Online Trading – Real Time Comments, Stock Market commented on Jun 6

    Being Right vs. Making Money

    Setting stops after opening a position is very important in trading.

    As no trader is able to make 100% right decisions, setting stops ensure that you’ll get out of the position before the loss really hurts you.

  3. John commented on Mar 13

    Tao of trading is not a mistake. The Tao of trading refers to reaching a state of mind that is unclouded and unbiased. In complete neutral harmony with your reality. Only in this state can trading be done. Because there is no question. The answer in what needs to be done is there.

Posted Under