15 Common Sense Rules
Option Addict
302 Comments
Common sense can be brutally honest sometimes. As traders we get so focused on the little inconsequential details sometimes that we miss the world around us. I have had this discussion with too many people over the last two months that told me they were bearish on the market and were taking a beating on the "high probability" that the market would reverse. Who sets those odds by the way? Are trends more likely to reverse than persist? If so, why the hell are we studying technical analysis?Take a look over these trading rules I stumbled across last year and see if there are any realities that surface from them. Each time I look these over it reminds me of the realities of what we do here.
1. No matter what you read about trading, until you use an approach and test it with your money on the line you will never learn how to trade. Paper Trading is NOT Trading!
2. If it were really possible to "Buy Low Sell High" or "Cut your Losses and Let your Winners Run", then almost everyone would be making money rather than losing it.
3. Remember that there is ALWAYS someone on the other side of your trade who is using a trading technique exactly the opposite of yours who hopes to make money with his system.
4. If 90% of all traders lose money, they must be following generally accepted trading rules. The 10% who win do not!
5. You trade your beliefs and your beliefs about your system. If you have a problem with yourself, fix yourself first.
6. Impatience, Fear and Greed will make you poor. Any need to trade is rooted in greed and impatience.
7. If you really understand the markets then YOU KNOW that there is the same opportunity on every time frame, in every market, every single day.
8. Waiting for the perfect trade is "chickening out", and caused by your lack of faith in yourself or your system.
9. Any hardwired, automated trading system sold that truly works 70 or 80 or 90 percent of the time in every market would be worth hundreds of millions of dollars and would not be for sale at any price.
10. Asking "How small an account do I need to begin trading" is asking to be wiped out.
11. Having a series of winning trades early can be more hazardous to your account than a series of small losses.
12. Learn to trade before you trade. If you win or lose without understanding why, you will never develop a winning strategy.
13. Ninety five percent of everything you hear from everyone about the markets and the markets "reasons" for doing what it did or will do are lies. Neither you nor anyone can predict the future. You can only make educated guesses about potentialities.
14. Asking someone (such as using a service) for advice on where the market is going is a sign you should be on the sidelines until you understand the market better. If the upcoming market direction is not obvious to you, you should not be risking your money. You will lose often enough even when you are right.
15. There is NO GUARANTEED way of making money in the Markets or anywhere else. NONE, NADA, ZIP, ZERO! All you can do is increase your knowledge about yourself and how to estimate the probability of placing a winning trade. Then trade by taking controlled and measured risks.
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Reader Comments (302)
Amen to that!
Anyone notice TOS is not working??
Berkshire
Berk,
Same here
Berk
This is the kind of shit that makes me angry. ALWAYS a problem with either prophet charts or TOS. Bad ticks, real time is off or the platform is down like it is right now. It is hard enough trying to trade without this garbage.
What happened to TOL?
Berk, Jym
Wow, for once ToS tell us that Prophet has the more reliable quotes! Amazing!
/sarcasm
Hey,
I can't lose anymore money today...LOL.
Berkshire
The only thing worse than no data is bad data.
One day when I am a big bad hedge fund I'll be able to afford countless data streams and won't have to put up with this crap.
F2T
In regards to TIE, I dont see how anybody could possibly be bullish on this stock. I am sure you are probably doing much better than me in your trading, but this is nothing but bearish to me. Those drops are faster and harder each time. It is always interesting to me to see others points of view and I hope you prove me wrong and make some serious dough. GL brother!
Berk,
Your way off on my thoughts and my style. You are making it way too difficult.
Better yet I'll buy a seat on the exchanges and make my own quotes.
This is killing me. I wanna see if I can crack triple digits today.
Raimo,
I have been dealing with car salesman, bank bull-shit, and dentists for about 3 weeks. The pain killers are making my head fuzzy.
I could certainly believe I am making it harder than it could be.
But I am one of those people that would rather know ahead of time, so I can make adjustments for it, than to be surprised and scarmbling.
The market is not as bullish as everyone thinks. We have had 3 of the largest point gains ever in less than 2 weeks, and we have not moved up at all. Amazing.
Berkshire
Jeff-
Thanks for all the re-freshers. I know I'm in need of them.
liz
Berkshire,
Don't know if you noticed when asked before. Why do you use 7,3 in your SS as opposed to other numbers?
I have trouble with trailing stops. If anyone else is, they might find this interesting. I am reading through a Shadow Trader email and it had this to say about a trade they entered a few days back:
April 2, 2008
Company: Spss Inc (SPSS)
Action: moving stop
Shares: 200
Stop: 39.70
Trade Explanation: SPSS has rallied a bit today and cleared yesterday's highs. As such we are moving our stop up in to profit territory, just under an hourly uptrendline. The price also represents today's low. When lows of daily bars coincide with trendlines, those are excellent areas to place trailing stops.
These timestamps are a vicious lie.
The market has also absorbed a fair amount of bad news without going down much more.
I haven't been reading your blog consistently for more than about a month, but that is the most wise posting I have read about trading on any blog anywhere in a very long time.
If anyone was ever wondering, you really do know the trading game.
Thanks anyway.
Could someone heave a few bears at me?
To fix the timestamp proble, I find it's helpful to copy whatever I have written in this text box, REFRESH the page, then paste it back in (if it isn't there after refresh), then post. Otherwise, I think it's using the timestamp of the last time you loaded the page.
Raimo,
Is it fair to say that you like the 2 day 2 min chart on your short term trades?
Dave
Jym,
I am not sure I understand your question on SS?
I did not notice if I was asked previously.
Berkshire
BIDU is having a rough day of it
I have a few choice words for NKE today. This is why I hate waiting until EOD to exit my trades.
(i know, I know - I should have taken some profits yesterday!)
Berkshire,
Default on Prophet charts is 10,10. I was wondering why you use 7,3. did you play around with different numbers? What did you find? Just looking to pick your brain for some info.
raimo
was that you that exited half your position on zmh at 12pm today LOL!
john
I agree that was a good post Jeff. Just sorry all your praise is getting burried in our banter. Mostly I am thankful I have not had the problem stated in rule 11.
BTW, yes, I got out of the DIA day trade with a profit, and then bought DIA puts...
Raimo,
Double-top on 2-day 5min SPY and IWM.
Raimo,
My DIA puts are doing well.
Berkshire
Raimo
curious as to why you play the DIA & not SPY
Thanks
I think there should be a new TOS tool that can automatically trigger a sale on calls before Bernanke speaks :)
Off to baseball....trade smart!
MrVikes,
I've thought about contacting them with a "liquidate all positions" button.
Jym,
I don't use Slow Stochastics, though, so I am not sure this is directed at the right person...
I try to use fib numbers on my studies. 1,2,3,5,8,13,21,34 are pretty much what I use. I try to use a fast and a slow.
Berkshire
Todd,
DIA are cheaper and move more.
Berkshire
Is anyone putting any weight on the gigantic 10 year ascending triangle in the Yen ($XJY on stockcharts) that was recently broken and is now retesting??
This could be important because the yen has been running a very close inverse correlation to the SPX. The FXY is the way to trade the yen, but the history doesnt go back far enough to see the entire pattern.
Jym
I think it was Popeious who made that post yesterday.
PeterC
is that Todd my bro
is that Todd my bro
Glad I took profit yesterday on ISRG - still, it is looking like it may consolidate here for a potential run to $375 if it takes out those earlier levels from early December.
is that Todd my bro
PeterC,
I thought he attributed it to Berkshire. My bad.
Anyway, if anyone has experimented with different Slow Stochastic parameters and has any comments I'd love to hear them.
meant to add to my post - Sell into the stregth - we are still in a bear market environment...
is that Todd my bro
is anyone finding anything worth entering today? I'm coming up a bit short (no pun intended)
GTLS breaking out of little triangle
I'm seeing a lot more put trades that look like they could be potential candidates today, all from Jeff's watchlist- DECK, MTL, CHK, GPRO, HOLX, MTD, NOV, RRC, XOM. For calls, I found two- CTRP and FMC.
Berk, I'd swear I picked up the use of SS(7,3) from you at one point in the last 2 months or so... you (or so I thought it was you), showed the SS as a good osciallator that worked will in this choppy, wild swing, bear market.
I know Jeff is a "price and volume" guy... which is what I'm trying to be too... but I found it rather interesting when I studied back over time some of the correlations I could see between price, volume, and the SS.
Going through old watchlists...PENN getting close to resistance...will take it if breaks out of channel.
jym,
do a search (on the blog here).. for 7,3... it was ARTC... there are a couple few posts back in Novemeber on the subject and a few others... (exlcuding the ones from yesterday and today).