Trading Resolutions for 2006

Alan Farley asks: Did the 2005 market slap you around so much you’re feeling like a hockey puck? Good news. It’s almost over and you can start the new year with a clean slate.

He points out the best way to make money is to stop losing it — and gives 25 ideas for things you can do to turn around your trading performance in 2006:

1. Change brokers: You’re playing the market, not buying the exchange. The only difference between cheap and expensive brokers is the commission.

2. Don’t believe in a company: Trading isn’t investing. Remember the numbers and forget the press releases. Leave the American Dream to Warren Buffett.

3. Don’t break your rules: You made them for tough markets, just like the ones we’re trading right now.

4. Avoid opinions: It’s your money at stake, not theirs. Do your own due diligence, regardless of the information source.

5. Don’t wait for better days: Chicken Little never turned a profit. The best opportunities are here and now.

6. Stop chasing your tail: Anticipate the price action, and stop reacting to it. You can’t play tomorrow’s market with yesterday’s game.

7. Forget the 1990s: Bubbles come once in a lifetime. Yours came and went five years ago, and will never return.

8. Break the tech hypnosis: There are thousands of stocks to trade. All of them make money when you buy low, and sell high.

9. Don’t try to get even: This isn’t a game of catch-up. Take your next loss with composure and next trade with absolute discipline.

10. Avoid the obvious: The prettiest patterns trigger the most painful losses. If it looks too good to be true, it probably is.

11. Don’t seek the Holy Grail: There’s no secret trading formula other than solid risk management, so stop looking for it.

12. Don’t feel sorry for yourself: You don’t deserve anything for your hard work. Traders only get paid when they’re right and their timing is really, really good.

13. Stop criticizing what you don’t understand: Gann, Elliott and the fringe philosophers were on to something big. One day you’ll figure out what it is.

14. Avoid the complexity trap: Well-trained vision is more effective than a stack of indicators. Common sense is more valuable than a backtested system.

15. Don’t project your personal life: Trading gives you the perfect opportunity to discover just how screwed up your life really is. Get your own house in order before playing the financial markets.

16. Kill the thrill: Get an Xbox 360 if you’re looking for entertainment. Trading should be a total bore most of the time — just like the real job you have right now.

17. Develop a predatory instinct: It’s your job to pick their pockets before they pick yours.

18. Fade yourself: The best opportunities trigger in the opposite direction you want to trade. Think contrary and build a fortune.

19. Dump the bells and whistles: Most software, subscriptions and chat rooms will make you feel smarter, but lose money faster.

20. Watch the clock: Pick your holding period and stick to it. Don’t daytrade an investment, or scalp a swing trade.

21. Take your losses: Expect to win and lose with great regularity. Expect the losing to teach you more about winning than the winning itself.

22. Heed the danger signs: Big losses rarely come without warning. Don’t wait for a lifeboat to abandon a sinking ship.

23. Don’t count your chickens: Profits aren’t booked until the trade is closed. The market doesn’t care how many times it robs you blind before paying off.

24. Avoid the crowd: Listen to the beat of your own drummer. By the time the crowd acts, you’re probably too late … or too early.

25. Remember your discipline: Learning the basics is easy. Most of us fail because of a lack of discipline, not a lack of knowledge.

And, a perfect example of excerpting, on a delay, nearly all of an excellent subscription only piece that would have been lost to both time and the firewall . . . 

Some Trading Resolutions for 2006
Alan Farley, 12/30/2005 12:02 PM EST

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What's been said:

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  1. Nick commented on Jan 8

    after reading this, I realize it’s time to sell ELN which I bought 1500 shares of months ago at about $3.00

  2. Barry Ritholtz commented on Jan 8

    Farley has very good general advice — he’s an excellent trading coach

  3. PC commented on Jan 8

    I was enjoying the list until I came to item 13 – Stop criticizing what you don’t understand: Gann, Elliott and the fringe philosophers were on to something big. One day you’ll figure out what it is.

    He blew his credibility right there. No one could ever prove conclusively whether Gann, Elliott ever made money consistently using their obscure indecipherable methods. As far as I know, the made their money from selling newsletters not from trading.

    Yeah, one day you will figure out what it is – just keep paying your subscription money.

  4. PC commented on Jan 8

    PS – Robert Pretcher, an Elliot Wave practitioner, remained steadfastly bearish after the 1987 market crash (even though to his credit he did warn about the stock market in 1987 prior to the crash). By staying bearish, he totally missed out on the greatest 1990s bull market.

    He is back in vogue now after the ferocious 2000-2002 bear market because he is bearish. A stopped clock is right twice a day. So much for Elliot Wave, Gann, Fibinacci etc.

  5. edifgrto commented on Nov 25

    Quite an interesting read here. Thanks.

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