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6,362 posts
msg #42860
Ignore TheRumpledOne
4/10/2006 8:08:02 AM

More Than Dead Words Perspectives for the week ending April 9, 2006

Moses had his Ten Commandments.

Letterman had his Top Ten.

This week, I present my Ten Simple Rules for Trading Stocks:

(in no particular order)
1. Plan to sell the losers - before you buy a stock, plan to lose. Don't think about how much money you are going to make, or what you will do with the winnings you take out of the market. Think about how much you will lose if you are wrong. Identify the point where the market will prove your investment decision wrong, and plan to sell when the stock gets there.

2. Don't plan to sell the winners - so many investors set price targets for their stocks, the point that they will sell the stock to lock in a profit. Rather than do this, only sell the stock when the market shows that the stock is more likely to go lower than higher. If a stock is winning, why let it go? Have patience with the strong stocks, and let them run.

3. Be picky - once you are good at reading stock charts and utilizing the indicators to separate good from bad, it will be quite easy to find good stocks. Don't buy good stocks, buy GREAT stocks. Be patient and wait for the trading opportunities that have the highest probability of success. Fewer trades can often lead to bigger profits over the long run.

4. Don't believe in the dream - promoters, the media, companies, brokers, analysts, newsletter writers and other players in the financial machine are all telling you what to buy and why it is good to do so. Don't belive anything you read, hear or see. Above all else, don't fall in love with the story. Too often, the stories are told by biased optimists. Trust only what the market tells you.

5. Don't wait for the market to prove you right - if your analysis tells you that a stock is likely to go higher from today, then buy it today. Don't wait a week until the stock has gone higher before entering. To be succesful, you have to be one step ahead of the crowd. Chasing stocks higher with the sheep will lead you to the slaughterhouse.

6. Recognize that the market never lies - market actiivity embodies everything that is known about a stock, both public and private. It indicates not only what people know, but also what people believe. Trust what it is telling you.

7. Don't trade because you have to make money - trading the market to pay the rent will change your psychology, and cause most people to make poor investment decisions. To trade successfully, you have to make decisions based on what the market is saying, and not what your financial needs are telling you to do.

8. Practice patience - selling strong stocks too early or jumping in to stocks before the market indicates they are likely to go higher are common problems that come down to a lack of patience. As humans, we seek out pleasure and often want to feel good now rather than later. Don't be myopic, timing is important when trading stocks.

9. Never get emotional - emotion is the enemy of the rational trader. When money is on the line, it is easy to let your heart get in the way of your head. Work on ways to avoid emotion in the investment decision making process.

10. Be disciplined - the most important rule is to have the discipline to stick to the other 9 rules. Trading is simple, but not easy. What makes it difficult relates to the simple fact that we are human, and we have to fight with the irrational forces that act in our decision making.

745 posts
msg #42866
Ignore maxreturn
4/10/2006 10:32:37 AM

Nice post TRO.

171 posts
msg #42877
Ignore drew9
4/10/2006 8:46:46 PM

All very true! Thanks for passing this along TRO!



11 posts
msg #42901
Ignore SiriusII
4/11/2006 11:35:08 PM

I am new. This was good to see.


StockFetcher Forums · General Discussion · Ten Simple Rules for Trading Stocks<< >>Post Follow-up

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