My friend Carl Richards did a post at the New York Times Bucks blog yesterday highlighting seven tips for new traders who want to give it a try.
But he left out some key concepts so I thought I’d fill in the rest of what he missed. I have many professional trader friends but they’re always droning on about “discipline” and “dedication” and all this other boring sh*t, so I’ve left their lessons out and made my own for this post.
Commit these ten rules to memory and you’ll be on your way!
Rule #1: Start by trading the stocks you hear about on TV or see people talking about on Twitter. Obviously those are the best stocks with the most opportunity, why else would everyone be discussing them? You don’t want to embarrass yourself by being involved with out-of-style, unpopular names.
Rule #2: Rules of thumb are there to help you. It’s important that you stay disciplined and stick to your game plan, but also be flexible and change things up when the market calls for it. Don’t get shaken out of a losing position but also you should cut your losses. Let your winners run but pigs get slaughtered. Remember to sell in May and buy the Santa Claus Rally in time for the January Effect in the midst of the best six months for stocks, hopefully during the second year of the Presidential Cycle.
Rule #3: When you’re on a hot streak, that’s when you really want to bet big. The real risk is being right but not having enough at stake. Trading is like poker. And blackjack. And it’s also like golf, boxing, football and marriage and training for a marathon and crossfit and playing bridge. Trading is like war and, of course, it’s also like chess.
Rule #4: Follow a trading guru at all times. You’re going to want to find trader to follow who charges you twenty bucks a month or so for stock tips. Also, the trader you follow should be bellicose and disrespectful to other investors most of the time – that’s how you know he’s good. All the greats learned this way.
Rule #5: When you find yourself stuck in a losing position, that’s when it’s time to do the real research. You’re going to need to find enough evidence to convince yourself to stay in, otherwise you’ll end up booking a loss and being wrong. If you can avoid or put off booking losses, your track record will look much better. Never surrender, only amateurs book losses.
Rule #6: When in doubt, remind yourself (and others) about your best trade ever. It’s important for your state of mind to focus on the winners. And read a lot of that Sun-Tzu sh*t.
Rule #7: Screens. Lots of them. Big-ass f***ing screens surrounding you with data and charts. It’s should look like f***ing NORAD in your trading turret. Otherwise, how will you know what’s happening?
Rule #8: Hedging is for losers – a great man said that once. Don’t ever enter a position unless you know you’re right – then there’s no need to hold back or cap your upside. And don’t be a pussy – go for it! The sooner you ramp up your gains, the more capital you’ll have to allocate.
Rule #9: Keep a laser-sharp focus on the benchmarks and where you stand in relation to them at all times. Having your eyes on the prize is key. Also be sure to have a strong opinion on everything – global macro trends, commodities, the bond market, other fund managers, and all the hot stocks along with their management teams and their earnings reports. Remember – awareness is how other people know you’re a real trader.
Rule #10: I cannot emphasize this enough – Never, ever stop trading, under any circumstances. There’s always a bull market somewhere! Even if you’re away from your desk, trade from the phone, that’s what it’s there for. You need to be doing something at all times or the game will pass you by. Stay sharp and keep trading. It is the solution to all your problems – bank account low? Trade. Bored at work? Trade. Your friends making more money than you? Trade. Bills piling up? Trade. Or you can just sit there and leave all that opportunity on the table. But that’s not what winners do.
Tack these rules up in front of you and you’re ready to begin. Get out there and be somebody!
And read my new book, Clash of the Financial Pundits, out this week!