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30 Trading Rules

  
  Education
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1. Buying a weak stock is like betting on a slow horse. It is retarded.
2. Stocks are only cheap if they are going higher after you buy them.
3. Never trust a person more than the market. People lie, the market does not.
4. Controlling losers is a must; let your winners run out of control.
5. Simplicity in trading demonstrates wisdom. Complexity is the sign of inexperience.
6. Have loyalty to your family, your dog, your team. Have no loyalty to your stocks.
7. Emotional traders want to give the disciplined their money.
8. Trends have counter trends to shake the weak hands out of the market.
9. The market is usually efficient and can not be beat. Exploit inefficiencies.
10. To beat the market, you must have an edge.
11. Being wrong is a necessary part of trading profitably. Admit when you are wrong.
12. If you do what everyone is doing you will be average, so goes the definition.
13. Information is only valuable if no one knows about it.
14. Lower your risk till you sleep like a baby.
15. There is always a reason why stocks go up or down, we usually only learn the reason when it is too late.
16. Trades that make a lot of intellectual sense are likely to be losers.
17. You do not have to be right more than you are wrong to make money in the market.
18. Don’t worry about the trades that you miss, there will always be another.
19. Fear is more powerful than greed and so down trends are sharper than up trends.
20. Analyze the people, not the stock.
21. Trading is a dictators game; you can not trade by committee.
22. The best traders are the ones who do not care about the money.
23. Do not think you are smarter than the market, you are not.
24. For most traders, profits are short term loans from the market.
25. The stock market can not be predicted, we can only play the probabilities.
26. The farther price is from a linear trend, the more likely it is to correct.
27. Learn from your losses, you paid for them.
28. The market is cruel, it gives the test first and the lesson afterward.
29. Trading is simple but it is not easy.
30. The easiest time to make money is when there is a trend.

Trading Psychology -Quotes

  
  Education
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  • To be a successful trader/investor, your intellect and emotion must work as a team, which is easier said than done.”

– James Dalton

  • ” Successful traders accept and expect losses. Losses are endemic to trading; they are the cost of doing business. The consistently successful trader accepts deep in his heart that his winnings will be tempered with inevitable loss. But the trader anticipates his ultimate triumph because he has structured the probabilities in his favor”.

-LBR

  • “To be a successful trader you need to trade without fear. When you use fear as a resource to limit yourself, you will create the very conditions you are trying to avoid. Or to say this another way, you will experience your fears.”

-Mark Douglas

  • “The man who insists upon seeing with perfect clearness before he decides, never decides.”

– Henri-Frederic Amiel

  • “…to be a successful trader, I must love to lose money and hate to make money…The first loss is the best loss; there is no better loss than the first loss…Trading is a discipline.”

– EEK

  • “One of the critical criteria I use in judging my traders is their ability to take a loss. If they can’t take a loss, they can’t trade.”

– John Mack

  • “If you have bad inventory, mark it down and sell it quickly.”

– Alan “Ace” Greenburg

  • “Never meet a margin call. (In other words, if the market is going against you, concede defeat quickly and liquidate before you really lose your shirt.)”

– James Grant

  • “Fail Often but never quit.”

8 Trading Psychology Quotes

  
  Education
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Your biggest enemy, when trading, is within yourself. Success will only come when you learn to control your emotions. Edwin Lefevre’s Reminiscences of a Stock Operator (1923) offers advice that still applies today.

  1. CautionExcitement (and fear of missing an opportunity) often persuade us to enter the market before it is safe to do so. After a down-trend a number of rallies may fail before one eventually carries through. Likewise, the emotional high of a profitable trade may blind us to signs that the trend is reversing.
  2. PatienceWait for the right market conditions before trading. There are times when it is wise to stay out of the market and observe from the sidelines.
  3. ConvictionHave the courage of your convictions: Take steps to protect your profits when you see that a trend is weakening, but sit tight and don’t let fear of losing part of your profit cloud your judgment. There is a good chance that the trend will resume its upward climb. (more…)

7 Things You Must Do to Win at Trading.

  
  Education
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1. Managing the risk of ruin.
Do not risk so much on any one trade that 10 losing trades in a row will destroy your account. risking 1% to 2% of your trading capital per trade  is a great baseline for eliminating the risk of ruin.
2. Only trade with a positive risk/reward ratio.
Only take trades where your possible reward is at least two or three times the amount of capital you are risking in the trade.
3. Always trade in the direction of the prevailing trend.
Always trade in the direction of the flow of capital for your specific time frame. Shorting rockets and catching falling knives is not profitable in the long run.
4. Trade a robust system.
Back test and study your trading method, system, or style to ensure it is a winning system historically. The key is that it had bigger winners than losers over the long run in the past.
5. You must have the discipline to take your entries and exits as they are triggered.
You must take your entries when they trigger, your losses when they are hit, and your profits when a run is over to be a successful trader.
6. You must persevere through losing periods.
All successful traders were able to overcome their losing periods to come back and make the big money. If you quit you will not be around for the opportunity to win big.
7. If you want to be a winning trader you must follow your trading plan not your fear and greed.
Emotions will undo a trader more than anything else. Trading too big is due to greed, missing a winning trade due to no entry is a sign of fear, traders must trade the math and probabilities not their own opinions or emotions.

Observation, Experience, Memory and Mathematics

  
  Education
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“Observation, experience, memory and mathematics – these are what the successful trader must depend on. He must not only observe but remember at all times what he has observed. He cannot bet on the unreasonable or the unexpected, however strong his personal convictions may be about man’s unreasonableness or however certain he may feel that the unexpected happens very frequently. He must bet always on probabilities – that is, try to anticipate them. Years of practice at the game, of constant study, of always remembering, enable the trader to act on the instant when the unexpected happens as well as when the expected comes to pass.

“A man can have great mathematical ability and an unusual power of accurate observation and yet fail in speculation unless he also possesses the experience and the memory. And then, like the physician who keeps up with the advances of science, the wise trader never ceases to study general conditions, to keep track of developments everywhere that are likely to affect or influence the course of the various markets. After years of the game it becomes a habit to keep posted. He acts almost automatically. He acquires the invaluable professional attitude that enables him to beat the game – at times! This difference between the professional and the amateur or occasional trader cannot be overemphasized. I find, for instance, that memory and mathematics help me very much. Wall Street makes its money on a mathematical basis. I mean, it makes its money by dealing with facts and figures.”

Control Your Emotions

  
  Education
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1. Caution.

Excitement (and fear of missing an opportunity) often persuade us to enter the market before it is safe to do so. After a down-trend a number of rallies may fail before one eventually carries through. Likewise, the emotional high of a profitable trade may blind us to signs that the trend is reversing.

2. Patience.

Wait for the right market conditions before trading. There are times when it is wise to stay out of the market and observe from the sidelines.

3. Conviction.

Have the courage of your convictions: Take steps to protect your profits when you see that a trend is weakening, but sit tight and don’t let fear of losing part of your profit cloud your judgment. There is a good chance that the trend will resume its upward climb.

4. Detachment.

Concentrate on the technical aspects rather than on the money. If your trades are technically correct, the profits will follow.

Stay emotionally detached from the market. Avoid getting caught up in the short-term excitement. Screen-watching is a tell-tale sign: if you continually check prices or stare at charts for hours it is a sign that you are unsure of your strategy and are likely to suffer losses.

5. Focus

Focus on the longer time frames and do not try to catch every short-term fluctuation. The most profitable trades are in catching the large trends. (more…)

Loss Aversion

  
  Education
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There’s a short Danny Kahneman interview at the Daily Beast here.  He notes why your best friends may not be your best advisors:

 Friends are sometimes a big help when they share your feelings. In the context of decisions, the friends who will serve you best are those who understand your feelings but are not overly impressed by them. 

 That’s the Kahneman I love to read, profound and interesting. But then he follows with this sentence:

For example, one important source of bad decisions is loss aversion, by which we put far more weight on what we may lose than on what we may gain.  (more…)

The 15 Truths about Great Trading

  
  Education
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 1) 45-55% (Average winning % of any given trader)

 2) Traders do not mind losing money, they mind losing money doing stupid things

 3) You can lose money on a Great trade  

4) Focus on the Trade, Not the Money  

5) Trading is a game of Probabilities, not Perfection  

6) Trade to make money, not to be right  

7) Nicht Spielen Zum Spass (if it doesn’t make sense, don’t do it)  

The market does not know how much you are up or down, so don’t trade that way (Think: “If I had no trade on right now, what would I do”)  

9) Learn to endure the pain of your gains  

10) There is no ideal trader personality type  

11) Fear and Fear drive the markets, not fear and greed  

12) Keep it simple: Up-Down-Sideways  

13) Make sure the size of your bet matches the level conviction you have in it (No Edge, No Trade; Small Edge, Small Trade; Big Edge, Big Trade)  

14) Making money is easy, keeping it is hard  

15) H + W + P = E

 a. (Hoping + Wishing + Praying = Exit the Trade!) 

Risk

  
  Education
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Ancient man had no risk management. Everything was left to ‘fate’ and the whims of the gods. Because ancient man felt that he was merely a victim of circumstance he did not see a need to plan for the future. Therefore, he had no future. In his book Against The Gods: The Remarkable Story Of Risk, Peter Bernstein plots out the history of man’s discovery of the law of probabilities and risk management. Suffice it to say, economic progress seems to run parallel with man’s ability to discover, quantify, and manage risk. Risk and reward are two sides of the same coin. One is not present without the other. You cannot receive the reward unless you are willing to take the risk and you cannot expect to keep that reward unless you learn to mange that risk. It is imperative to master both subjects if you expect to be successful in any endeavor, especially the arena of investing/trading.”

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