Guy Lerner writes the Technical Take newsletter (thetechnicaltake.com). The following rules are his guidelines for improving your trading in the coming year.
11 Rules For Better Trading In 2008
1. Be data centric in your approach. Take the time and make the effort to understand what works and what doesn’t. Trading decisions should be objective and based upon the data.
2. Be disciplined. The data should guide you in your decisions. This is the only way to navigate a potentially hostile and fearful environment.
3. Be flexible. At first glance this would seem to contradict Rule #2; however, I recognize that markets change and that trading strategies cannot account for every conceivable factor. Giving yourself some wiggle room or discretion is ok, but I would not stray too far from the data or your strategies.
4. Always question the prevailing dogma. The markets love dogma. “Prices are above the 50 day moving average”, “prices are breaking out”, and “don’t fight the Fed” are some of the most often heard sayings. But what do they really mean for prices? Make your own observations and define your own rules. See Rule #1.
5. Understand your market edge. My edge is my ability to use my computer to define the price action. I level the playing field by trading markets and not companies.
6. Money management. Money management. Money management. It is so important that it is worth saying three times. There are so few factors you can control in the markets, but this is one of them. Learn to exploit it.
7. Time frame. Know the time frame you are operating on. Don’t let a trade turn into an investment and don’t trade yourself out of an investment.
8. Confidence and conviction. Believe in your strategies and bet wisely but with conviction. There is nothing more frustrating than having a good strategy work as you expect, yet at the end of the day, you have very little winnings to show for your efforts.
9. Persistence. It takes persistence to operate in the markets. Success doesn’t come easy, and if it does, then I would be careful. Even the best strategies come with losses, and they always seem to come when you get the nerve to make the big bet. Stay with your plan. If you have done your home work, the winning trades will follow.
10. Passion. In the end, trading has to be about your bottom line, but you have to love what you do and no amount of money is worth it if you aren’t passionate about the process. No matter how much success you enjoy, in the markets you can never stop learning.
11. Take care of yourself. No amount of money is worth it if your health is failing or you have managed to alienate yourself from family and friends in the process.
Good stuff. Thanks, Guy.
12. Don’t let one bad trade keep you sideline too long. It’s good to know where you went wrong, but sometimes shit just happens.
I also trade markets. It is much easier to figure out what will happen to a group as opposed to what one company will do. You are basically guessing up or down and using the economy as a reference.
My rule number 1 is: Never trade anything you don’t understand. Pundits lie. Commentators are usually wrong. Salesmen want your money. Most financial professions on TV are salesmen and saleswomen. Print pundits need to write copy to make their editors happy. If I can’t explain WHY something happened or might happen, then I go conservative and try to figure it out.
I’d rather miss a profit than take a loss by following the crowd. A year is a long time. Another opportunity will visit if you look for it.
Rule 2: NEVER take your eye off the ball. The only time I lost money (net) was by treating some stocks with the same certainty as a bank CD. Several fell and one dropped like a rock. It took over a year to make the money back in that account.
Rule 3: TRY to understand why things work. This means read books. Only suckers think they have all the answers. (Time to brag: I sold all on 11-1-07 when the market dropped a lot from the top of a dead range AND I noticed copper was falling and the yen was strengthening.)
Off Topic – future employment # spread even more by the new state laws dealing with illegals – penalizing employers – forcing them to replace illegals with “real employees”
Let’s say 1 million illegals – not on payroll are replaced with “Real Employees” during a 3 month period – December Thru Feburary – that would 1Million + count to employment #’s that improved (really) by 0.
States have, starting 1/08, new laws to penalize employers – by not allowing them to operate in the state – if they are caught with illegals.
12. Remember that not participating in the markets is an option
outsized gains are probably more due to timing and luck than skill
i agree with Red pill.
its no point in taking big risk for a small profit, like in today’s market.
i am trying very hard to find short ideas, not able to find any, hence i am trying to stay in cash waiting for oversold (and i am still scared to catch a falling knife, since i am a bear by nature).
does anyone know any blog/website where i can get some short ideas?
“1. Be data centric in your approach”
Brings to mind (1) Long Term Capital Management, and (2) If you don’t think, use your head, and know something about how a business operates, how do you reward socially and environmentally responsible companies. Good companies, that have good business practices for the long-term, should be rewarded.
~~~
BR:: LTCM ran into trouble because of their risk management issues — not the act they were data centric . . .
If you think 2000-2003 can’t happen again, you’re wrong.
I really agree with #7. Know the time frame you are operating on. If you are investing in stocks, make sure that it is money that you need for that car down payment in 60 days.
#1. Buy diversified low cost index funds and hold for a long time and just forget about the market.
I guess this one wouldn’t be too popular in the financial maret arena.