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Trading Wisdom for Traders

This exchange with a gentleman named Ed Seykota, who turned in a healthy 250,000 percent return for his clients over sixteen years, caught my eye:

What are the elements of good trading?
The elements of good trading are: (1) cutting losses, (2) cutting losses, and (3) cutting losses. If you can follow these three rules, you may have a chance.
How do you handle a losing streak?
I handle losing streaks by trimming down my activity. I just wait it out. Trying to trade during a losing streak is emotionally devastating. Trying to play “catch up” is lethal.

 A little later in the interview, there was this:

What are the trading rules you live by?
a. Cut losses.
b. Ride winners.
c. Keep bets small.
d. Follow the rules without question.
e. Know when to break the rules.
Your last two rules are cute because they are contradictory. Seriously now, which do you believe: Follow the rules, or know when to break the rules?
I believe both. Mostly I follow the rules. As I keep studying the markets, I sometimes find a new rule which breaks and then replaces a previous rule. Sometimes I get to a personal breakpoint. When that happens, I just get out of the markets altogether and take a vacation until I feel that I am ready to follow the rules again. Perhaps some day, I will have a more explicit rule for breaking rules.

 Never underestimate the importance of psychology and attitude as crucial elements of successful trading.

7 Points to Bulid Trading Confidence

1. Frequently visualize a successful trading process. What goes into good trading for you? Make sure you see the preparation required, the focus you have during the trading day, and the continous learning from both winning and losing trades to keep getting more effective.

2. Increase your level of physical fitness, as this will enhance both your trading alertness and give a boost to your self-image simultaneously. Both of these elements make you a more confidence trader.

3. Make a list of your strengths. Review this list regularly to remind yourself of how successful you really are.

4. Eliminate negative thoughts and memories. When they occur, replace them with positive self-statements (for example, “I create my own luck” or “I have a good written plan of how I will execute my trades”).

5. Have a general strategy going into each trading day. When you prepare the day before, you position yourself to be proactive and gain confidence as you implement your plan. How aware are you of what you’re experiencing in your mind, body and soul at any moment?  You need to set up a monitoring system at the end of each trading day, to summarize what you executed according to your rules and what you did not.  Look for patterns in your behavior, that you can copy if they work for you, or minimize if they are costing you.

6. Create positive body language regardless of the gain or loss on that trading day. The way you act will often influence the way you feel for future trades. The more confident you feel, the more confidence you will show in your trading.

7. Improve on areas of weakness during preparation time and you’ll create more confidence and belief during the trading day. 

Focus on one of these seven tips at a time, until you can build that area as a habit in your routine.  This will service to greatly improve your trading confidence over time.

Linda Bradford Raschke – 50 Time Tested Classic Stock Trading Rules

50

1. Plan your trades. Trade your plan.
2. Keep records of your trading results.
3. Keep a positive attitude, no matter how much you lose.
4. Don’t take the market home.
5. Continually set higher trading goals.
6. Successful traders buy into bad news and sell into good news.
7. Successful traders are not afraid to buy high and sell low.
8. Successful traders have a well-scheduled planned time for studying the markets.
9. Successful traders isolate themselves from the opinions of others.
10. Continually strive for patience, perseverance, determination, and rational action.
11. Limit your losses – use stops!
12. Never cancel a stop loss order after you have placed it!
13. Place the stop at the time you make your trade. (more…)

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