Classic Trading Rules

January 20, 2012

Linda Raschke has published a list of what she referred to as Classic Trading Rules that were given to her when she was on the trading floor in 1984. I don’t concur with all the rules so I’ll list the ones that I try to live by as far as trading is concerned:

  • Plan your trades. Trade your plan.
  • Keep records of your trading results.
  • Keep a positive attitude, no matter how much you lose.
  • Don’t take the market home.
  • Continually set higher trading goals.
  • Successful traders isolate themselves from the opinions of others.
  • Continually strive for patience, perseverance, determination, and rational action.
  • Limit your losses.
  • Never get into the market because you are anxious because of waiting.
  • Losses make the trader studious – not profits. Take advantage of every loss to improve your knowledge of market action.
  • The most difficult task in speculation is not prediction but self-control. Successful trading is difficult and frustrating. You are the most important element in the equation for success.
  • Always discipline yourself by following a pre-determined set of rules.
  • You must have a program, you must know your program, and you must follow your program.
  • Expect and accept losses gracefully. Those who brood over losses always miss the next opportunity, which more than likely will be profitable.
  • The difference between winners and losers isn’t so much native ability as it is discipline exercised in avoiding mistakes.
  • Dream big dreams and think tall. Very few people set goals too high. A man becomes what he thinks about all day long.
  • Accept failure as a step towards victory.
  • Have you taken a loss? Forget it quickly. Have you taken a profit? Forget it even quicker! Don’t let ego and greed inhibit clear thinking and hard work.
  • One cannot do anything about yesterday. When one door closes, another door opens. The greater opportunity always lies through the open door.
  • The deepest secret for the trader is to subordinate his will to the will of the market. The market is truth as it reflects all forces that bear upon it. As long as he recognizes this he is safe. When he ignores this, he is lost and doomed.
  • It’s much easier to put on a trade than to take it off.
  • Beware of large positions that can control your emotions. Don’t be overly aggressive with the market. Treat it gently by allowing your equity to grow steadily rather than in bursts.
  • Never add to a losing position.
  • Beware of trying to pick tops or bottoms.
  • You must believe in yourself and your judgement if you expect to make a living at this game.
  • In a narrow market there is no sense in trying to anticipate what the next big movement is going to be – up or down.
  • A loss never bothers me after I take it. I forget it overnight. But being wrong and not taking the loss – that is what does the damage to the pocket book and to the soul.
  • Of all speculative blunders, there are few greater than selling what shows a profit and keeping what shows a loss.
  • Standing aside is a position.
  • If you don’t know who you are, the markets are an expensive place to find out.
  • In the world of money, which is a world shaped by human behavior, nobody has the foggiest notion of what will happen in the future. Mark that word – Nobody! Thus the successful trader does not base moves on what supposedly will happen but reacts instead to what does happen.
  • When the ship starts to sink, don’t pray – jump!
  • Assimilate into your very bones a set of trading rules that works for you.

If you have been trading for a number of years, I suspect you will recognize great value in this list.

FJP

{ 0 comments }

Wall Street Analysts’ Top Stock Picks

January 4, 2012

If you have been reading my posts long enough then you know what my opinion is of analysts’ top stock picks (hint – they are useless). Brett Arends’ recent article highlights his recent limited research on the value of analysts’ Buy and Sell ratings and concludes, as many have before him, that the ratings have no value despite the amount of effort consumed industry-wide to prepare them.  Oddly, at the end of the article Arends presents a list of Wall Street’s top stock picks.

FJP

{ 0 comments }

Mark Hulbert: The Folly of Following Last Year’s Hot Hand

January 3, 2012

Mark Hulbert has an article published on the MarketWatch site relating to the folly of following investment advice from the previous year’s hottest advisor.

Consider a hypothetical model portfolio that each year followed the model that had the best return in the previous calendar year, according to the Hulbert Financial Digest. Over 21 years through this past Dec. 31, this portfolio produced a 23.0% annualized loss.

For all intents and purposes, of course, that’s a complete and total wipeout.

Don’t conclude from this that you should instead follow the previous year’s worst performers. By doing that, you would perform even worse.

Consider a hypothetical portfolio that, instead of following the investment letter portfolio with the best returns in the previous calendar year, mimicked the portfolio that was the absolute worst performer. Believe it or not, this portfolio produced an annualized loss in excess of 50%.

What accounts for these results? Risk.

The portfolios that are at the top and bottom of the one-year rankings are almost always ones that have incurred extraordinary risk. Though once in a long while lightning will strike twice, the far more certain bet is that extremely risky strategies will eventually lose big.

The mass actions of investors to pull money out of funds that performed poorly the previous year and put it in funds that had a great previous year is well documented and, even though investors should know better, they en masse continue this practice year in year out.

FJP

{ 0 comments }

Exchange Holidays

December 23, 2011 Read the full article →

Did Investors in Bill Miller’s Fund Benefit Fully From Its Performance?

December 21, 2011 Read the full article →

← Previous Entries