In trading, your biggest enemy is within yourself. Success will only come when you have learned to control your emotions. Edwin Lefèvre’s Reminiscences of a Stock Operator (1923) offers advice that applies even today.

• • Caution: Excitement, along with the fear of missing an opportunity, often drives us to enter the market before it is safe to do so. After a down trend a number of rallies may fail before we can carry eventually carry it through. Likewise, the emotional high of a profitable trade may blind us to see the trend reversal.
  • Patience: Before you trade, wait for the right market conditions. At times, it is wise to stay out of the markets and observe it from the sidelines.
  • Conviction: Have the courage to cling to your convictions. Take steps to protect your profits when you see that a trend is weakening, but sit tight and don’t let the fear of losing some of your profits cloud your judgment. There is a good chance the trend will resume its upward climb.
  • Detachment: Concentrate on the technical aspects rather than the money. If your trades are technically correct, the profits will follow. Stay emotionally detached from the market. Avoid getting caught up in short-term excitement. Screen watching is a tell-tale sign: if you keep checking the prices or stare at charts for hours, it’s a clear sign of insecurity about your strategy and you are likely to suffer losses.
  • Focus: Focus on the longer time frames and don’t try to catch every short-term fluctuation. The most profitable trades are in catching the large trends.
  • Expect the unexpected: Investing involves dealing with probabilities, not certainties. No one can predict the market correctly all the time. Avoid the gambler’s logic.
  • Average up, not down: If you increase your position when the price goes against you, you are likely to compound your losses. When the price starts to move, it tends to keep moving in that direction. Increase your exposure when the market proves you right and moves in your favor.
  • Minimize your losses: Use stop-losses to protect your funds. Once the stop-loss is set, don’t hesitate but act immediately. The biggest mistake you can make is to hold on to a losing position and hope for recovery. The markets have a habit of declining way below what you anticipate. Eventually, you are forced to sell, decimating your capital.

Human nature being what it is, most traders and investors ignore these rules when they start out for the first time. It can be an expensive lesson, though.

Control your emotions and avoid being swept along with the crowd. Make consistent decisions based on sound technical analysis.

“It never was my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight! It is no trick at all to be right on the market. You always find lots of early bulls in bull markets and early bears in bear markets. I’ve known many men who were right at exactly the right time, and began buying or selling stocks when prices were at the very level which should show the greatest profit. And their experience invariably matched mine–that is, they made no real money out of it. Men who can both be right and sit tight are uncommon.”

The above-mentioned quote is probably one of the more frequently cited in trading and investing circles. Many forget that there is an important nuance to that quote. It is the holding of great stocks in a bull market that will make you money. Try staying with a great stock through the turbulence of a bear market and then tell me how your holding is making you a ton of money. There are several things to consider:

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