Secret 1: If you want to keep getting what you’re getting, keep doing what you are doing!
One of the reasons you buy a trading system or a set of trading systems is to replace and/or supplement your current methodology. Why not get what you paid for? Many would-be systematic traders follow a system until they have three losers in a row, and then put it on the shelf. Almost every strategy will experience 3 losing trades in a row, so those traders are destined to fail! Give your new approach a chance to work. This is the most important rule I know!
Secret 2: While becoming expert, rent expertise.
The best way to have expertise is to become an expert. Until you are expert, the second best way is to rent an expert. Going to seminars, buying software and trading systems can allow you to ‘ramp up’ faster. We don’t all tune our own automobiles, or fix our own teeth; why should we feel we must write our own trading systems? Once you have a system that is comfortable and profitable to you, you can ‘edit’ it and add your own twists. Ask yourself this – is it easier to write a book from scratch, or edit a manuscript?
Secret 3: If you can’t run with the BIG DOGS, stay on the porch.
Trading isn’t for everyone! I design racing cars, (trading systems); I don’t race them! (manage money). I know my limitations. Do you know yours? Is the thrill of victory worth the possible agony of defeat? Are you trading small while learning, or do you trade to ‘beat the bank!’ Do you trust yourself, or do you need validation by the ‘talking heads’ on cable TV? Do you have the time forday trading(5-10 hours per day with a system), or the discipline for daily trading? (5-10 minutes per day with a system)? When you learned your business, did you learn everything at once, or did you learn one or two things thoroughly, and go from there? There is no shame on the porch. The Big Dogs can be and will be rough!
Secret 4: Eagles don’t flock.
Avoid trading clubs, chat rooms, bar side gossip, newsletters, magazines, newspapers, and other traders. Keep your own counsel. Once you have developed or purchased your trading system, follow the rules, take every trade, and keep a diary of your trades. When you are winning, who really wants to hear about your latest conquest? When you are losing, who will really feel sorry for you and console the ‘poor’ trader? Do ‘other’ people really have your best interests at heart? Do you really care whether they win or lose? Learn your game and keep your cards close to the vest! Trading is a lonely business.
Secret 5: Do the hard thing. Buy High; Sell Higher! Sell Low; Buy Lower!
Everyone wants to do the ‘easy’ thing; buy at the low and sell at the high. If the market is going lower, perhaps there is a reason. Don’t stand in front of the train, stand on the platform, wait for it to stop, and as it starts to go the other way then jump on board! It is very hard to wait. Do the hard thing! By buying high (breakouts) and selling higher (liquidating after a certain time or price target has been hit), you can do what the crowd won’t do (win).
Secret 6: Take the milk with the cream.
If you have a strategy that is right 50% of the time, it’s also wrong 50% of the time. If a strategy has flat performance for several months, you will get bored, and probably abandon it right before the big trade. One of the best systematic traders in the world, Richard Dennis, has been attributed as saying: ‘90% of my trades are breakeven, 5% are above average losers, 5% are huge winners. The system helps me stay in the game waiting for the huge wins.’
In the Midwest, where I live, often buyers want only the best, (the cream), and want to leave the rest (the milk) for others. I contend that you must take both the good and the not so good in order to enjoy the peace of mind and the discipline that systematic trading brings to the table.
Secret 7: When in doubt, stay out, and if you are IN – GET out!
You have instincts and they are good! (How do I know? If you have the money to trade you have made some good instinctive financial decisions!) Systematic trading is nothing more than cheap discipline. If you feel, for any reason, that you should not get in a trade, don’t! (And if you are already in, exit.) No one likes your money better than you do! A system is nothing more than a piece of equipment. Like your morning alarm clock, when it rings you must decide to get up or hit snooze!
Secret 8: ‘Badges? We don’t need no stinking badges!’
Unlike many careers, (lawyers, doctors, teachers), traders do not need nor should they seek validation from ‘someone out there’ telling them you are ‘AOK’ to trade! Many losing traders run from method to method, guru-to-guru, desperately seeking approval. Be your own accreditation agency. When you feel you are ready, you are ready!
Secret 9: Buying a race car doesn’t make you a NASCAR star!
If it were that easy, who would drive the cabs? In effect, I design and manufacture the trading equivalent of a NASCAR race car. If you chose to buy one or more of my systems, great! I will run you through the basics of its design and show you how to run it and tune it. I will be there to help you if it needs ‘fixed’, but you are the driver. If you hit the wall, you are injured; I am safely in the infield. Practice on paper. Test everything. Beware. If it were that easy, no one would be driving taxicabs!
Secret 10: Talk is CHEAP; it takes money to buy whiskey!
The second most important axiom in my mind is this one. Paper trade, research, and forward test. Eventually, you must really trade! The best way to start trading is to trade smaller than you would normally. If you are going to trade 300shares eventually, trade 100 for the first 90 days of systematic trading! After a big success, don’t immediately increase your trading size! It is very important to really trade all of the signals, even if you only trade 1 share! Simulations, even the best on tick-by-tick data, will normally be twice as good as real trading. Rule of thumb: If a simulation makes $50,000 in a year, would you really do the strategy if you only made $25,000 in real-time?
If yes, then: Gentlemen, START YOUR ENGINES!