Always wait for the setup: no setup – no trade. Agree. If your strategy doesn’t provide you a good risk/reward trade to make, then your job is to be patient until it does. Ironically, this often requires you to sit out some very good moves in the market and be inactive at the very same times you want to be aggressive.
- The best trades work almost right away. Agree, but with one important caveat – this rule greatly depends upon your strategy. Some strategies will require greater patience than others. If trading short-term, this rule is almost always correct, but if your time frames are longer, then you also have time on your side which requires more patience but that patience can pay off if your analysis is correct.
- Never take a big loss. If it doesn’t ‘feel’ right. Remove it! Disagree. Sometimes you have to take a big loss to prevent the risk of an even greater loss. Refusing to take a big loss when a mistake has been made can be very costly. I also disagree with the view that “If it doesn’t feel right, remove it.” Actually, some of the best trades you will ever make in your career are those trades that feel wrong and about as far from “right” as you can make it. Don’t believe me? Think over the last month or so about the trades you missed because they didn’t feel right but your strategy told you to hold or buy them anyway! It is also interesting to me that this rule says to trade by feel and at the same time advises in another rule not to trade by emotion. You can’t do one without the other!
- Always perfect your craft and sharpen your skills – good traders are constantly learning. Agree. No matter how skilled, intelligent, and successful you have been, there is always room for improvement. Moreover, because of the ever-growing changing nature of the market, what you do now to trade successfully won’t always work in every situation and the next market environment. Only experience and constant dedication to your job will provide you with the weapons for enduring market success.
- Be patient with winning trades – impatient with trades that fight back. Agree. Another good ways of saying – let your winners run and cut your losers short. The truth is that most individual traders and investors do the exact opposite – they sell winners too quickly and they hold losers far too long letting trades that went awry become long-term “trapped” investments.
- Discipline is the key to winning at everything! Agree. If you don’t approach the same way with consistent discipline in your approach, you’ll become the market’s bitch. Sorry, but there’s just no better way to explain it. While none of us can control what the market does, we can control our reaction to it always. And, our reaction must always be consistent and disciplined.
- Never get emotionally attached to trades, trading, losses or profits. Disagree. No matter how how you may try to trade like a program or turn the emotion off, you are human and your emotions will always be attached to your trades, your trading, and your performance. Instead of trying to ignore them (which is impossible for everyone), your job instead is to utilize your emotions as a tool. For example, learning when to recognize the signs when your trades are emotionally driven for example and which vary from your strategy can prove quite helpful. It is also important, which I think is in agreement with this rule, that the more systematic you make your trading – for example having a preset game plan (stops and price objectives) for every trade you make BEFORE you make it can help keep your emotion in balance so that your trading does not become emotionally driven. Again, the important thing is to learn to work with your emotions, not try to fight against them.
- Always trade with the size that makes you unemotional (emotional trading is the quickest way out of this game). Disagree. If you don’t have meaningful stakes on the line and don’t accept the fact that without risk, comes no reward, you have no reason to be involved in the market. In sum – you won’t achieve anything in the market if you always seek comfort. Of course, this means that you’ve already proven that you know what you’re doing and have the skills and track record to support this kind of trading. If you don’t have those, then you shouldn’t be trading anyway but using simulators and other practice techniques until you can trade with meaningful stakes. I do agree that emotionally-driven trading is not the path to greater success which is why you must develop your own strategy and then work that strategy versus letting your emotions control your process.
- Keep things simple and do not over-think or over-complicate your trading. Less is always more. Agree. Every trader goes through a bell curve cycle in this regard where they start knowing nothing (even though they think they know everything), then after being unhappy with their performance they work very hard to increase their knowledge and skills set (often making their strategy very complicated and rendering it virtually useless) and finally figure out how to boil everything down so that it makes sense and also works quite well. The problem is that we all need to go through this rough learning process to get to the other side which is to have a strategy that works and which is easy to use and stick with. Unfortunately, it will require you to “climb over this mountain” before you can get there – unfortunately there are no short-cuts around it.
Stay humble at all times. Agree. If you’re not humble, Mr. Market will humble you. And, usually right after you think you’ve figured everything out and couldn’t be any more confident in your strategy. Like most things in life, there will be good times and bad times, and neither one ever lasts. The same is true with trading which requires us to appreciate (and put money away for a rainy day) when times are good. Understand that most in this game fail for a reason – this is one tough game and not one you’ll ever truly become the master of.