We have spent years analyzing common traits of exceptionally successful traders. Most have these 8 habits that, when combined, can turn dreams into reality. We have further inserted some key points from one of the best trading/investment books ever published, Reminiscences of a Stock Operator by Edwin Lefevre (1993,1994 Wiley). To make the most of the app, Stock Arbitrage Trader, we strongly encourage you to follow these 8 principles:
1- Do not trade very frequently especially if you do not have a winning system. Bulls can make money, bears can make money, but it’s the pigs that usually get slaughtered in stock markets. Do not try to take home some money every day. Be patient. Of course having a stop-loss point for each trade is essential. However, if you determine your stop-loss at a very close point to where you take your position, you will likely lose money on a potentially winning trade. Do not chase the news. Especially in sideways market trends, you will be wiped out if you trade too frequently. When using the Stock Arbitrage Trader app, if you are bullish and long on a stock wait until the system changes its recommendation to sell.
2- Never argue with the market; never lose temper over the market direction. Never argue with what you see. Getting sore at the outcome does not get you anywhere. If your timing is bad and you lose money on a trade, limit your loss when the price hits your stop. Analyze the overall conditions (check the market direction forecast on the Market Pulse page). Add your own analysis. If favorable conditions align, take your position. In bull markets, pick your positions wisely and do not rush. There is always plenty of time to buy. Be faster when generic conditions change (again check market forecast on the app) or when you think it is time to sell.
3- Try to anticipate the next major move. Don’t be concerned about the next few ticks. Instead, think short-term trends over the next few days, weeks, or even a month. If the trend is up, there will be down days, or vice versa. You can’t be right all the time, but you should be following the steps of the generic trend. The arbitrage model’s market direction forecast has about a 70% success rate, you can use that or use your own judgment to determine the generic market trend and act accordingly.
4- Learn your lessons well. You will not win ten out of ten times out of your investments/positions/bets. When you are right and make money that’s great, keep on doing that. However, with your positions losing money, you also must learn what not to do. Begin to learn what to do in order to win. Do not push the limits of your winning system which might go broke. Similarly, do not test your patience when losing. Try to analyze your own psychology when trading.
5- Closing a winning position too soon is as bad as keeping your loss for too long. If you do not sit tight and make enough money on your winning trades, you will not be able to make enough to cover your losses from your bad trades. Don’t get stuck in individual fluctuations. As Larry Livingston expresses in Reminiscences of a Stock Operator ”It never was my thinking that made the big money for me. It was always my sitting. Got that? My sitting tight!”.
6- Do not average down when buying or average up when selling. Pick ideas from the Stock Arbitrage trader app or on your own. Check technical levels using charts. You might also review company fundamentals and perform additional analyses. Then, size up the generic market trend, determine your stop-loss, and finally execute the trade. Do not average down when buying and also do not average up when selling. Averaging your costs down might look logical but it is actually equal to trying to catch a falling knife. If your judgment is wrong and the market has entered a down trend you will be losing more money when trying to average down your costs.
7- Never buy at the bottom and never sell at the top. Nobody, not even the best algorithms, can predict the precise bottom and top of any trend. Always look out for confirmations of any trend. These might include market direction forecast changes of the Stock Arbitrage Trader app, 3-days-in-a-row up or down closes of the indexes, and technical levels; especially breaking points. But never jump into a trade without these confirmations and never hope for reversals.
8- Fear and hope at the right time. When the market goes against an inexperienced trader he/she hopes that particular day will be the last day of that behavior. When the market does go her/his way, she/he becomes fearful that the next day will take away all the profit and gets out too soon. A successful trader manages these conflicting feelings differently. You should become fearful when the position starts to lose money and hopeful when riding your gains. This is easier said than done, but very true.
Do you follow these principles? Other principles perhaps? What works best for you?