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Chapter 10. Putting It All Together: Org... > Lessons I Have Learned During 40 Yea...

Lessons I Have Learned During 40 Years as a Trader

These are hardly original, which makes them no less valid. As you might notice, many, if not most, are associated not so much with the stock market as with our own attitudes as traders. Unfortunately, most investors pay for what they learn over the years in some way. I have certainly paid in bad experiences for much of what I have learned. Maybe you can save yourself some money by considering the price of this book your payment and go directly on from there. Here they are, in no particular order:

  • The news media, including the stock market TV channels, tend to be the last to know and almost always tend to follow stock market trends rather than to lead them. As a general rule, a good time to buy stocks is when the popular magazines and front pages of major newspapers are featuring stories dealing with bear markets and investor doom. In a similar vein, stock market newsletters and advisory services have not had the very best of records in terms of market forecasting. The greater “gurus” have often tended not to be more correct than others.

  • There might be many benefits in attending lectures, meetings, and technical classes regarding trading tactics and investing, but it is probably best to operate alone in making and implementing actual trading decisions and to assume, within yourself, the responsibilities of poor trades and the credit for good ones.

  • Similarly, it is best to keep your results and performance private. The temptation to boast of your successes and fears of reporting failures will almost certainly not help your performance.

  • Human nature operates against good trading practices. We enjoy taking profits and hate taking losses. As a result, traders often tend to close out their strongest positions too early (locking up the profit) and maintain their weakest positions for too long (“not a loss until I take it”) instead of letting their strongest positions run and closing out their weakest with small losses.

    Keep in mind that even the best timing models tend to be profitable only a certain percentage of the time, but their winning trades are much larger, on average, than their losing trades.

  • The name of the game is to make a good (but not unreasonably good) return for your time and capital, not to feel “smart.” I know many, many people who overextended their welcome in the stock market as 1999 moved into 2000, not because they failed to recognize the dangers of the stock market, but because they were having such a good time feeling smart during the bull market that they hated to leave the party.

  • Don’t confuse rising stock prices with being a financial genius.

  • For most people, in-and-out trading will not be as profitable as well-considered intermediate-term trading. It is not easy to overcome the additional costs in transaction expenses and bid-ask spreads involved in day trading and very short-term trading, although there are, no doubt, successful traders in this regard.

  • It is better to miss a profit than to take a loss. Go back to Chapter 1 regarding this subject.

  • For the most part, it is probably best not to operate at the market opening. There are pauses during the day, usually at around 10:30 a.m. Eastern time and around 1:15 to 1:30 p.m., when the stock market is quieter and when you can act with relative calm.

  • Do not enter into an invested position without an exit plan.

  • It is much better to trade with no more capital than you can comfortably risk.

  • One successful trade makes us feel good. Two successful trades in a row make us feel pretty smart. Three consecutive successful trades makes us feel like a genius. That’s when they get us....

  • Make note of your losing transactions. Have you violated some basic rules of trading or investing because of some emotional reason? There will be losses.

    Not every losing trade is a mistake. The stock market, at best, is a game of probabilities.

  • Finally, we have reviewed in this book many techniques and tools that are designed to help you identify market conditions that most favor profitable investing. There is no need to be invested in the stock market at all times. If matters appear unclear or if you are less certain than usual (there’s no such thing as certainty regarding stocks), be free to simply stand aside until matters clarify.



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