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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

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No positions in stocks mentioned.
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