Here are my thoughts on trading and the markets. Periodically they'll change as more things come to mind and beliefs change.
- Imagine how your equity curve would look if you only took your favorite trades in the most favorable conditions. Figure out your what your favorite trades are and the conditions they work best.
- If you don't think you're in a favorable environment, don't trade. Trading in unfavorable environments can lead to a negative trend in your equity curve. There are few things more costly in this business than a string of losses(although it's impossible to avoid them).
- There is no reason trading should affect your personal life. Don't be a shitty parent, spouse or friend just because you can handle your shit. If a trade is bothering you that much, get out. If you're mad about getting your ass kicked, stop trading. Figure out where things go wrong and re-assess.
- Trading all the time is just unproductive. So many people marry the markets and just won't take a break. It's a sign you're just hiding other psychological issues. There aren't awesome trades all the time and mentally wearing ourselves down on trivial positions takes away from the elite trades we need to capitalize on.
- After a pro-longed hot streak, be paranoid. That's when you lose the most.
- It takes a significant amount of knowledge and deep thinking to have concrete market opinions.
- it's easy to say oh I believe this or that, but you have to be blunt and figure out how to work with or around those thoughts.
- A lack of conviction = lack of confidence. Trader's should never be concerned about conviction if we're just consistently laying odds in our favor. Conviction is best used is ranking ideas, but only after we've studied and understand favorable conditions and know what we want to see.
- Back-testing can be difficult and I believe it's a highly inaccurate science. It takes a lot of knowledge to truly understand the conditions you need to back-test, plan for and then trade in. There are always times when it's a 'choppy market' but many stocks aren't choppy at all. If you're not running a quantitative system, heighten your risk reward requirements above the often talked about 1/3 ratio.
- It's helpful to read trading books and learn about the markets ...to a point.
- It's a good idea to study people who master their craft and learn your own psychology.
- Using more indicators in charting is intoxicating, but the use of more tools suggest you're likely uncomfortable accepting uncertainty. If you can't handle the uncertainty of the markets, stop trading.
- Price is the trump card. It trumps indicators, fundamental theses and emotions. Never forget that price drives emotion as well.
- Understanding fundamentals and the macro market outlook IS important to trading. Having a decent understanding of macro action gives you a great idea of where to look for major moves. Prices move on the expression of fundamental theses
- If you have a hot read on a single market or theme, stick with those markets until your edge goes away. Often times we find ourselves wanting to move to other markets.
