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10 trading commandments
This article appeared in the June 2012 ASX Investor Update email newsletter. To subscribe to this newsletter please register with the MyASX section or visit the About MyASX page for past editions and more details.
First make plan and believe in it, and in yourself.
By Louise Bedford, author
Most professional traders could teach you to trade using their system in about two hours. Then why do so few people go on to achieve profitable results, even after being taught by some of the best minds in the trading world?
It could be because those ineffective traders are not following the "trend commandments". Follow these, or you will be destined to experience the wrath of the markets. Here are my top 10:
1. Thou shall not trade without a trading plan
Define your entry, exit and position sizing rules, or you will stumble around in the wilderness. Dogged implementation of your written plan is what it takes to succeed.
2. Shirk the work at your peril
I know it seems that everyone wants a piece of you and there’s not much left for yourself. It can feel that everyone's needs are more important than yours and you are being pulled in 20 different directions.
But you have to ask yourself, if I can’t find the time today to learn about the sharemarket, when will I? If you are willing to go through a little temporary effort you could quite possibly set yourself and your family up for life. Embrace the work, educate yourself, and focus. The market will reward your efforts.
3. Envy is a sin
We compare ourselves to others. We look at their strengths and our own flaws, and constantly feel as though we are not worthy. Confidence expands us, makes us feel there are boundless opportunities, and that we are capable of magic. Jealousy shrinks us - our mind, our energy - and we become less.
Make a pact with yourself this month. Aim to be the best trader, and the best person you can be. Don’t compare yourself with others. Ignore them and focus on yourself, and realise that you are worthy of success.
4. Keep accurate records
Keep track of your results; review your trading diary regularly. Don’t slack off. The ones you love deserve better than that from you - and you deserve better than that from you.
5. Don’t quit too soon
Most people quit trading after their first four or five losses. That is why this is a game for grown-ups with a high level of emotional maturity.
With the current ups and some downs in the markets, some traders are currently as happy as fat rats in a cheese factory. Others have already stumbled, head-butted a wall and given up.
I can say with 100 per cent certainty that in my first three years of trading, while I was trying to crack the code, I never realised where I would end up just a few more short years later. I shudder to think where I would be if I had given up and quit this exciting trading game. Give yourself time to learn.
6. Realise the value of support
Find traders who care about you. Lean on them during the good times and the times when you feel you are being tested. If you stick like glue to the methods I suggest, and the information in my free newsletter, you will be ahead of 95 per cent of the other traders out there in "hold and pray" land.
Given the right opportunities, you can manufacture any type of life you want. You can make almost anything happen for yourself and your family, if only you believe in yourself enough. You can rise above those who doubt you and pursue the things that feed your soul. You don’t need to be buffeted by life’s setbacks.
There is one thing I know for sure: you get to decide what type of life you want and you get to choose how you will react to life’s opportunities and setbacks. It’s a shame so many people don't recognise the true power they hold in their hands.
7. Thou shalt treat trading as a priority
We can cheat on our dreams, just a little each day, and no one will even notice. An extra coffee with a friend, another sitcom while enveloped in the comfort of the couch, a Sunday sleep-in ... and BLAM! Another week has gone without you working on your trading plan, and without developing the skills you need to rescue you from your humdrum life.
It rusts your soul little by little. It erodes the very fabric of our dreams and goals, until we are so far away from what we really want that we can’t get excited or passionate about anything. Before you know it, making lazy and weak choices becomes a habit, and it infiltrates every area of your life and especially your trading.
8. Thou shalt weather the storms of criticism
We have to stand up for our beliefs because it is only by our thoughts that we set ourselves apart from the masses who are not achieving trading greatness. Unless someone is in the exact position you want to be in yourself, don’t take their advice.
Change is never easy. If we don’t make continuous improvement a priority, we ultimately fail. Guard your attitude. Don’t let negativity into your house, in whatever form it takes - your brother-in-law, the newspaper, or a tweet.
9. Know when not to trade
Part of being a successful trader is knowing when and when not to trade. The aim is to trade only when conditions are completely conducive to trading a given system. I make no apology for that, and will stand up for that belief and fight for it.
Almost all the members of our Trading Game Mentor Program are not currently trading medium-term equities. This is because their systems are telling them that, at present, conditions are not in favour of the trader. When conditions are (i.e. the market is trending and has low/normal levels of volatility), they will trade them again. There is no shame in this. It’s the mark of a professional to know when to engage and when to have a break.
Also keep in mind that not trading shares does not mean these traders are not trading at all. Many have moved into other instruments.
Do not apologise for picking and choosing your ideal trading scenarios. The best traders are brave and know that trading a volatile, choppy market is like a knife fight in a phone booth. Heavy casualties are to be expected.
10. Rely not on only one income source
Those who rely on only one income source, or one instrument, are destined to fall like a house of cards when the trend falters. Diversity of knowledge is your liferaft. Be afraid - not paralysed by fear, but motivated by it.
The time to learn about new instruments is before the one you are trading has stopped co-operating. Develop your skills before you need to use them, because learning while calm is very different to learning while feeling forced or desperate. Do not wait until there is a crisis in your life before learning to trade. The time to act is now.
About the author
Louise Bedford is a full-time private trader and author of four best-selling books - The Secret of Writing Options, The Secret of Candlestick Charting, Charting Secrets and Trading Secrets. Register to receive her free newsletter.
The ASX Sharemarket Game is one of the world’s great real-time trading games and the only type of its kind in Australia. Each player has a notional $50,000 to invest over 10 to 15 weeks, with a maximum of 10 orders a day to buy and sell. No more than 25 per cent of the portfolio’s value can be held in one share.
ASX Sharemarket Games provides more information on the Schools and Public sharemarket games.
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© 2013 ASX Limited ABN 98 008 624 691