Wednesday, January 02, 2008

A New Year For Trading

In lieu of posting my New Year's resolutions, I thought I would revisit my Top 10 Trading Commandments. I like reading this list every so often, because it is when we lose focus of these principles that we make mistakes, costly mistakes.

So here they are:

1. Discipline trumps conviction. Don't let your bad trades turn into investments.

2. Perception is reality in the market. Adapt your style to the market; and learn to accept the market as it is, not how you wish it was.

3. Play great defense, not great offense. Opportunities are made up easier than losses.

4. Don’t confine your thinking in terms of boundaries. Expect the extreme, and don’t miss major profit opportunities.

5. Know your companies; Hold your stock as long as it is performing properly; cut your losses fast, and don’t "hope" for a rebound.

6. Risk control is important; always quantify your risk going into a trade.

7. Be diligent and thorough in your research; Do your homework, recap each day, and learn from your mistakes.

8. Don’t get caught in a situation in which you could lose a great deal of money for reasons you don’t understand.

9. Respect the price action but never defer to it. When unsure, trade "in between."

10. Emotion is the enemy when trading. Be greedy when others are fearful, and fearful when others are greedy.

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