MV Classic Series: The Ten Trading Commandments
Thou shalt not give up on your dreams.
Todd Harrison is away on vacation but will return to Minyanville on July 7th, 2003
Good morning and welcome to Mount Minx. With Hoofy's divine intervention parting the red seas yesterday, I thought it might be helpful to walk through my ten trading commandments. There used to be 15, but in my post-Monday night Raider excitement, I slipped and dropped a tablet. Still, I'm hopeful these will help.
Respect the price action but never defer to it.
The action (or "eyes") is an important element when trading but if you defer to the flickering ticks, stocks would be "better" up and "worse" down-and that's a losing proposition.
Discipline trumps conviction.
No matter how strongly you feel on a given position, you must defer to the principles of discipline when trading. It will differentiate your performance over the course of time.
Opportunities are made up easier than losses.
It's not necessary to play every move, it's only necessary to have a high winning percentage on the trades you choose to make.
Emotion is the enemy when trading.
Emotional decisions always have a way of coming back to haunt you. It's that simple.
Zig when others Zag
Sell hope and buy despair. In other words, take the other side of emotional disconnects in the market.
Adapt your style to the market
At various junctures, different approaches to the market are warranted. Applying the right trading methodology is half the battle.
Maximize your reward relative to your risk
If you're patient and pick your spots, edges will emerge that provide a more advantageous risk/reward profile.
Perception is reality in the marketplace.
Identifying the prevalent psychology is a necessary process when trading. It's not what is, it's what's perceived to be that matters.
When unsure, trade "in between"
Your risk profile should always be a reflection of your thought process. Take what the Minx will give you and don't press.
Don't let your bad trades turn into investments.
Rationalization has no place in trading. If you put a position on for a catalyst and it passes, take the trade-win or lose.
There are obviously many more trading rules of thumb, but I've found these to be the most helpful. Each of you has a unique risk profile and time horizon, so some (or all) of these commandments may not apply. As always, my goal is to share my thoughts with the hopes that it adds value to your process. Find an approach that works for you and always allow for a margin of error. With a little luck and a lot of discipline, we'll find our way to better times.
Good luck today.
Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at firstname.lastname@example.org.
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