Wednesday, July 23, 2008

Basic Rules

All the list of rules floating around, what do you belive, what do you use? What works? After spending a few years digesting lots of information I can now quickly read an article or blog post and know if it fits me, my style. There are a few very very basic rules that I remember each day. You should do the same. Make a top ten list. Revisted the list every now and then. Put the list on the wall. Modify it as you learn and progress. Here are two rules I have boiled down to one, once I learn to understand the first rule and was burned a few times, the second just made more sense.

Don't chase price. Do not chase price. All the books tell you that, but then they go on to tell you about indicators or other stuff. Want to prove it to yourself, run a system where you buy after a run, say 3 up bars and see what happens. You get hammered that's what happens. Why do we do it? It's not based on logic. This is one of the reasons I want to implement a mechanical automatic trading system to keep me from doing it. Yes, I have done it it and I look back and wonder what the hell I was doing.

Patience. Have patience. If we follow this rule, we don't have to worry about chasing price. This is rule #1.

I think the single most meaningful sentence I have read in any book or blog is "Most of your time trading is spent waiting". I hate waiting. Who likes to wait in line for a ride at the amusement park? Who like to wait in traffic. We are trained to not like to wait.

Learn to WAIT for the opportunity to appear. Sometimes the wait is short, sometimes long. LEARN TO WAIT. BE PATIENT. If you miss your entry, learn to trust that you will get another chance. If you miss your exit, just take what you can and be happy.

"What you do determines whether you lose. What the market does determines whether you profit." (Sun Tzu)

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