23 RULES FOR TRADING

For your weekend reading, I submit this article I found on the Investing Breakout website this morning, a list of 23 one-line pearls of wisdom for how to find success as a trader. 


Some observations:

#2:  I don't really agree that size matters. Size is of course a relative term and therefore meaningless.  What does matter is risk management and the #1 rule of risk management is never risk more than you afford to lose.  A good guideline is to never risk more than 2% of your capital on any one trade and then limit yourself with a 4% trailing stop loss. 

#6:  I'm not sure that I buy into the importance of studying psychology.  It's much more important to have a solid strategy based on thorough study and research and the discipline to stick with this strategy since almost all losing trades are the result of abandoning strategy and instead going with your gut.  If you find yourself doing this, then by all means study psychology.  But if you lack this discipline, perhaps you shouldn't be a trader. 

#6-8:  A number of good books listed here well worth checking out.

#8:    #8 is a direct contradiction to #2.  Go with #8 instead.

#19-21:  This gets back to the discipline issue.  If you're having this problem, you shouldn't be trading. 



4-18-20 Investing Breakout | ARTICLES 23 Rules

23 RULES FOR TRADING:

1. The market likes it rough. Don’t stare at the market from across the room and wait for it to make a move. Look the market in the eye right now. Get up out of your seat, go over there and say, “I’d like euro to come home with me.” Yes, I said euro.
2. Size does matter, so grab the market with both hands and give it what it wants. It wants size. You heard me, size matters. My friend, Tim Sykes, trades penny stocks with a daily volume of two million shares and, right now as I make this recording, he’s holding onto 100,000 of those shares in one of the stocks he’s trading. He goes big or he doesn’t go at all.
3. If you don’t have size, have some skills. Use what you have. Okay, so you can’t whip around 10% of the total outstanding volume of a penny stock. Then I want you to learn a trick, something you’re going to be known for; maybe it’s divergence, that’s my trick. Learn something that makes the market scream for more, keeps it coming back, makes it send you dirty text messages in the middle of the night. Don’t know any tricks? Then learn one, just one will do.
4. Confidence isn’t something you get to think about yourself because you did something; it’s stuff you do because you think a certain way about yourself.
5. Every trader feels like a fraud especially on Fridays when they give back everything they made Monday through Thursday. Here’s a tip—stop trading after you’ve made some money. I don’t think that’s really unreasonable.
6. Read fewer books about trading and more books about psychology. You’ve heard me say this before, I bet you’re tired of me saying it. I’d like to think that I have a small part in the destruction of the trading book business. Have you seen how much trading books cost? You can buy three books for the Kindle by Malcolm Gladwell for the same price as one trading book by me.
7. Here’s an article you should read right now—How I failed My Way to Success by Scott Adams. Actually, I don't think I got that title correct. I think that’s the title of his new book. If you type those words into Google, you’ll find a Wall Street Journal piece that he wrote a few months ago. This last October, I wrote a 20,000 word eBook about this same subject and then I found his article and it ruined everything. He said everything I wanted to say and he said it 50 times better with 50 times fewer words. Read it now.
8. Also, read The Spirit of Kaizen. It’s a book about how small incremental improvement is worth way more than grand gestures, big vision goal setting, stupidly delusional dreams. I bought the audio book, I bought the Kindle book, and I bought the physical book. I bought them all. I’m looking at it right now. It’s a great book.
9. Stop holding onto your losing trades. Really, I know, it’s not original.
10. You were great when you were a beginner because you didn’t know so much. Here’s what you need to do and here’s everything you need to know about trading systems. Look for a technical pattern that works most the time that sets up the kind of trade that you like. Look for news to support the direction you’ve traded. Close it if it doesn’t move in your favor. Add to it if it does move in your favor.
11. Even if you do everything in No. 10 above, you’re still going to lose about 90% of your first trading account and you’re going to be a losing trader for about the first two to seven years. Then you’re going to remember what I said earlier about stopping when you’re ahead each week and closing your losing trades fast and then you’re going to do No. 12.
12. Ride your winning trades. I know, so original. Someone told me on Twitter the other day that professional traders take their profits early and that I should not be foolish with my current trading position on the euro/Australian dollar. It must have been Opposite Day because that was the dumbest thing anyone ever said to me in my entire life. There is not one professional trader who gives a shit what I do in my account. I do not think it’s foolish to hold onto your winning trades. I think that’s common sense.
13. Take a look at missed pivots. If you’re holding onto a winning trade, look at missed pivots. If you don’t know what a missed pivot is, look it up on Google. If you trade from the longer-term charts, these are amazing bigger profit targets. They’re not for everyone. I’m not trying to tell you that they’re for everyone.
14. People on Wall Street make money from fees and commissions. Traders on Main Street make money from trading. That’s the way I see it. I know I’m probably wrong and I actually really don’t care. It’s a myth I tell myself to make myself feel better. I’m telling it to you so you believe it so that my myth becomes a reality. It’s delusional, but it’s my delusion.
15. If you want to be a trader on Wall Street, I want you to do the following things. I want you to get a job selling used cars at the most dishonest dealership you can find. Then I want you to sell as many of those cars to members of your own family. Now you’re ready to be a trader on Wall Street.
16. The market doesn’t owe you anything until you start acting more like a loan shark and less like the degenerate gambler that all of us are when we trade.
17. Different from the market are people. People do owe you, and it’s okay to call them on it.
18. I love Fib levels, but I’m not sure if they really mean anything. I’m pretty sure that nothing that we look at on the charts actually means anything at all. I’m pretty sure that when we die everything goes black, but there is a very small chance that the only thing after death are Fibonacci retracements, so I keep drawing them… and so should you.
19. You’re not supposed to be answering the phone, playing with your kids, watching Netflix, shopping online, or doing favors for other people during your trading time. You’re supposed to be trading, so cut it out. Block out the time and go to work.
20. Too many of you get scared after you take five losses in a row. I think you should cut off your pinky finger with a butter knife and then after that you will know what pain is like. If you lose five trades in a row next time, you’ll stop being a whiny bitch and you’ll say, “Oh well, at least that didn’t hurt as bad as the time I cut off my finger with a butter knife.”
21. Too many of you take a vacation from trading right when the market is finally ready to give you some action. Then you pat yourself on the back for taking the vacation and then you forgive yourself for missing the trades. I started to wonder if you’re actually engaging in some kind of bizarre self-sabotage. Then I realized if you’re smart enough to listen to the podcast, none of you are doing this at all. In fact, you’re probably on vacation most of the time. Hell, you’re listening to the podcast when you’re probably supposed to be doing something else. Instead of sitting around worshipping the market, you’re probably watching for the market to show its hand, and then you do your damage. That’s why I love you guys.
22. These didn’t really end up being any trading rules and they really weren’t that vulgar. So far, they’re just 22 things that I thought you should know.
23. Most of what you need to learn about trading can be reduced to one sentence—grow up, damn it.