List of personal rules for trading that makes U successful
- Thread starter novice
- Start date
Unfortunately, I end up sitting around on the off chance one of my setups is hit, but I find the probabilities of success usually drop dramatically during the day, so I pull back on the capital exposure if I decide to take a stab at something. Like I said, I usually don't... but I've found a nugget or two once in a while.
Context: I am a US equity speculator whoâs looking to beat the benchmarks (indices and ETFs) by a few percentage points each quarter. I have been trading US equities for more than 20 years.
Caveat: Rules donât do much for you unless you have a true edge (i.e., a working system). Most people never could develop an edge due to personal limitation on intellect or psychology. If you do have an edge, you can teach it to anyone, initially. Then, they will inevitably mess it up by trying to improve/adapt it.
My Ten Most Important Stock Trading Rules:
1. Learn from history
2. Forget history
3. Understand the odds
4. KISS
5. Follow your instinct
6. Understand offense
7. Understand defense
8. Trade at market
9. Don't overtrade
10. Take good care of yourself
Itâll take a good book chapter to elaborate on each rule. Following is a synopsis.
1. Learn from history
History repeats itself. Learn from it to understand what's likely to happen in the future. Hence, make good use of historical data & charting techniques.
2. Forget history
There are invariants and evolutions in history. Do not make the mistake of treating an evolution as an invariant, and vice versa. In addition, do not make quantum leaps of faith when extrapolating from the lessons of history.
3. Understand the odds
Know the odds of success of whatever youâre trying to do based on reliable statistics.
If you have no sense of what the odds are, you are taking a blind bet.
4. KISS (Keep It Simple Stupid)
Stay with simple strategies. Trying to be too clever ruins many traders.
5. Follow your instinct
Follow your instinct when you trade. Don't get into the destructive habit of second-guessing your decisions. However, if your instinct consistently gets you into bad trade, learn to ignore it, or better yet, quit trading stocks.
6. Understand offense
Make the most when you are trading well.
7. Understand defense
· Lose the least when you are trading badly.
· Trade simultaneously in several orthogonal sectors. This helps mitigate your downside risk.
· Do not make a position too large relative to your other positions, because no bet is a guaranteed success.
· Do not buy the same stock for several different accounts. This complicates your exit and potentially reduces your sell price.
8. Trade at market
It's often more important for the trade to get executed than to get an additional eighth or quarter point.
9. Don't overtrade
Do not let greed or despair cause you to margin to the hilt, or take a position that is too large. If you go for broke, you will be broke.
10. Take care of yourself
Spiritually and physically you have to be well to trade well. A trader who does not know how to take care of himself will eventually lose.
Caveat: Rules donât do much for you unless you have a true edge (i.e., a working system). Most people never could develop an edge due to personal limitation on intellect or psychology. If you do have an edge, you can teach it to anyone, initially. Then, they will inevitably mess it up by trying to improve/adapt it.
My Ten Most Important Stock Trading Rules:
1. Learn from history
2. Forget history
3. Understand the odds
4. KISS
5. Follow your instinct
6. Understand offense
7. Understand defense
8. Trade at market
9. Don't overtrade
10. Take good care of yourself
Itâll take a good book chapter to elaborate on each rule. Following is a synopsis.
1. Learn from history
History repeats itself. Learn from it to understand what's likely to happen in the future. Hence, make good use of historical data & charting techniques.
2. Forget history
There are invariants and evolutions in history. Do not make the mistake of treating an evolution as an invariant, and vice versa. In addition, do not make quantum leaps of faith when extrapolating from the lessons of history.
3. Understand the odds
Know the odds of success of whatever youâre trying to do based on reliable statistics.
If you have no sense of what the odds are, you are taking a blind bet.
4. KISS (Keep It Simple Stupid)
Stay with simple strategies. Trying to be too clever ruins many traders.
5. Follow your instinct
Follow your instinct when you trade. Don't get into the destructive habit of second-guessing your decisions. However, if your instinct consistently gets you into bad trade, learn to ignore it, or better yet, quit trading stocks.
6. Understand offense
Make the most when you are trading well.
7. Understand defense
· Lose the least when you are trading badly.
· Trade simultaneously in several orthogonal sectors. This helps mitigate your downside risk.
· Do not make a position too large relative to your other positions, because no bet is a guaranteed success.
· Do not buy the same stock for several different accounts. This complicates your exit and potentially reduces your sell price.
8. Trade at market
It's often more important for the trade to get executed than to get an additional eighth or quarter point.
9. Don't overtrade
Do not let greed or despair cause you to margin to the hilt, or take a position that is too large. If you go for broke, you will be broke.
10. Take care of yourself
Spiritually and physically you have to be well to trade well. A trader who does not know how to take care of himself will eventually lose.
Quote from Alvin:
trite BS, mostly
Most will never trade well because of limitations of intellect you say, but KISS, stay with simple strategy??
LOL
I have to agree with Alvin on this. In addition, I just want to mention that trading and speculating are two completely different things. Though I do not imply that one is better than the other or vice versa.
Great post. Thanks.
Worth reading again.
Remember what H. Rearden said:
Now, 2 patterns of market behaviour happen on a regular basis:
1) the price breaks to new high's (or low's)
2) the price reverses from new high's (or low's)
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If price is NOT making a new high then it must be reversing from the high.
If price is NOT making a new low then it must be reversing from the low.
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"Look, for example, at this elegant little experiment. A rat was put in a T-shaped maze with a few morsels of food placed on either the far right or left side of the enclosure. The placement of the food is randomly determined, but the dice is rigged: over the long run, the food was placed on the left side sixty per cent of the time. How did the rat respond? It quickly realized that the left side was more rewarding. As a result, it always went to the left, which resulted in a sixty percent success rate. The rat didn't strive for perfection. It didn't search for a Unified Theory of the T-shaped maze, or try to decipher the disorder. Instead, it accepted the inherent uncertainty of the reward and learned to settle for the best possible alternative.
The experiment was then repeated with Yale undergraduates. Unlike the rat, their swollen brains stubbornly searched for the elusive pattern that determined the placement of the reward. They made predictions and then tried to learn from their prediction errors. The problem was that there was nothing to predict: the randomness was real. Because the students refused to settle for a 60 percent success rate, they ended up with a 52 percent success rate. Although most of the students were convinced they were making progress towards identifying the underlying algorithm, they were actually being outsmarted by a rat."
P64 HOW WE DECIDE
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DRAIN THE BANKS - LIKE A RAT
1) price within 20 pips of the daily low - that is OPPORTUNITY
2) red candle closes
3) green candle closes - note the high price of the green candle.
4) enter long at the green candle's high price
5) STOP LOSS IS 10 PIPS
6) Take whatever profit you can.
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GREEN RAT REVERSAL - LONG ENTRY CRITERIA: 1) RED CANDLE CLOSES 2) GREEN CANDLE CLOSES 3) PRICE TOUCHES HIGH OF PREVIOUS GREEN CANDLE - ENTER LONG. STOP LOSS IS ALWAYS 10 PIPS.
RED RAT REVERSAL - SHORT ENTRY CRITERIA: 1) GREEN CANDLE CLOSES 2) RED CANDLE CLOSES 3) PRICE TOUCHES LOW OF PREVIOUS RED CANDLE - ENTER SHORT. STOP LOSS IS ALWAYS 10 PIPS.
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Let's clear things up:
1) To trade like a RAT is to ALWAYS trade in ONE DIRECTION - either LONG or SHORT. Once you pick a "team", you can't switch.
2) The "within 20 pips of the daily high/low" is the BEST possible entry to get the maximum run BUT the RAT REVERSAL entry works ANYWHERE on the chart.
3) The TRAINING WHEELS only signals LONG trades ABOVE the weekly open and SHORT trades BELOW the weekly above. This bias keeps beginning traders, as well as experienced traders, out of trouble.
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"The technique is so simple that just several lessons (or a few pages of explanations) cover it all. Now what? Now the student has to practice, practice and practice again to understand what he had been taught. The teacher DOES know much more than the student, but his understanding can't be "passed", "transferred" or taught in any way -- not even by reading books."
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MAXIMUM RISK = 2% * ACCOUNT BALANCE.
STOP LOSS = 10 PIPS. (INCLUDING SPREAD)
POSITION SIZE = RISK / STOP LOSS.
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You need both discipline and an edge to win.
I call that the "COOL HAND LUKE" approach because "sometimes nothing is a pretty cool thing to do."