One of the first books I read in this business oh-so many years ago was Stock Market Wizards. It had a profound impact on my thinking about trading, psychology, risk, capital preservation, etc.
Sometime ago, I came across a good discussion of the lessons from the book at Simply Options Trading. What follows is my edited adaptation of those rules he derived from Stock Market Wizards:
1. All successful traders use methods that suit their personality; You are neither Warren Buffett nor George Soros nor Jesse Livermore; Don’t assume you can trade like them.
2. What the market does is beyond your control; Your reaction to the market, however, is not beyond your control. Indeed, its the ONLY thing you can control.
3. To be a winner, you have to be willing to take a loss; (The Stop-Loss Breakdown)
4. HOPE is not a word in the winning Trader’s vocabulary;
5. When you are on a losing streak — and you will eventually find yourself on one — reduce your position size;
6. Don’t underestimate the time it takes to succeed as a trader — it takes 10 years to become very good at anything; (There Are No Shortcuts)
7. Trading is a vocation — not a hobby
8. Have a business/trading plan; (Write This Down)
9. Identify your greatest weakness, Be honest — and DEAL with it
10. There are times when the best thing to do is nothing; Learn to recognize these times (Nothing Doing)
11. Being a great trader is a process. It’s a race with no finish line.
12. Other people’s opinions are meaningless to you; Make your own trading decisions (The Wrong Crowd)
13. Analyze your past trades. Study what happened to the stocks after you closed the position. Consider your P&L game tapes and go over them the way
Vince LombardiBill Parcells reviewed past Superbowls
14. Excessive leverage can knock you out of the game permanently
15. The Best traders continue to learn — and adapt to changing conditions
16. Don’t just stand there and let the truck roll over you
17. Being wrong is acceptable — staying wrong is unforgivable
18. Contain your losses (Protect Your Backside)
19. Good traders manage the downside; They don’t worry about the upside
20. Wall street research reports are biased
21. Knowing when to get out of a position is as important as when to get in
22. To excel, you have to put in hard work
23. Discipline, Discipline, Discipline !
The links in parentheses are part of The Apprenticed Investor series I did for the Street.com.
Hat tip: Simply Options Trading