Friday, May 29, 2009

Trading & Investing Rules: A reminder

I thought it might be a good time to review some wise advice from some proven brilliant traders as introduced to us in Jack Schwagers great book, “Trading Wizards”:
Bruce Kovner
• Do not overtrade and use proper position size.
• The market usually leads because there are people who know more than you do.
• I assume that the price for a market on any given day is the correct price.
• Do not personalize the markets.
Michael Marcus
• Patience…stay with a position until the trend changes…be patient enough to wait for a clearly defined situation
• Always use stops
• Always pick a point you will get out before you get in
• The best trades have three things going for them
o First – the fundamentals suggest that there is an imbalance of supply and demand
o Second – the chart must show that the market is moving in the direction that the fundamentals suggest
o Third – when the news comes out, the market should act in a way that reflects the right psychological tone.
Ed Seykota
• Longevity is the key to success.
• In order of importance to me are: 1) the long-term trend, 2) the current chart pattern, and 3) picking a good spot to buy or sell.
• Common patterns transcend individual market behavior
• Trading rules:
o Cut losses
o Ride winners
o Keep bets small
o Follow the rules without question
o Know when to break the rules
• Everybody gets what they want out of the market
That is about the best you can do…I think.

Harry Truman once said: “The only thing new in the world is the history we don’t know.” I think we can apply that to trading: “The only thing new in the world is re-learning the key market adages shared with us by the truly great traders that have gone before us.”

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