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11 Rules for Better Trading

11rulesbettertrading

Trading in the markets is a process, and there is always room for self improvement. So as we start the new year, here are my 11 rules that help me navigate the markets. By no means is this list exhaustive or exclusive.

Rule #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.
Rule #2 Be disciplined : The data should guide you in your decisions. This is the only way to navigate a potentially hostile and fearful environment. (more…)

Lessons Learned

“So far in 2009, what are the  the most important thing I had  learned about investing, trading, and/or the markets?”

lessons-learned

  • Success takes longer than expected

  • That you must learn to trade and trust yourself and not to become so dependent on the opinions of others, which ultimately keeps you from becoming the best you can be
  • Keep it simple
  • The very best profit opportunities occur in the midst of extreme emotional sentiment
  • Always think opportunistic verses too bullish or bearish
  • Persistence and dedication to a daily routine is key
  • Developing an edge is the first step for trading successfully. Without that, disciplined trading will only make sure you gradually losing money
  • The market is one unforgiving bitch!
  • It is challenging to find non-correlated markets
  • You have to respect the market even if you think it is under some kind of manipulation
  • Keep your eyes open and powder dry
  • If you fall in love with a stock keep 100 shares and let the rest go
  • I’ve learned to be patient in waiting for my patterns to appear
  • The value of ETFs
  • The importance of finding special situations that will be profitable no matter what the market does
  • Stay away from light volume when the only thing trading is the black boxes
  • The importance of focusing only on one technical setup in order to improve one’s skill set
  • I now think that buy and hold is a serious mistake
  • Think big and think long term
  • Don’t try to predict the markets
  • Don’t be afraid in bear markets, just another opportunity
  • The odds are stacked against the retail investor
  • There’s no such thing as a sure thing
  • The harder I work at it the more likely I am to succeed
  • Conserving one’s capital is vital
  • I know the rules – I just need to notch-up my discipline
  • Smaller entry positions can be helpful
  • Opportunities are everywhere
  • The market is primarily psychologically driven
  • Trade with the trend instead of trying to pick tops and bottoms
  • Know where and when to get out before you get in
  • As Johny Cash put it “You got to walk that lonesome valley, you got walk it by yourself. Nobody else can walk it for you. You got to walk it by yourself.”
  • The difficulty of avoiding over-optimization/curve fitting
  • Overtrading can be, and often is, a recipe for disaster
  • To breathe before executing a trade
  • Trading is not a profession for pessimists
  • Never feel confident even when winning. Humility is a good thing
  • You need to be quick and brutal with the trading decisions
  • It is okay to sit out a potential move – risk management over reward chasing
  • Don’t bet the farm in either direction
  • There is no consistent logic to trading the market
  • Some trades need to be taken when they appear, not just when you are ready
  • There’s no rule that quality stocks must go up
  • Don’t chase any overbought stocks
  • When a sector (like financials) look so hopeless as it did in March there is potential to make a lot of money if things turn around even just a little
  • Hope is a four-letter word and has no place in a trading strategy
  • Patience. It is ok to sit out once in awhile
  • Wait until you have an proven strategy supported by data before trading for keeps
  • Anything can happen. Trading is all about probabilities

  • Technically Yours-ANIRUDH SETHI ,BARODA ,INDIA

 

Anirudh Sethi's Lessons From 2008 : Part – II

 

1)In panics there is almost nowhere to make money without taking excessive risk
2)Timing entries and exits to oversold & overbought conditions helps achieve low-risk/high-reward entries
3)There is no such thing as a safe investment
4)Markets are dysfunctional, corrupt, and have no oversight
5)To let a stock prove itself to me, prior to jumping in based on my analysis alone (more…)

Activity and Inactivity

active-inactive

I’ve noticed that my trading is more and more characterised by periods of doing a lot of trading, followed by periods of doing nothing except watching.
This seems to be a positive thing, as the old days consisted of trading every day no matter what the conditions, where as now I find that the markets will go into a mode that I just do not like the look of. In such cases if I try to force something, to “find a trade”, then I’ll get burned for sure.
To some degree I think this is because I have not yet spent much time on developing my strategies for trading insides large consolidation patterns. Of course it gets easier as they become more developed but by that time they are also getting old, and in the past I start making good trades in them just as they are about to end. The hard parts to trade are the start of trends / end of consolidation, and the end of trends / start of consolidation. These are times when the market is changing its basic mode, and are great places to lose money.

Six Questions Worth Asking at the End of the Trading Day

six2What opportunities did I miss and what could have alerted me to those opportunities?
* What kind of trades are making me money? Where am I losing my money? What can I do about that?
.
* When I took heat on trades, what could I have done to enter at better prices?
* Was the level of risk that I took in trades commensurate with my conviction in the trade ideas?
* What were the themes and markets driving prices today that I should be alert for tomorrow?
* What are the themes, economic reports, and markets that might drive prices overnight that I should be alert for in the morning?

MARKET WISDOM

A list of golden sayings and rules I have gleaned from many sources:
wisdom-thought

  • Plan your trades, trade your plan.
  • Trade Quality, Not Quantity.
  • Keep it simple.
  • Don’t look for a reason to enter the market, look for a reason NOT to enter.
  • Don’t act due to “Newbie Nerves”
  • Don’t make up a trade. If you have to look, it isn’t there.
  • Never play with scared money.
  • You are not the market.
  • Buy dips in an uptrend, sell rallies in a downtrend.
  • Do not try to pick tops and bottoms.
  • It is only divergence if it came off a retracement – not a sideways market.
  • Indicators warn, price action confirms.
  • Divergence is early, cross-overs are late.
  • You cannot expect your positions to go immediately into the money.
  • Divergence means a detour, but not necessarily a new trend.
  • No-one knows what will happen in the markets.
  • Standing aside is a position.
  • Subordinate your will to the will of the market.
  • Large ranges beget small ranges, small ranges beget large ranges.
  • Once a thing is set in motion, it tends to stay in motion.
  • Sniper-rifle, not a shotgun.
  • Cut your losses short, let your profits run.
  • Only move stops in the direction of your position.
  • Do not let a winner turn into a loser.
  • Never add to a losing position.
  • Forget losses quickly. Forget profits even quicker.
  • Consistent behavior equals consistent results.

There are probably more, send ’em in…

25-One Liners for Traders (Read and Understand ) -Anirudh Sethi

  1.  If you need to spend your money in a relatively short period of time it doesn’t belong in the stock market.
  2.  If you want to earn higher returns you’re going to have to take more risk.
  3.  If you want more stability you’re going to have to accept lower returns.
  4.  The stock market goes up and down.
  5.  If you want to hedge against stock market risk the easiest thing to do is hold more cash.
  6.  Risk can change shape or form but it never really goes away.
  7.  No Trader is right all the time.
  8.  No  Trading strategy can outperform at all times.
  9.  Almost any Trader can outperform for a short period of time.
  10.  Size is the enemy of outperformance.
  11.  Brilliance doesn’t always translate into better Trading results.
  12.  “I don’t know” is almost always the correct answer when someone asks you what’s going to happen in the markets.
  13.  Watching your friends get rich makes it difficult to stick with a sound Trading plan.
  14.  Day trading is hard.
  15.  Outperforming the market is hard (but that doesn’t mean it’s impossible).
  16.  There is no signal known to man that can consistently get you out right before the market falls and get you back in right before it rises again.
  17.  Most backtests work better on a spreadsheet than in the real world because of competition, taxes, transaction costs and the fact that you can’t backtest your emotions.
  18.  It’s almost impossible to tell if you’re being disciplined or irrational by holding on when your investment strategy is underperforming.
  19.  Reasonable investment advice doesn’t really change all that much but most of the time people don’t want to hear reasonable investment advice.
  20.  Successful  Trading is more about behavior and temperament than IQ or education.
  21.  Don’t be surprised when we have bear markets or recessions. Everything is cyclical.
  22.  You are not George Soros or Jesse Livermore
  23.  The market doesn’t care how you feel about a stock or what price you paid for it.
  24.  The market doesn’t owe you high returns just because you need them.
  25.  Predicting the future is hard.

Emotional Discipline

asr1
The key to trading success is emotional discipline. If intelligence were the key, there would be a lot more people making money trading. I know this will sound like a cliche, but the single most important reason that people lose money in the financial markets is that they don’t cut their losses short.”