1. A trade is neither right nor wrong. A trade can only be pofitable or not profitable. a) Profitable is good. b) Unprofitable is bad. Do something!
2. Therapy for traders on a losing streak:
a) Brag about your losses. Tell everybody. Get on the phone!
b) You’ll soon discover that for a losing trade the only thing to brag about is how small you kept the loss, how quickly you stopped the bleeding.
3. The market is uncaring. If you hang on to losing trades, telling
yourself “I’m right, I know I’m right”, the market will reduce your
trading capital down to zero.
4. As an individual trader, you’re competing against guys with PhD.s in math and physics, against giant super-computers.
a) The PhD.s are probably smarter than you.
b) Your computer is no match for the competing computers.
c) Always know where the escape hatch is for each and every trade. How fast can you get through it? Practice!
5. If you start believing that you have some special insight into the market, that you’ve “cracked the code”, discovered “the natural order of the market”, that the market will go where you say, then put your money in Bank Fixed Deposits and take a long vacation. Motorcycle drivers who stay afraid of their machines die of old age. Those who think they are “daredevil charlie” land up in hospitals.
6. The market is a mechanism for transferring wealth. It does so by causing pain. Great wealth transfers in times of great pain. Losses are a way of causing pain. Trading is a business. You go to work in the morning, go home at night, and earn a paycheck at the end of the week. Keep the size of your trades reasonable.
7. Once in a while a sure thing comes along. It’s a good day to skip trading and take a walk on the beach.
8. Getting market direction right is only the first step of a trade.
Selecting the best trade (trading strategy) is the next step. For
example, is it better to go long a put (it will decay against you)?… or to enter a call spread for a credit (it will decay for you)? The answer depends on market conditions. Money management is the 3rd step. Your goal is to make a profit, not show the world. Your profit/loss statement will accurately reflect your trading at the end of every day. Read it carefully. Understand its message.
