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A Trader's Guide to the Stock Market: 16 Ways to Improve Performance

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Have a game plan before stepping onto the field.

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Editor's Note: Todd posts his vibes in real time each day on our Buzz & Banter.

It's another day on Wall Street as money managers count the days until they're paid -- 33 sessions, if you're playing along at home -- and global stocks are pretty in pink.

The headlines have assigned the weakness to chatter of a December taper (of quantitative easing) and the failure to outline reform in China, but that may just be reason to the rhyme. Stocks have enjoyed a massive run, and while the Fed is trying to disprove Sir Isaac Newton's laws of motion, the laws of gravity are a much taller order.

While I personally don't believe a bell will be rung at the top, many investors are scouring headlines looking for one. Yesterday, Atlanta Fed President Dennis Lockhart suggested that tapering of US bonds purchases "could very well take place" next month.

Perhaps, perhaps not; if we've learned anything from the Federal Reserve, it's that there is a litany of various opinions at any given time and they're subject to change on a dime -- or 50 trillion of them, as the case may be.

So what's an investor to do? Remain lucid, manage risk rather than chase reward, and employ a stylistic approach that suits your individual time horizon and risk profile. In addition to those guides, here are a few other observations that I've found to help navigate the flickering ticks, in no particular order:
  • Respect the price action, but never defer to it.
  • Discipline must always trump conviction.
  • Opportunities are made up easier than losses.
  • Emotion is the enemy when trading.
  • Adapt your style to the market.
  • Maximize your reward relative to your risk.
  • Ride your winners; cut your sinners.
  • Perception is reality in the marketplace.
  • When unsure, trade "in between."
  • Sometimes the ability not to trade is as important as trading ability.
  • Don't let your bad trades turn into investments.
  • Good traders know how to make money; great traders know how to take a loss.
  • The reaction to news is more important than the news itself.
  • The only difference between being early and wrong is whether you're there to collect.
  • Always see both sides of every trade.
  • Trade to win; never trade "not to lose."
It's easy to get caught up in the bigger, better thing, particularly when the Dow Jones Industrial Average (INDEXDJX:.DJI), S&P 500 (INDEXSP:.INX) and Nasdaq (INDEXNASDAQ:.IXIC) are up between 20-30%. Over my 23 years on the Street, however, I can tell you that whenever I strayed from the discipline that served me in good stead and started reaching, chasing, or otherwise pressing, it has come back to haunt me. low and steady isn't sexy, but it wins the race for a reason; when it comes to the financial markets, performance is a marathon, not a sprint.

Good luck today.

R.P.

Twitter: @todd_harrison

Follow Todd and over 30 professional traders as they share their ideas in real-time with a FREE 14 day trial to Buzz & Banter.
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No positions in stocks mentioned.

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 todd@minyanville.com.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

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