Time Tested Classic Trading Rules for the Modern Trader to Follow

By Linda Bradford Raschke

This is a list of classic trading rules that was given to me while on the trading floor .
A senior trader collected these rules from classic trading literature throughout the
twentieth century. They obviously withstand the age-old test of time.
Im sure most everybody knows these truisms in their hearts, but this list is nicely
edited and makes a good read.
1. Plan your trades. Trade your plan.
2. Keep records of your trading results.
3. Keep a positive attitude, no matter how much you lose.
4. Dont take the market home.
5. Continually set higher trading goals.
6. Successful traders buy into bad news and sell into good news.
7. Successful traders are not afraid to buy high and sell low.
8. Successful traders have a well-scheduled planned time for studying the markets.
9. Successful traders isolate themselves from the opinions of others.
10. Continually strive for patience, perseverance, determination, and rational
action.
11. Limit your losses use stops!
12. Never cancel a stop loss order after you have placed it!
13. Place the stop at the time you make your trade.
14. Never get into the market because you are anxious because of waiting.
15. Avoid getting in or out of the market too often.
16. Losses make the trader studious not profits. Take advantage of every loss to
improve your knowledge of market action.
17. 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.

18. Always discipline yourself by following a pre-determined set of rules.

19. Remember that a bear market will give back in one month what a bull market
has taken three months to build.
20. Dont ever allow a big winning trade to turn into a loser. Stop yourself out if the
market moves against you 20% from your peak profit point.
21. You must have a program, you must know your program, and you must follow
your program.
22. Expect and accept losses gracefully. Those who brood over losses always miss
the next opportunity, which more than likely will be profitable.
23. Split your profits right down the middle and never risk more than 50% of them
again in the market.
24. The key to successful trading is knowing yourself and your stress point.
25. The difference between winners and losers isnt so much native ability as it is
discipline exercised in avoiding mistakes.
26. In trading as in fencing there are the quick and the dead.
27. Speech may be silver but silence is golden. Traders with the golden touch do not
talk about their success.
28. Dream big dreams and think tall. Very few people set goals too high. A man
becomes what he thinks about all day long.
29. Accept failure as a step towards victory.
30. Have you taken a loss? Forget it quickly. Have you taken a profit? Forget it even
quicker! Dont let ego and greed inhibit clear thinking and hard work.
31. One cannot do anything about yesterday. When one door closes, another door
opens. The greater opportunity always lies through the open door.
32. 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.
33. Its much easier to put on a trade than to take it off.
34. If a market doesnt do what you think it should do, get out.
35. Beware of large positions that can control your emotions. Dont be overly
aggressive with the market. Treat it gently by allowing your equity to grow steadily
rather than in bursts.

36. Never add to a losing position.

37. Beware of trying to pick tops or bottoms.
38. You must believe in yourself and your judgement if you expect to make a living
at this game.
39. In a narrow market there is no sense in trying to anticipate what the next big
movement is going to be up or down.
40. 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.
41. Never volunteer advice and never brag of your winnings.
42. Of all speculative blunders, there are few greater than selling what shows a
profit and keeping what shows a loss.
43. Standing aside is a position.
44. It is better to be more interested in the markets reaction to new information
than in the piece of news itself.
45. If you dont know who you are, the markets are an expensive place to find out.
46. 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.
47. Except in unusual circumstances, get in the habit of taking your profit too soon.
Dont torment yourself if a trade continues winning without you. Chances are it
wont continue long. If it does, console yourself by thinking of all the times when
liquidating early reserved gains that you would have otherwise lost.
48. When the ship starts to sink, dont pray jump!
49. Lose your opinion not your money.
50. Assimilate into your very bones a set of trading rules that works for you.

The golden rules of investing

What are the golden rules of investing? Here is a list from a site in India
The Sensex is on fire, notwithstanding Wednesday's dip. It's a bull run like no other
witnessed by Indian investors. And investment gurus -- like Marc Faber -- say this
bull run could last for a decade or more!
So what does the layman do in times of a roaring bull market? Are there any rules
for you and me to follow while dealing in the stock market? What should you avoid
doing? And, more importantly, what should you do? Here are some golden rules of
investing to follow:
1. Don't be greedy: Invest smartly, with some professional help and some study on
your own.
2. Avoid 'hot tips': Stay away from 'experts'. Use your own judgement.
3. Avoid trading/timing the market:
4. Avoid actions based on sentiments: Don't be emotionally attached to stocks:
5. Don't panic if the market drops: Hold onto your winners and sell your losers.
6. Stay invested, possibly continue to invest more: It is natural to book profits with
the markets at higher levels.
7. Buy stocks if there is a 5-8 per cent drop in the market: In this bull market, a 5-8
per cent drop in prices offers you a good opportunity to buy scrips.
8. Avoid checking the price of stocks or mutual funds after you've sold them:
9. Avoid penny stocks:
10. Diversify: We suggest you diversify a bit, looking at stocks, mutual funds,
commodities and gold. (I disagree with this one in form at least)
11. Don't commit large amounts of money: Even if you have a strong risk-bearing
capacity, we suggest you do not commit large sums of money at this stage.
12. Don't trade for short-term
13. Don't expect to be a millionaire overnight. Patience pays, so be realistic. 14.
Stick to the desired asset allocation: Asset allocation is the key to successful

investing, say experts. Even though equities may outperform debt substantially, it
will not be wise to put all your investments in equities.
14. Distinguish between stocks for keeps and trading: A variation of "never let a
trade become an investment."Buy with adequate margin of safety: That's where
attractive purchase prices can help. As a matter of fact, selling stocks is no different
from buying them. Keep a sufficient margin of safety when buying a stock and don't
rely on making a good sale ever.

15. Sell when value is realised: If you feel that your investments are adequately
valued, you should exit regardless of how long you have held them.
16. Keep a watch on relative valuations: The real cost of a stock is not the price you
pay for it, but the opportunity cost of not putting your money in another one.
17. If you realise a mistake, exit immediately
18. Start investing early.
19. Try to invest in things you know.
20. Try to adopt a long-term perspective with regard to investing.
21. Know your risk: Understand the level and amount of investment you are
comfortable with.
22. Play safe, invest in a mutual fund: For those who are still not sure about their
research, use mutual funds.
23. Encash when stock prices dip: Reduce some exposure, lock in some profits.
24. Don't blindly follow media reports on corporate developments, as they could be
misleading.
25. Don't blindly imitate investment decisions of others who may have profited from
their investment decisions.
26. Don't fall prey to promises of guaranteed returns.
Note that these rules are universal, and apply anywhere in the worlkd, as they are
based upon Human Nature and behavior

TIPS ON HOW TO BECOME A BETTER INVESTOR

By Ron Nathan

ORIGINALLY, when I wrote this article 6 years ago, it was entitled the Ten
Commandments. However, this time, there are only nine, as I decided to omit the
one about adultery. When Moses went up Mount Cyanide, he came down with two
heavy tablets made of stone, engraved in Hebrew. Unfortunately, I am much older
than he was, so I took the cable car up Mount Mayon and instead of bringing down
two large tablets, I brought down two capsules. I had them translated from
Mayonaise to English and here they are.

Despite the humorous introduction, the rest of this article will completely change
your investment psychology and you will be a far better investor in the future. What
follows is based on 59 years experience in London and Manila. You can profit from
my observations and mistakes. It will be particularly useful for beginners whose
knowledge of investing is limited. Good luck, and if you find it useful, cut out the
articles and paste them on your bedroom or office wall, in between your pin-ups of
Beyonce and Jessica Alba.

1. Do not trade against the trend

You will be shocked to learn that almost 90% of investors in the Philippines, U.S., UK
and Japan lose money in the stock market. This is because they ignore the first
commandments and jump in only after the market has already had a big rise. Let us
examine the Phisix first.
On January 9, 1997, the index stood at 3,420. Since then, it has been changed many
times, with the worst performers weeded out and replaced by better companies.
Despite this, the Phisix is still below the level it was 13 years ago. So, in theory, you
have lost about 20 percent of your money but this does not take into account
inflation, which in earlier years was very high. Adjusting for the depreciation of the
peso, you have lost 40 percent. During this period, you would have received hardly
any dividends whereas you could have earned 10 percent plus on bonds before.
Allowing for the loss of 13 years interest, your real loss is around 60 percent.
It was the same story in Japan, where the NIKKEI plunged from, almost 40,000 down
to 8,000, and is still only a fraction what it was in 1990. It would have been far
better to have bought gold, property or an oil tanker. The value of super tankers had
tripled.
So why invest in the stock market at all? The short and honest answer is that you
should not, unless you follow the rules, which I will set out in the next few pages.
The prime requirement is patience. There is no such thing as long-term investment.
Ask the Japanese, whom after 20 years are still losing much of their capital.

You only BUY when the market has fallen and the technical indicators say that it is
about to turn up. There are many indicators and I will deal with some in due course.
Conversely, you SELL when that index has had a big rise and the indicators show
that momentum is slowing down or is about to decline.
Players do not use their head, they trade on their emotions, and this is nearly
always wrong. I will tell you where to get the necessary fundamental and technical
data, but in the meantime, you can use a 20-day moving average of the index or
any stock, which you hold. If you have a computer program, you have a big
advantage over the average investor.

2. Cut your losses quickly

Years ago, before the 9/11 attack, a financial journalist wrote two books called
Market Wizards, in which he interviewed about 50 fund managers who had
outstanding records over a five-to-10-years period. Obviously, this could not be just
attributed to luck so he interviewed them in great detail, hoping to find the
connecting link. They traded commodities, currencies, options, futures and stocks.
They came in all shapes and sizes, short, tall, fat, thin, and it took him a long time
to find the connection. Some were pure fundamental analysts who never looked at
charts; others were technical analysts who did not know one side of a balance sheet
from the other. Some studied economics and neural networks while others preferred
tarot cards or feng shui. Some had masters degrees or doctorates while others
came from the street where they ran the jueteng or sold drugs. Some were
extremely serious and studied DESCARTES while others made terrible puns, were
covered in tattoos and wore nose rings. It took him a long time before he hit on the
solution. As the first four groups were highly leveraged, about 10 to 1, they followed
the principles of POP COLA.
Prolong Our Profits, Cut Our Losses Aggressively
Incredible as it may seem, although they took great care in their entry points, 63
percent of their transactions resulted in small losses. About 30 percent made small
gains while the remaining seven percent scored huge gains, doubling, tripling,
quadrupling or even becoming 10-baggers, because of the leverage.
So, when you get it right, let your profits run until momentum stops rising. But when
you get it wrong put a stop loss below your buying price, dependent upon your risk
tolerance. Sometimes, this will be a mistake but it protects you against disaster.
After all, you dont complain about paying fire insurance because your house didnt
burn down. You can afford to cut small losses. It is the big ones that ruin you.

3. Do not average down

Under normal circumstances, I am against the death penalty, but not for those who
break this commandment. They should be barbecued slowly over a fire while
concentrated hydrochloric acid is dropped upon them. All the people I know who
went bankrupt averaged down.
One client bought 20 million shares at 54 centavos on the advice of his neighbor
who was a director of the company. I was acutely unhappy because the shares had
risen from their par value of 1 centavo. Not only would he not sell at 50 centavos as
I suggested, but also he averaged down at 40 cents, 30 cents, 20 cents and 10
cents. He had to sell his house and his business to raise the money. Finally, the
shares stabilized at 1 centavo, before going bankrupt.
If you follow the second commandment, such disasters cannot happen to you. so
you will never be faced with the decision of whether to average down.

4. Do not overtrade
If you are trading every day, the only person making money is your broker. The
expense involved is too high. You have to pay two commissions and a 0.5 percent
sales tax. In addition, there is the difference between the bid and offer price, usually
about 1 to 2 per cent. So you have to make four per cent just to break even. This is
fine, so long as you BUY just as the stock is turning up, but if you deal constantly,
the expense will ultimately cripple you.
That small percentage is enough to make all the incredibly costly casinos in Las
Vegas profitable. They can afford to give free rooms, free food and drink, and free
shows to high rollers because they know that a percentage advantage of 3.6% is
enough to guarantee the house a sure profit over the long run. Trade only when the
technical indicators tell you to. For the remainder of the time, do nothing. Patience
is a virtue.
5. Do not trade on tips
In England, we say, Where theres a tip, theres a tap. I am sure you all remember
BW. The shares were run up deliberately by a consortium that, by tips and cross
trading, created enormous volume and sent the shares from P0.40 (under a
different name) to P108. Almost everyone except me got sucked in, mostly at the
higher levels, and those speculators, who did not use stop losses, saw their shares
go all the way down to P0.40 and below. One old lady wrote to me that her broker
had recommended it at P104. Would she ever see her money back? I replied,
somewhat unkindly, Only if you believe in reincarnation. These days, fewer people
follow tips.

6. Do not chase prices

If the price runs away from you, dont chase it. Most of the time, it will correct.
7. Be wary of inactive stocks
The documentary stamp, which made trading in shares well below their par value
prohibitive, has been removed. As a result, trading has increased greatly and
numerically third-liners comfortably exceed leaders.
I have a computer program that tells me when a stock increases in price by a
certain percent and its volume is 50 percent above its 50-day moving average. This
alerts me to inactive stocks that suddenly become active. Often, the spread
between bid and offer is too great or the number of shares available is too small to
be of any interest but occasionally, it throws up something interesting.
8. Buy low priced stocks
By this, I dont mean stocks quoted at a fraction of a centavo. I mean decent stocks
standing around at P1 to P5. Obviously, it is easier to double your money on a lowpriced stock than on a high-priced bank or insurance company. TEL, my most
successful recommendation at P226 and now over P2600, is not likely to double
from this level. The last commandments is
9. LEARN TECHNICAL ANALYSIS
If you desire to become a really competent investor, you must also learn global
economics and fundamental analysis. By global, I do not mean that you have to
study every country, but you must at least know what is happening in the United
States. Wherever the American stock market is heading, the rest of the world will
follow. After the 9/11 attack, the US market got battered for a few months and every
other stock market followed the downtrend. When the US market finally got back on
its feet, every other market recovered.
How do you learn about the American stock market? First, listen every night to
Bloomberg, assuming that you have cable TV, and tune into CNN. List to Chairman
BERNANKE when he addresses the Senate or Congress. If you cannot do this, then
read his speeches in the newspaper or go to the Internet and check on CNN
Money.com or Bloomberg.com and also read the commentaries. When Wall Street
sneezes, the rest of the world catches pneumonia.
Basic knowledge
For the local market, the business section should give you all the necessary
information. But if you want more details, to the web sites of the National Economic
and Development Authority or the Philippine Stock Exchange and listen to channels

which are largely devoted to the economic and political situation of the Philippines.
You can also enroll in courses at universities and colleges.
Next, you should have a basic knowledge in fundamental analysis. This means that
you need to know all about companies. You must know how to read a balance sheet,
calculate the earnings per share and from this, the price/earnings ratio. You need to
understand what a yield means, how many times a dividend is covered, and what
preferred and convertible stocks are. You should know book value and understand
such concepts as debt and cash flows.
You can take a course is accounting or business management, and there are plenty
of books, local and imported, in all the major bookstores. Or you can subscribe to
my newsletter, which contains all of the above.
If you want to buy a simple but excellent technical analysis book, try TECHNICAL
ANALYSIS OF THE FUTURES MARKET by John Murphy, available at local bookstores
but expensive. It was written years ago but is still considered to be a classic. Every
aspect is explained simply and it can be used for trading stocks, commodities,
currencies or futures. Also buy Beyond Candlesticks by Steve Nison, a must. There
are many sites on the Internet, which will teach you technical analysis and provide
the necessary charts and parameters. Good Luck!

10 Ways To Lose All The Money In Your Trading Account In 30 Days Or Less Guaranteed!
#10 - Put all of your efforts into finding the perfect technical indicator. Once you
find this magical indicator, it will be like turning on a water faucet. Go all in. The
money will just flow into your account!
#9 - When your technical indicator says that the stock is oversold, BUY IT RIGHT
THEN. Always do what your technical indicator says to do. It takes precedence over
price action.
#8 - Make sure to visit a lot of stock trading forums and ask them for hot stock tips.
Also, ask all your friends and family for stock tips. They are usually right, and acting
on these tips can make you very rich.
#7 - Watch what other traders do and be sure to follow the crowd. After all, they
have been trading a lot longer than you so naturally they are smarter.

#6 - Pay very close attention to the fundamentals of a company. You MUST know the
P/E ratio, book value, profit margins, etc. Once you find a "good company", consider
going on margin to pay for shares in their stock.
#5 - Forget about developing a trading plan. If you see a good stock just buy it.
Don't worry about when your going to sell. No need to get caught up in the details.
Besides, you'll probably get rich the first year of trading anyway.
#4 - Buy expensive computers and trading software. While your at it, buy a couple
more TV's so that you can watch CNBC on multiple screens! You NEED all of these
gadgets in order to trade stocks successfully. Then watch the money roll in!
#3 - Always follow your emotions. They are there for a reason. If you feel nervous,
sell the stock! If you are excited, buy more shares. This is the best way to trade
stocks and fatten up your trading account.
#2 - Don't worry about using stop loss orders. When the time comes, you will be
able to sell your shares and take a loss. Your emotions won't even come into play.
Besides, stop loss orders are for sissies!
#1 - Absolutely, without a doubt, FORGET about managing your money. Don't worry
about how much you can lose on a trade. Only think about how much loot your
gonna make. Then start planning that trip to Fiji!
Well, there you have it - my top 10 tips for new traders.
This list was easy to write.
I followed them all when I first started trading.

A tale of two investing styles

Personal Finance
By Efren Ll. Cruz
There are many investing styles being practiced in the market today. In fact, some
investors even buy into pooled funds based on the investing styles of their fund
managers. In my readings on portfolio investments, however, two generic strategies
stand out. These are the trading strategy and the buy and hold strategy.
The acknowledged guru on the trading strategy is Jessie Livermore, the worlds
greatest stock trader. Livermore had three major lessons for the investor. First, an

investor must look at the pivotal points in the price of a stock or any other
investment security for that matter. A reversal pivotal point is when a stocks price
turns upward after falling for quite some time. That is not the price at which to buy
the stock as that stocks price may again reverse direction soon after and continue
its downward trek. The price to buy the stock is at the level where there is a
confirmation of the upward trend, what he calls the continuation pivotal point.
Livermore also said that time is time, money is money. An investor does not always
have to be invested in the markets. If the expectation is for the market to turn sour,
the investor should take his profits or cut his losses and get out. More importantly,
he says that investors should start cutting losses when such losses already amount
to 10 percent of his investment. Livermore says that investors should never fall in
love with their investments because these dont know how to return that love.
Lastly, Livermore said that investors should take hold of their emotions, particularly
hope, greed, ignorance and fear. These emotions would only distract the investor in
executing his investing strategies.
On the other hand, the acknowledged practitioner for the buy and hold strategy is
no other than Warren Buffet, the worlds greatest investor. Buffet had four lessons
for the investor. First, once the investor buys a security he should stop monitoring
its price movements. Buffet refused to be influenced by the daily gyrations of
security prices and interest rates as well as the periodic reporting of macroeconomic
figures. He is able to do this because of his second lesson, which is that he buys
companies that profit regardless of the economy. This basically means that he buys
companies that he thinks are inflation-proof and recession-proof.
Thirdly, he buys a business and not just a stock. To Buffet, stocks are meaningless
unless they are connected with the underlying business of the issuer. If the business
of a company is lifeless, its stock is also worthless. More specifically, Buffet looks at
how well companies practice sound business management, financial and market
tenets.
Lastly, Buffet spreads his risks by diversifying his portfolio. He truly believes in the
old adage of not putting your eggs in one basket. At the same time, he does not
believe in over-diversifying.

The proof of the pudding is in the eating as they say. So what happened to the two
gentlemen? Jessie Livermore started his career at the age of 14 with just $5 in his
pocket. Through his mastery of trading strategies, he was able to earn a cool $1
million in one day in 1907 and another $100 million during the 1929 stock market
crash. Yes, crash. He apparently saw that stocks were already too expensive in
1929. As a result, he began to sell stocks short. Other traders at that time knew that
Jessie Livermore was a great trader and they followed suit. As more and more

people started to sell down the markets, prices fell deeper. Eventually, Livermore
was able to buy back what he sold short at bargain basement prices, which earned
for him his $100 million.
After that stupendous trade, Livermore lived like a king. $100 million in 1929 was a
great deal of money. He was able to buy a mansion. He had a yacht moored behind
his mansion. He had a live-in barber and he had women crawling all over him. And
eventually he shot himself in the head at age 62 and left just $10,000 in assets and
$361,010 in liabilities. He died a poor and broken man.
Contrast that with Warren Buffet who also started his career at a young age but who
is still alive and kicking at age 75. At the end of 2005, Warren Buffets net worth was
$42 billion, only $8 billion smaller than that of Bill Gates. Buffet earned the title of
being the worlds second richest man, and all from investing.
So which is the best strategy? Many studies have shown that the trading strategy
just incurs unnecessary transaction costs for a portfolio and in the long run,
produces returns that are inferior to the buy and hold strategy. Much more factors
will have to be considered though, including investment horizon, risk appetite,
investment goals and the like. What is indeed certain is that the trading strategy
brings on more risk. Just make sure you get the commensurate return for the extra
risk taken.
Happy investing.
Once you have defined these facets of your trading plan, you are in an excellent
position to have a strategy to control your emotions when trading. Make sure to
review your plan on a regular basis to create effective trading habits

10 Questions for Your Trading Plan

Do you have a written trading plan? Most do not. In order to manage your emotions
effectively when trading, you need to create a written plan that you can review
regularly to stay focused on your goal of trading success. By writing down your plan,
you put yourself in the top 3% of individuals who have written goals and plans,
giving you an immediate edge on most traders.

1. How you will enter trades? The key to good entries is putting on trades where
there is relatively low risk compared to much higher reward. You also should write
down a clear catalyst for the expected stock move.

2. How will you exit trades? You should define an initial stop point for your trade, at
the point where the trend is invalidated. You will also need a 'trailing stop' technique
to protect your profits.
3. What type of orders will you use to enter and exit? When entering, I like to use
limit orders, good for the day only, while exits are often market orders. Why?
Because limit orders allow me to define my risk and reward clearly on the entry of a
trade, while when I need to get out, market orders allows immediate exit compared
to the risk of missing my exit with a limit order.
4. How much capital will you need to trade successfully? There are economies of
scale as you increase the amount of capital you trade with. Costs related to
commissions, quote systems and equipment begin to diminish as the percentage of
capital invested goes up.
5. What percentage of your capital will you invest in each trade? The amount of
capital I typically use is 10% per trade in my own accounts. I know traders who
commit anywhere from 5% of their account per trade to 20% of their account per
trade. You goal should be to keep portfolio risk per trade at less than 2% per trade
(for example if you invest 20% of your portfolio in a trade, a 10% loss on that
position would lead to a 2% loss on your portfolio)
6. How many positions will you focus on at once? I like to concentrate my portfolio
in my best ideas, plus I like to stay focused on how each stock is acting. If my
portfolio is too big (I'd say more than 7 stocks is too many to focus on), then I will
lose focus and invariably miss an exit on a trade that I should have previously
exited.
7. What will your Trading Journal look like? In my Trading Journal, I note daily
observations, particularly related to my ability to execute my trading plan. I also
commit to doing a post-trade analysis every month. I note what I did right and
wrong, and seek to learn from mistakes to minimize future errors in similar
circumstances, while also looking for winning patterns where I seek to repeat big
successes.
8. What is your Position Review process? Have an end-of-day routine to close your
day. Review your trades, and assess if you followed your plan. Keep a log of all your
trades, and make comments on each position.
9. What is your Preparation process before trading? You need defined time to
prepare for the next trading day to build up your trading confidence. I prepare after
the close for the next day's trading, which allows me to formulate a plan of action
BEFORE I get into the heat of battle. This keeps my trading proactive instead of
reactive.

10. What broker will you use? Most traders mistakenly think that commissions are
the number one factor they can control. In reality, commissions are a small cost
compared to the broker's effectiveness at executing your trade. Your focus should
be finding a broker who gets you speedy and fair execution of your orders.
Stock Investment Advice - Common Trading Mistakes
The best Stock Market advice you will ever read is to learn from mistakes when
someone else has made them. So, this stock market advice list I made a list of some
of the most common trading mistakes that are made. Even Ive made some of
these. If you have already made some of the mistakes, you can rest assured that
you arent alone in making them. If you havent made them, then heres a way to
get around having to learn by making the mistakes yourself, by reading my stock
market advice list.
The Stock Market advice tip #1, and worst mistake that people make is that they
believe trading is the easy answer, a way to get rich quickly. People will often expect
to become wizards in the market overnight, but they fail to realize that trading is
like any profession; you must learn how to do it first.
For example, would you attend a weekend doctors seminar and expect to conduct
heart surgery on Monday? Of course not! I am shocked at what people expect when
they go to a weekend trading seminar. They think they will create wealth without
having to work, invest or think, and it just doesnt happen that way.
After treating trading like a get rich quick scheme, my next stock market advice tip
#2 and most common mistake, is to approach the market without a plan. Without a
trading plan, traders approach the market in an inconsistent manner. One day they
trade stocks and the next they trade the foreign exchange. Or, they may use one
set of indicators one day, and the next day they will throw these indicators out the
window and take on a completely new set. Without a consistent approach, the only
thing governing their trading decisions is really emotions, and that will doom them
to failure.
If a new trader has managed to skip these last two mistakes, they often fall down
when they try to go it alone. This is my Stock Market advice #3, all traders should
find themselves a coach, or a mentor. Someone who can help them spot the errors
in their system that they might not have noticed. An outside point of view can help
you avoid other costly mistakes, and greatly increase your profits.
These are some common and quite basic mistakes. The next errors Ill mention are
ones that are just as prevalent in the trading industry, but they often occur once
traders have been around for a while. I have some personal experience with these
mistakes. Lets call this stock market advice list, the three most expensive mistakes
Ive made.

My stock market advice mistake tip #4, or the first most expensive mistake, I made
was to search for the Holy Grail of trading. This was an incredible waste of both
time and money. During the first three years of my trading career, I spent over
$25,677 on a library full of books, videos and seminars as well as spending
thousands of hours in search of the perfect trading methods. Honestly, 95% of what
I bought was pure junk I should have listened to my mentor earlier and realized
the Holy Grail of trading is simply excellent money management!
My stock market advice mistake tip #5 or the second most expensive mistake I
made was not having a predefined exit point. Early in my trading career, I
remember trading a stock I thought had a high percentage chance of rising. I was
too confident. I fully leveraged the position. Unfortunately, when things did not go
as planned, I did not know when to exit, and was paralysed. I kept rationalizing why
I should hold onto that stock. As the stock continued to fall, I made more and more
excuses. At the very end, I remember thinking, I cant take it anymore!

Jim's 10 Commandments of Trading, they are:

1. Never turn a trade into an investment.
Have a clearly defined reason for buying a stock, and declare upfront whether the
position is a trade or an investment. Consider writing down exactly why you are
buying the stock and when the catalyst is going to occur. Once the catalyst has
occurred or fails to occur, you must sell the stock no matter what.
2. Your first loss is your best loss.
Most trades need to work immediately in order for them to be right. If the trade
goes against you, sell the stock quickly and move on to avoid bigger losses. Don't
fight it.
3. It's OK to take a loss when you already have one
Don't pretend you aren't losing money simply because you haven't sold a losing
trade. "A loss is a loss whether it's realized or unrealized," said Jim. No one can
come back from a chronic loss position, he said. That's why it's important to cut
your losses sooner rather than later.
4. Never turn a trading gain into an investment loss.
When you buy a stock for a trade, you should not expect to make as much money
as you would on an investment. A trade that becomes an investment is akin to an
"overstaying of your welcome," said Jimmy. You will almost certainly give back the
profit.
5. Tips are for waiters.

The only reason someone gives you a tip is so he can get out, said Jimmy. The
person wants to get the stock moving, so he can get out at a higher price. The
person is using you by giving you the tip. If that's not the case, then the person
might have insider information, which is illegal to trade on.
6. You don't have a profit until you sell.
We've all been brainwashed not to sell, said Jimmy, but "it's the only way to be sure
that you get rich." Paper gains are not the same as booked gains because gains
don't necessarily stay gains. Also, don't be reluctant to sell because you want to
avoid paying taxes.

7. Control losses; winners take care of themselves.

"Loss control is the paramount concern for those in the market," said Jim, because
"it only takes a couple of losers to wreck a portfolio. One bad apple can truly destroy
the whole barrel." Stocks often telegraph declines, he said, so use those signals to
take the losses before they get hideous. Don't buy into the notion you can't sell until
a losing stock comes back, promising not to make the mistake again. These traits
wreck long-term performance, said Jimbo. "It's how losers think."
8. Don't fear missing anything.
Discipline is the most important rule in winning investing and winning trading. "That
often means admitting that you missed the golden opportunity," he said. Don't try
to participate in the rally after the rally is over. How can you tell? That heart-stuckin-the-throat feeling usually correlates with the top, said Cramer -- not the bottom.
The best time to buy is when it feels most awful.
9. Don't trade headlines
Quickly written news stories based on company press releases are almost always
wrong in their quick takeaways. It's very tough, for example, to quickly distill a
complicated earnings story into a headline. Words such as "better than expected"
should raise a red flag. Wait to read the whole story, listen to the conference call
and listen for the company's guidance before acting. Don't make snap judgments.
"If it's a really great opportunity, you won't miss a thing by taking time to inform
yourself," said Jim.
10. Don't trade flow

If you buy a stock based on observing multiple trades to the upside, you're trading
flow. That means "you have no idea why people are buying," said Jim, and "you are
trading on ignorance. Ignorant traders never win, ever," he said. You will lose far
more than you will make because many investments people make are ill-considered.
Thus, attempting to trade off of them is nonsensical. What's more, how will you
know when to sell?

23 lessons from Stock Market Wizards (in no order of importance):

1. Successful trader use trading methods that suit their personality
2. You can't control what the market does, but you can control your reaction to the
market
3. To be a winner, you have to be willing to take a loss
4. HOPE should never be in your vocabulary
5. If you are on a losing streak, reduce your position size
6. Don't underestimate the time it takes to succeed as a trader
7. Approach trading as a vocation, not a hobby
8. Have a business / trading plan
9. Be honest about your weakness and DEAL with it
10. Know when to do nothing
11. Being a great trader is a process. It's a race with no finish line.
12. Never ever listen to other opinions. Make your own trading decisions
13. Analyze your past trades. Study what happened to the stocks after you closed
the position
14. Don't take on excessive leverage. It only takes one mistake to knock you out of
the game
15. Great traders continue to learn and adapt
16. Don't just stand there and let the truck roll over you
17. Being wrong is acceptable, but staying wrong is totally unacceptable

18. Contain your losses

19. Good traders manage the downside; They don't worry about the upside
20. Wall street research reports will tend to be biased
21. Knowing when to get out of a position is as important as when to get in
22. To excel, you have to put in hard work
23. Discipline, Discipline, Discipline!!!

A Winning Trader's Edge

by George Fontanills
1. Understand the psychology of the trade: never believe you are smarter than the
markets as the markets will always win.
2. Acquire the knowledge on how the markets truly work then test and retest your
ideas and concepts until you feel confident.
3. Develop a working knowledge of what types of entry and exit orders work best.

4. Understand how to manage risk by employing the use of options strategies.

5. Pick a strategy that matches the market conditions.
6. Manage the strategy. You should always know what your next reaction point will
be and what prompts you to take it.
7. Watch what moves. To be successful, you have to become a media hound.
8. Integrate fundamental, technical, and sentiment analysis into a real world trading
approach that enables you to best understand market performance.
9. Specialize in one sector and one strategy at a time.
10. Give yourself the winner's edge by always continuing to actively pursue the
learning process.