10 Things You Need To Know Before You Start Trading Every Morning

  • Risk management is the most important piece in this game.  You are nothing without it, you can trade pretty much whatever you want however you want with the proper risk management.  Your Ivy league degree, your 30 years of experience, your fool proof quant system means nothing without risk management, if you don’t think so look at Long Term Capital hedge fund, Lehman Bros, Victor Neiderhoffer, Amranth, Eike Batista, and the list goes on and on.
  • You have to accept the fact that as you are going to be wrong 50% of the time, you must ACCEPT this, many don’t.
  • As trader there is a very high probability that 80% of your returns will come in 2-3 months, the rest of the year it will be a grind, you don’t know when your sweet spot will come so stay thirsty.
  • The market changes, that means what worked in the 20′s, 30′s, 40′s, 90′s, etc..might no longer work so you must adapt.
  • The market is full of myths, back test some of the strategies your read about, buying 52 week highs, buying 52 week lows, break outs, mean reversion, breadth, etc..
  • The market goes through phases, sometimes it favors breakouts, mean reversion, pull back buys, fades, buy and hold, stick and move, etc…Either you have the discipline to sit out when your strategy is not in favor or you learn a new strategy to compliment your A strategy.  Like a basketball player who learns how to go to his off-side.
  • You need to know your personality, you might not have the stomach for day-trading but you might have it to hold something through some serious volatility.
  • You have to trade what you believe in.  Some believe that you must trade stocks only above $15, others believe the big money is made only with penny stocks, others believe that you should only buy stocks of good companies (whatever that means), some dismiss fundamentals, charts, etc. You must trade in what you believe in and what you believe in does not have to be true , you just have to believe it–see video below.
  • In a bull market all your sins will be forgiven and the less you know the better off you will be.
  • The market is all about probabilities, you need to swing the bat in order to hit the ball so know your stats. Day traders need to trade a lot and usually use big leverage intraday to make big money.  Swing traders need to do a lot of trading to make sure that their 50% hit ratio amounts to something. Position traders need to do a lot of homework, exercise patience, have a mounting of faith to hit on those 2-5 stocks that will either make or break their year.

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The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.


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