My Ten Commandments of Trading
When the Ten Commandments were brought down from the mountain top, it was noted by several onlookers that they were engraved on stone tablets. Granted paper wasn’t in great supply nor were there any Bic pens on hand. It was also noted that these weren’t suggestions. They were commands from the almighty.
As a trader, I’ve learned a lot over the past 25 years. If the commandments were for all mankind, then why not have a few for traders as well. Here are my ten commandments of trading. We’ll look at the first 5 today and the other 5 in just a few days.
1. Discipline counts. As a former officer in the Marine Corps, the most likely place for me to start is with discipline. Pros have it - amateurs don’t. Traders who lack discipline are reckless and soon looking for another vocation. You must guard your trading capital as if your life depended on it - because it does.
2. Show no emotions. There’s no crying in baseball and there is no crying on the trading desk. Decisions are made based on “what is” not “what if”. Decisions made from the emotional point of view are flawed and you must steer clear of them at all costs.
3. Don’t follow the crowd. See what everyone else is doing and do the opposite. I like to be the first one at a party and the first one to leave. Why? The food is fresher and the idiots haven’t ruined it for everyone. What I want to do is to fade hope, buy despair and know where the exit is. It’s the first law of the jungle - if you don’t know who lunch is - it’s you.
4. Survival of the fittest. In other words, to survive, you must adapt. There is a time to be long and a time to be short. There’s a time to take risk and a time to avoid risk. Know which is which. Times and conditions change and you must do the same if you wish to survive to play another day.
5. Patience is a virtue. As a trader, you need patience. You don’t have to swing at every pitch, but when you get your pitch, you better swing. Be patient and pick your spots. The trades that are right for you will find you.
6. What is - “might be”? This is an absolute - perception is reality. It’s not what you think, but what the market perceives. Trading is an exercise in psychology and perceptions of what people think and feel determine supply and demand.
7. Respect. This one is the most difficult to put into words. One of the reasons that I trade off the floor is that I don’t want to get caught up in the movie. I want to avoid the hype at all costs.
8. When in doubt - stand to the side. When I was in the Marines, I served under a major who was undeniably smart but decidedly fly by the pants. He taught me to trust my gut instinct. If it doesn’t feel right, it probably isn’t. We all have a comfort zone and if wander away from it - we are all soon made aware of it.
9. Don’t be afraid to miss the train. If you miss a train, the next one comes along in ten minutes. Calm down - it’s not the end of the world. Newbie traders think that in order to be successful you must trade every trade. Nothing could be further from the truth. A .300 batting average gets you the Baseball Hall of Fame. In trading, if you win more than you lose, you win. During my trading career, some of my best trades were the ones that I didn’t make.
10. Never change your time frame. One of the hallmarks of a professional is that they never change time frames. In other words, a trade never becomes an investment AND an investment never becomes a trade. When I was a newbie, I had trouble with this one and it caused me more pain than you could ever imagine.
Professional traders have rules that they live by - day in and day out. The above are my ten most important and they aren’t suggestions. Trading is a rough and tumble business and not for the faint of heart. If you want to be successful, make your own list of commandments and stick to them. Remember, these aren’t suggestions.