RE: Bye bye !!! LOL!
A classic small investor buys high and sells low. Are you one? Time will tell. Remember, fear is a much more powerful motivator than greed. Experienced investors know this, and buy when fear causes others to run for the hills.
Here are my top 25 trading rules, hopefully they will help others in 2013.
1.) Don't fall in love with a stock, its only worth what people are willing to pay for it. You’ll know you’re in love with a stock if the market disagrees with your investment thesis and your time frame and you continue to ignore it. Remember no one knows more than the market; don’t impose your own personal bias on a chart.
2.) When you have a profit, take it if your objectives have been met. If you have a loss, take it if the fundamentals have changed, your risk tolerance has been exceeded, or trend lines have been broken. Treat opportunity costs as a loss, and also use opportunity costs as a reason to take a loss and put the proceeds into a better idea.
3.) Don't force a trade where there is none, be patient. Don't trade out of boredom.
4.) There are only three sure things in the market: the passage of time, volatility, and stock prices reflecting earnings growth in the long run. Writing options exploits the first two, buying, holding, and dollar cost averaging into quality growth companies exploits the third.
5.) Wait for a market disclocation on the upside as well as the downside. The key is to be patient until there is a salient discrepancy between price and risk.
6.) Buy/short only secular trends, no one can time the market consistently. Err on the side of the secular trend.
7.) Use your emotions as a contrary indicator. Separate emotion and intellect. Don’t trade the stocks, trade the traders. You make money by anticipating the anticipation of others.
8.) The hardest course of action to take is usually the correct one. Adhere to a specific set of rules to preclude you from trading on emotion. These rules were developed when emotion was not part of the equation. It is impossible to totally eradicate emotion during times of extreme volatility.
9.) Don't buy a gap opening up, don't chase a stock on the upside, don't short a gap open down.
10) Stick with leading companies, they got there for a reason. Remember you own a business, not a stock. If the fundamentals remain intact, you will be amply rewarded at some point in the future. Understanding what you own will enable you to distinguish between exogenous, market driven events and a change in fundamentals. Ignore the former, act on the latter.
11.) Don't make decisions based on tax considerations. Only successful traders and investors pay taxes.
12.) Your greatest enemies in the market are greed, hubris, and complacency. Always understand and respect the other side of the trade.
13.) Your objectives determine your strategy. Set objectives that are specific, measurable, achievable, and time constrained.
14.) Discipline and money management are key components of successful trading.
15.) Dollar cost average on winning positions, not on losing positions.
16.) Diversification is a hedge against ignorance. Concentration of assets creates wealth, diversification preserves it.
17.) Be flexible; when you find the right key, the market changes the locks.
18.) Don't confuse brains and a bull market. Letting bull market profits evaporate is more foolish than never having participated in the bull market. In a bear market, money returns to its rightful owner.
19.) Trading is a zero sum game. If it were easy, everyone would be rich. When it gets too easy on the short or long side, a bottom or top is close at hand.
20.) Don't ignore anecdotal evidence, it is just as valuable as fundamental and technical analysis. Contrary indicators are present everywhere; don’t dismiss them as irrelevant or insignificant.
21.) Do your own due diligence, develop your own strategy and convictions. You never get rich playing another man's game.
22.) Focus on and quantify the maximum downside risk, the reward will take care of itself. Fully understand your risk tolerance, and have a well defined exit strategy, as well as a plan if the worst case scenario occurs. Always plan for the worst case scenario to occur, and understand that you will react differently than you planned should it occur.
23.) More money is made buying at the bottom than selling at the top. Also, there is just as much risk in trying to catch a falling knife as there is chasing a parabolic rise. Markets always get overdone on the upside and downside to a much greater extent than you thought possible. Fear, however, is a more powerful emotion than greed.
24.) There is always something to worry about in every market, and there is always a bull market somewhere. If you allow yourself to suffer from paralysis by analysis, you will be never be able to fully capitalize on opportunities in individual stocks. Remember, its not a stock market, it’s a market of stocks.
25.) Wealth is created by using the power of time, compounding, leverage, and other people's money. There is no silver bullet in the market, and no substitute for hard work, discipline, long term vision, and passion. In the market, as in life, follow your passion and the money will take care of itself.