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Trading Bits of Wisdom

random image In no particular order of importance<
  1. If you want to stay in this business, leave "hope" at the door and stick to your stops."
  2. When you get into a trade, start looking for signs right away that you are wrong. If you see them, then get out before your stop is hit.
  3. Trading should be boring, like factory work. If there is one guarantee in trading, it is that "thrill seekers" get their accounts grinded into nothing.
  4. It helps to just follow a handful of stocks on any given day. Don’t jump on the next hot thing. Develop your plan and stick to your plan.
  5. You are trading other traders, not the actual stock. You have to be aware of the psychology and emotions behind trading."
  6. Be very aware of your own emotions. Irrational behavior is every trader's downfall. If you are yelling at your computer screen, imploring your stocks to move in your direction, you have to ask yourself, "Is this rational?" Ease in. Ease out. Keep your stops. No yelling.
  7. "Watch yourself if you get too excited excitement increases risk because it clouds judgment."
  8. "Don’t overtrade be patient and wait for 3-5 good trades."
  9. If you come into trading with the idea of making big money, you are doomed. This mindset is responsible for most accounts being blown out.
  10. Don’t focus on the money. Focus on executing trades well. If you are getting in and out of trades rationally, the money will take care of itself.
  11. If you focus on the money, you will start to impose your will upon the market in order to meet your financial needs. There is only one outcome to this scenario: you will hand over all of your money to traders who are focused on protecting their risk and letting their winners run.
  12. The best way to minimize risk is to not trade. This is especially true during the low-volume 'chop and slop' found during the afternoon trading session. If your stocks are not acting right, then don't trade them. Just sit and watch them and try to learn something. By doing this you are being pro-active in reducing your risk and protecting your capital
  13. There is no need to trade 5 days per week. Trade 4 days per week and you will be sharper during the actual time you are trading.
  14. Refuse to damage your capital. This means sticking to your stops and sometimes staying out of the market.
  15. Stay relaxed. Place a trade and set a stop. If you get stopped out, who really cares? You are doing your job. You are actively protecting your capital. Professional traders actively take small losses. Amateurs resort to hope and sometimes prayer to save their trade. In life, hope is a powerful and positive thing. In executing a trade, hope is a virus that can infect and destroy.
  16. Be right on day one or get out. Don’t take a “red” position home overnight.
  17. Keep winners as long as they are moving your way. Let the market take you out on a trailed stop
  18. Money management is the secret to success. Don’t overweight your trades. The more you overweight a trade, the more “hope” comes into play when it goes against you. Hope is to trading as acid is to skin. The longer you leave it in place, the more painful the outcome will be.
  19. There is no logical reason to hesitate in taking a stop. Re-entry is only a commission away.
  20. Professional traders take losses. Being wrong and not taking a loss does damage to your equity and your mind.
  21. Once you take a loss you forget about the trade and move on anyway. Especially if it is a small one. Do yourself a favor and take advantage of any opportunity to clear your head by taking a small loss.
  22. Never let one position go against you by more than 2% of your account equity. The larger the position, the tighter the stop.
  23. Use daily charts to get an idea of the 30-day trend, hourly charts to get an idea of the 1-day trend, and 5-minute charts to establish your entry points.
  24. If you are hesitating to take a position, that indicates a lack of confidence that is not necessary. Just get into the position and place a stop. Traders lose money in positions everyday. Keep them small. The confidence you need is not in whether or not you are right, the confidence you need is in knowing you will stick to your stop no matter what. Therefore you can actually alleviate this hesitancy to “pull the trigger” by continually sticking to your stops and reinforcing this behavior.
  25. Averaging down on a position is like a sinking ship deliberately taking on more water.
  26. Build up to a full position as it goes your way.
  27. Adrenaline is a sign that your ego and your emotions have reached a point where they are clouding your judgment. Realize this and immediately tighten your stop considerably to preserve profits or exit your position.
  28. Look for opportunities not to trade.
  29. Most of the time, you want to own the stock before it breaks out, then sell it to the momentum players after it breaks out. If you buy breakouts, realize that professional traders are handing off their positions to you in order to test the strength of the trend. They will typically buy it back below the breakout point—which is typically where you will set your stop when you buy a breakout. Greed comes into play when the stock breaks out again, and the momentum players are forced to chase it and “pay up” for the stock. Be aware of how trends are established and use that to your advantage to enter and exit positions.
  30. Embracing your opinion leads to financial ruin. When you find yourself rationalizing or justifying a decline by saying things like, “They are just shaking out weak hands here,” or “The market makers are just dropping the bid here,” then you are embracing your opinion. Don’t hang onto a loser. Cut your losses. You can always get back in.
  31. Here is a passage from Wyckoff's earliest work, Trading With Umbrage. I keep this tacked on the wall above my
  32. The key to trading is emotion. Should a trader find that he becomes rapt, flummoxed or otherwise bamboozled during a trade he must act with all alacrity. He must understand that the trade itself is not evil or ordered from the gates of heaven, but that the demons have come from within. Necessarily, he must therefor purge the offending urges forthwith.
  33. Many times I have ignored my own wisdom and allowed rage or euphoria to pillage the long effort and expense of my elaborately decored corner office high above Wall St. Coquettish fine furnishings and rare antiques have been set afire or cast from my 36th floor window whether good trade or bad based on the whims of my current approbriation.
  34. Nay, and I am not alone. Harlan Curlinson, a man who trades professionally for Chalmers & Hay, (and owes me over $23,000 for various services) found himself beating the floor scrubber with his walking stick as the advice given him by former President Taft proved incorrect to short DuPont as he believed Nylon to be a fad.
  35. Listen to me well prospective trader. If you cannot crush your sensitivities with an iron glove then they will in turn crush you. At the least hint of passion or sentiment run to the lavatory and hurl yourself mightily headlong into the wall. Thus dazed you may have a chance to regain your precious and hardbegotten poise and impartiality.
  36. Neither allow colleages, co-tenents or men of any ilk to compromise the equanimity which is the only basis of your prospective wealth. Upon the the intrusion of said gadabout run from the room. Run I tell you, as if the very hounds of hell have beset you and once again fling your corporal countenance upon the lavatory wall. The physical pain, offsetting the emotional torpor, will follow the salacious binds of natures surest apothiosis.
  37. Ever Present Temptations to ALWAYS Resist:
    • Trading a Forecast
    • Trading a move BEFORE it happens… don't jump the gun
    • Trying to pick a top in an uptrending stock and vice versa
    • Asking or wondering "why?" to explain things
    • Being influenced by the external news/events. They are totally meaningless to market
    • Betting the farm
    • Being myopic or closed minded in your selections or beliefs
    • Trying to make alot in a least amt of time
    • Trying too hard, watching too closely
    • Assuming the "majority" is wrong
    • Trading on tips or "themes"
    • …and Betting too much on any sinlge trade Not diversifying enough (over time, stock and sectors)
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