Zen and The Art of Trading

The Ten Commandments of Trading
by Lewis Borsellino, "The Day Trader's Course", pg 13-16:

Commandment 1. Trade for success, not for money.
Your motivation is the well-executed trade.

Commandment 2. Be disciplined.
The disciplined trader - regardless of profit or loss - comes back to trade another day.

Commandment 3. Know yourself.

Commandment 4. Lose your ego.
The quickest way to end your career as a trader is to let your ego influence your decision making.

Commandment 5. Understand that there's no such thing as hoping, wishing, or praying when it comes to the market.

Commandment 6. Let your profits run and cut your losses quickly.

Commandment 7. Know when to trade and when to wait.
It is not practical or possible to trade every day, all day... If the market doesn't have a clear direction, then wait on the sidelines until it does. Meanwhile, keep your mind on the market, but keep your money out of it.

Commandment 8. Love your loser like you love your winner.
Maybe even more. Losing trades will be your best teachers.

Commandment 9. After three losing trades in a row, take a break.

Commandment 10. Observe the unbreakable rule.
As we all know, you can break a rule and get away with it once in a while. But one of these days, the rules will break you.

:D
 
Quote from martys:

Trading causes premature aging... I am getting senile.

"POKER RULE #51: Learn to play up and down the ladder. Don't just downscale your bets when you get cold, downscale the actual way you play the game. Back off within your method of play, alternately loosening up your game when things are going well and tightening back up when they are not.
Mathematician tell us that each hand takes place independently of all others. This is good advice to ignore..."

Back off and stay off the market when you get out-of-sync (confused) with the market rhythm. Profits are not important at that point. I try my best to scratch the trade when things doesn't look right or I don't like the rhythm (dull market).

Marty Schwartz suggests to go "neutral", take the lump sum, clear the head and digest any loss before going at it again. Don't go stop and reverse right away. Before you know it, they'll be taking the house away.

Sometimes I go "I am done with this swing for this time frame. I am getting tired. Let's not try to screw things up. Take a break and see if the next higher time frame sets up."
More...

Actually this rule is really about pressing the gas when the odds are stacking on your side (other people got caught by the market bad). It means using real leverage at the right time and go for the big kill. I do not want to comment on this because this is 100% theoretical for a small player like myself.
 
"POKER RULE#53: Include Failure in the System... Correctly played, therefore, poker is really a process of two steps forward and step back. Footnote: There is some evidence that this two steps forward and one step back is more than just a figure of speech: pro players report that on average they expect to have two winning sessions out of every three."

Losing is part of the game. Imperfection is expected and REQUIRED in trading. We can look to get the last tick but have the mental flexibility to back off from it when it doesn't happen. Don't get into the "all or nothing" mode when trading an efficient market like S&P. Actually the time one should worry most is when we have no loser. The ancient oracle book of I-Ching warned "Extremes will revert."
The losers can easily get stringed together because our performance is directly affected by our fear factor. We have to monitor our internal failure early on to short-circuit our programmed tendency to dig a six-feet hole (Fight). Flight! No time for ego. We need to step back, digest the losses (closure) and regain perspective. Don't piss the money away. Make sure we can be there when we regained our heads AND our fortunes turn.
 
Quote from martys:

One definitely must combine the skills and knowledge with the proper mindset and psychology. I was looking up Munehisa Homma the lengendary trader of Sakata, Japan in 1700's who started the theories of candlestick charting. Here is this guy who had a streak of 100 winning trades in trading rice futures. He could be just lucky.... The candlestick patterns and setups merely stacked probability in his favor but not commanded the kind of precision in his results. He was actually a multi-facet trader. Besides weather patterns and crowd psychology (charting), he also applied eastern philosophy and military strategies into his trading. Although I don't read Japanese, I am sure there is something lost in translations because the western authors want to be cultural sensitive to their readers and skipped a lot of Yin-Yang mumbo jumbo. He became the wealthiest of Japan, a philantropist and a Buddhist monk later in life.
More...

It just occurs to me there is a Chinese proverb of "hundred battles hundred wins" to describe someone who wins very often. Maybe Munehisa Homma's winning streak of 100 trades is a mistranslation. Maybe there is some Japanese speaking trader who can verify this.
 
"POKER RULE #54: All hesitations are noted. The game of poker eventually reaches a certain rhythm in which, if you hesitate, it tells the other players something... For this reason it is necessary to know the game so well that you make decicions instantly and are able to control your hesitations - or lack thereof..."

I am not sure whether this applies well with trading but it clearly suggest the importance of practice to retain the ability to make quick decision. There are also time when the market hesitates, momentum slowing down to signal "possible" pullback or reversal. The action to be taken will be very much depends on one's trading style, trade management, and perspective.
 
"POKER RULE#55: Prolong the time spent looking your cards. Obvious, clear-cut, good cards lead to easy decisions. No player sits and stares at four kings minute after agoniznig minute, trying to figure out what to do with them. But perhaps they should. Vary how long you look at your cards. Your action are being observed..."

This might be more important in trading from the perspective of the observer. Good trading opportunity usually does not last for the bus people to come in. Hesitation sometimes signals a lack of follow-thru.
 
"POKER RULE #56: Resist your first impulse. You may notice (by observing yourself) that if you get a good hand you tend to reach for your chip a little quicker than at other times."

Again applying this to trading, you might need to put yourself in the shoes of the observer. Sometimes price will not stay at a certain price level very long (quick hands) which may suggest short-term support/resistance.
 
"POKER RULE #57: Be flexible."

Be flexible with the market read and yet not too skittish. There is a fine line between flexibility and confusion. When things doesn't look right, or the energy doesn't feel right, you have to decide how to get out and whether to reverse because people like you are getting caught. Stop and immediately reverse blindly usually is not the best thing to do because your puke point is probably a temporary support line where everyone else already puked at the same time.
 
The only way to turn the corner is to get rid of marginal trades. People can be wrong with their "good" trades and get trapped but one can compensate the mistakes by maximizing profits on trades that should be maximized. It is ALREADY a very fine balance. If one inject a few marginal trade into the picture, it will quickly screw up the Profit/Loss equation. Making the matter worse, it will create chaos in both your equity curve and hence your head. Just get rid of marginal trades, don't stare the monitor whole day and learn to maximize profit WHEN appropriate.

If we fail to take the responsibility to get rid of marginal trades, we have no privilege to trade. Actually it would be pretty meaningless to try to fix thing any other way, provided one does have a good method. The only thing this thread is telling you:

Trade LESS, make more.
 
Quote from martys:

"POKER RULE #57: Be flexible."

Be flexible with the market read and yet not too skittish. There is a fine line between flexibility and confusion. When things doesn't look right, or the energy doesn't feel right, you have to decide how to get out and whether to reverse because people like you are getting caught. Stop and immediately reverse blindly usually is not the best thing to do because your puke point is probably a temporary support line where everyone else already puked at the same time.
More...

I have taken this rule a little out of context (you would notice if you read the text) but I think it is important being a flexible trader. In Dao De Ching, Lao Tzu mentioned that being soft, pliant, and yielding are the properties of living things (live body and fresh plant are soft) and being hard-head, tough, and stiff are the properties of dead things (corpse, dry branches, brittle leaf etc). Don't be hard-headed during trading. Back off if you sense you are losing your focus.
 
You must log in or register to reply here.
Back
Top