1 Trade like a guerilla warrior
You must learn to adapt quickly to changes. If the winning side is
changing, don't hesitate to join the new party and to commit all your
forces to this side (capital ,mental, emotional)...until the market
conditions change. Don't get married to trades.
2 Be disciplined
Create a game plan then stick to it. A trade does not simply consist of
a position. It consists of a position plus reasons for having the
position plus a stop loss level plus profit taking levels. In the long
run your discipline will save you when markets get rough.
3 Buy high...Sell higher - Sell Low...Buy Lower
Do not try to bottom fish or pick tops. When you think you know the
trend then follow it.
4 Think big picture but trade like a technical analyst
You must understand the fundamentals behind your investment ideas but
you need to understand the Technical Analysis too. When your fundamental
and technical signals point to the same direction...you have a good
chance to have a winning trade.
5 Do not use excessively tight stop losses
Spend more time identifying a good entry point. Be patient. Give some
freedom to the market. Place your stop losses carefully.
6 Hit your stops
The first stop is the cheapest stop on a losing position. Do not follow
the temptation to "hang onto" a losing position that has gone through
your stop loss level. It might work a few times but one day you will be
hammered if you trade without discipline.
7 In a Bull market...Be Long or Neutral - in a Bear market ...Be Short
or Neutral
A lot of people forget this rule and trade against the trend by calling
for short term changes in market conditions. This usually causes
psychological imbalance and frequently leads to losses.
8 Go for the most powerful market trend
Do not focus too much on markets where the trend is not strong enough or
the market is range bound or choppy. Commit your forces to the stronger
trend.
9 Accept losses they are part of the game
Prepare yourself mentally and emotionally for this eventuality. Take
some time off and come back fresh if you have been hit hard. Do not
fight with the trade, curse the market or make some bargain with
yourself (...if the market goes to my initial level I will get out... ! ).
10 Resist the urge to trade against the trend too early
The trend is usually right (fundamentally). Be patient. Wait for the
trend to turn. When the fundamentals and technicals are turning to the
other direction, wait a bit longer then enter.
11 Never add to a losing position
This is a recipe for disaster. Just add to winning positions especially
when the market is retracing.
12 Do not make a winning position lose
Use trailing stop losses. You must learn to take profits.
13 Bear markets are more violent than bull markets
You can trade bear markets with smaller positions. Expect violent
retracements so get in the habit of taking profits.
14 Keep all your technical analysis simple
Use simple support and resistance, Fibonnaci retracement and reversal
days. A good tip: When yesterday's daily trading range is the smallest
of the previous last 11 days trading range...be ready for a big move and
some volatility.
15 Be aware of market liquidity at all times
Assets do not just have prices. They have liquidity levels too, and just
as prices change so too does liquidity. Illiquid assets do not trade in
the same way as highly liquid assets. Only trade lower-liquidity assets
if there is sufficient compensation for the lack of liquidity and you
are a true expert in the asset class.
16 Be intellectually honest
When you are wrong admit it , learn from it and go on to the next trade.
The market rewards intellectual arrogance with losses and pain. If you
want to stick to your point of view no matter what the evidence may be
to the contrary… become a politician.
17 Wall Street climbs on a wall of worry
Be aware that the most likely time for a bull market to end is when
everyone is bullish and the bottom of a bear market occurs when
everybody is bearish. When everyone is on the same bandwagon… be careful
and get ready to get out.
18 Be aware of Psychological biases in the markets
Bond traders tend to make most money as economies slow and dip into
recession. Stock traders tend to make most money when the economy booms.
So many bond market participants are always pessimistic and many stock
analysts are perpetual optimists. Try to remain objective and observe
which market commentators appear objective too.
19 Be patient
The more profound your ideas the longer it will take for others to see
them as well and thus the longer it will take for markets to move your
way. Be patient and give yourself and your trades time.
The 20th rule
If you have to...break the rules.
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