They would be right, but, I haven’t killed myself yet because I
know how to mitigate the risks involved in this tricky sport.
It's not much different than
trading.
When I ski, I make sure I know the
weather, the lay of the land, avalanche data etc. I bring the proper tools. I carry a beacon, a rope and a probe. I follow the rules. I only cut the slope above
potential release points, I wear a helmet and never ski alone.
You have to do the same thing
when trading. It doesn’t matter if you are
a skier or a traders, you have to follow the rules
to be successful. I don’t know any successful
traders who don’t follow rules. We are not perfect. We are human. Novices and seasoned
traders make mistakes and have their own weaknesses and their own struggles but all our little individual idiosyncrasies usually won't kill us or blow up our account if we follow the rules.
On the back terrain, I'm in
charge of my life and when I trade, I'm the only one in charge of my portfolio
health. You, and you alone, are in charge of the life of your portfolio.
Just as you cant just jump
into off trail skiing, You can't just jump into trading. I suppose you could but we all have a learning curve in trading and that learning curve
can be very expensive.
There are amazing views in
off trail skiing and there are amazing
opportunities to make steady income in
trading.
THE RULES AS I SEE THEM:
1)You have to know the map of the market.
There is news we can't control. News releases come out unexpectedly during the day and we have to weather those storms but there is much that we can control by being aware of certain times and data. That’s the map of the world situation that day, economically and geopolitically
What news can you follow? You have to know upgrades, downgrades, comments by different analyst firm, earnings reports. Watch out for speeches before the market opens or during the trading day. The ECB and the FED more often than not, announce their speeches ahead of time, as do the Fed members. You must be aware of what economic data is due to be released that day. Almost every day there is
some sort of economic data released, some are more important than others
because some will have a great impact on the market. Avery positive market
can turn ugly very fast on bad economic data.
When the world is unstable,
the market gets much more volatile, this volatility can whip you around and
stop you out of trades. Be aware of impending world events. When sudden news is announced, there is often a first emotional swing in the market, either up or down. Trading options can help you weather
these volatility storms.
2) Bring the right tools into trading. Knowing technical and
fundamentals of trading are important. I believe that technicals are more important in short term (day) trading and fundamentals have a huge importance in longer term trading. As important as technical are, its
just as important not to use too many technicals. There are literally 100s of different
technical tools out there, RSI, Bolinger bands, moving
averages, oscillators, Elliott waves and the list goes on and on. You don’t want to make
trading too complicated by using a huge laundry list of technical. This is where more in not necessarily better, mainly because this can
create misleading signals and
confusing signals. You end up confused and paralyzed ... analysis paralysis.
Keep it simple and keep it
consistent. Decide what works for you and what you can understand and translate into price movement because in the end, it’s
the PRICE THAT COUNTS. It's all about the price. Stay with the trend. It's
an old expression but THE TREND IS YOUR FRIEND still works as well today as it did when I started 35 years ago. There are plenty of
countertrend traders but catching a falling knife can get your hurt (and its not in my repertoire
of talents).
3) Manage your portfolio. Manage your money. You
need to protect your capital base.
Rule of thumb for many traders. Never risk
more than 2% on one trade. You don’t want one trade to blow up your portfolio. I stick pretty closely to the 2% rule because NOTHING is 100% certain in
trading. Unexpected news can always
come out when you least expect it
It would be nice if trading
were just buy low and sell high, but its never that clean cut
But because its not clean cut,
those who recognize the opportunities have a huge advantage.
4) Have a trading plan. The best trading plans have rules. Have a trading plan BEFORE
you get into the trade. Have an entrance, have an exit. Know why you are getting in (because everyone else is getting in is NOT a good reason).
Know how many shares of stock are comfortable for you to hold because if you are trading with
too much size, you will be more likely to panic out of the trade.
Have stops AND keep your stops. None of us have 100% winners when we trade. One of the differences between a trader that
makes money and one that loses, is that they keep their losses small
If there is anyone out there
who says they never have a losing trade, walk away, better yet, run and don’t
look back. Don’t be tempted by the program or trader who promises the sky. I
can count without much trouble, my home run trades. Being successful is not about the home runs, it is about strong
consistent trading
You have to be able to take
the loss and walk away. Do not revenge trade. Revenge trading is when you are bound and determined to make back the
money in a stock after a loss. It hurts you in more than one way. You're not
trading with a plan because “I want to make the money back” is NOT a good
plan. Also, you lose focus on other stocks ideas that could be better
trades because you are so focused on making money back on that losing trade. You are also tying up your capital.
Let profits run. It doesn’t
mean that you don’t take some profits. I'm a very conservative trader. I move up stops, take partial trades and scale
out of trades.
5) We are all human. We are not robots. We have emotions. The two deadliest emotions are euphoria and despair. They are on opposite sides of
the spectrum but just as deadly.
Euphoria. You have an amazing trade or even an
amazing day or week of trades. You do everything right .. the stars are all
aligned for you, you can do no wrong and you're making hand over fist money. The confidence it gives you is great but overconfidence can erode your sensibility, your sense of caution and often your portfolio.
Despair. Despair clouds everything you
trade with self fulfilled prophecy. If you feel like this, walk away from the market and clear your
head and then get into smaller trades to get your confidence back.
6) This is probably one of the
most important rules or guidelines in trading. Patience and Discipline.
Wait for good trades. They will come. Wait
to get in and wait to get out until the market gives you a reason.
It is not always so easy. It's easy to feel pressure when others are trading and you want to be trading too. But remember, you don't know their plan, and you don't know their portfolio. You are not in charge of the health of their portfolio, ONLY YOURS>
Trade the right amount. Back to home run trades. Every one wants a home run and we all get them over time but starting out with
base hits builds your portfolio and your confidence. Remember there is the opposite of the home run trade, it's the death spiral trade.
Don’t invent trades. This
is my personal Achilles heel. I get bored. I tend to have an "A" type
personality. I want to do something. Even after all these years, I still catch
myself doing this and I can assure you, I don’t have many
profitable trades when I do this.
7) Keep a trading journal. It makes you think about
your mistakes and keeps us all honest with our mistakes. It also helps you see
what works and what doesn't work. We are always learning. No matter how long you are in this
business, the successful traders are always learning, from themselves and
from others
