Jun

30

 Any father wants to spare his son the mistakes, the pain, the suffering he went through, especially learning to trade. But every generation discovers there is only one way to learn: the hard way. As my son leaves his teens behind and starts his own trading, I offer him some hard won humble advice about trading.

1. Watch your money management. Don't over extend. Start small. Learn well at the smaller sums. Be brave with the smaller amounts. It’s not the dollars that are at issue obviously with X shares, it is ego/emotion, etc.

2. Assume it will take at least three to five years to get professional. No one goes into the market and starts making big money right away. No way. Everyone has to pay their dues.

3. Fear and hope work against you. They are ingrained by 10,000 generations.

4. You are at the mercy of the broker. It is always a good practice to review your tickets each day like. The mistakes tend to be in their favor and not yours.

5. You will experience the real deal buying in on a real panic and experience the fear and uncertainty that will be a regular part of your trading life. Learn to embrace that feeling. It is not bad; it is good. It is what others feel and gives you the advantage to win.

6. You will learn the feeling of bailing too soon from the feeling of overexposure, and the great feeling of a winning trade and selling at the top. But it’s never satisfactory. Coulda, shoulda, woulda. Those there are in on every single trade. Ignore them. It’s not a precise science. For one used to winning, learning to lose is a big lesson. But by losing a bit less, and winning a bit more, the overall war is won bit by bit. That is the key. Avoiding a big loss. 15-20% a year turns into huge amounts over 50 years.

7. Don't grind. The fewer the pieces, the longer the hold, the lower the transaction cost, the lower the spread. It will eat you up over time.

8. Always haggle with the market. Put your orders in below to buy. Put orders to sell a bit above. Never give asking price. Never take the high bid. The extra cents add up over a lifetime. Better to pass a deal by than get taken by a fast-talking salesman like the market. See Practical Speculation on this subject.

9. Don't trade your profit and loss (P&L). You have to trade the market. The market doesn't care what your P&L is. It knows your break-even point and will come just short of it.

10. When things look the worst, that is the time to be optimistic and not fall into the herd mentality. That is the only way to make money. Look at it this way; it will never go to zero and you are not leveraged so you can never lose all of it. Even if it goes down 5 or 10%, it’s not the end of the world. You are 20 and have plenty of time to make money. Now is the time to take some risk and hopefully make some money. But if you keep your head and wits, it will turn out alright.

11. You can see how patience is important both for buying and waiting to sell.

12. The scariest points are the best times to buy. Everyone else is panicking. That's when you get some good deals. The herd is stampeding. That's when the predators pounce.

13. Sometimes walking away is best. If it goes down, you can buy more. Always good to have some cash.

14. It's very difficult, kind of like playing flinch with the hand slaps.

15. There are sharp operators out there that see you coming a mile away. When you look around at the poker table and don't know who the mark is, guess what? They know exactly what you are thinking.

Welcome to the wonderful world of markets and trading.


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1 Comment so far

  1. Edward Barkes on July 2, 2007 8:36 am

    13. Sometimes walking away is best. If it goes down, you can buy more.

    My grandfather used to say that averaging down was a short cut to the workhouse. My first rule of investment/trading is not to do it. It has served me in very good stead for over thirty years.

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