The Traders Journal

A Game of 21: 21 Investors / 21 Rules

I don’t know of any college in the world that offers you a higher return per unit of effort than the value of a proper investment education.  I believe a solid investment education is one of the most high leverage activities an individual can possibly do.  

Bold statement, yes, but I’ll give you some examples.  I’ve been running the bases, so to speak, teaching investors high probability trading for nearly 15 years.  What I mean by that is to reference the simple baseball paradigm I’ve used for years.  To get to first base, investors need information and knowledge.  To get to second base, they require investing tools and organization.  To get to third base, they must have an analysis methodology.  Finally, to get to home plate, they need to understand themselves and the “investor self,” and they must be able to take action.  Just as the Viagra advertising slogan says, “this is the time for taking action!”

After 25 years as a stock market trader, I’m able to vouch firsthand for witnessed some sensational stories of success.  I’ve witnessed firsthand as accountants, engineers, entrepreneurs, doctors, salespeople and many others who initially embraced investing as a hobby made the transition to investing full-time.  I’ve had the distinct pleasure of being involved in part of their journey.  And so, I thought it would be fitting and interesting to poll a number of them and ask them to share their favorite investment rule.  The following 21 rules are their contributions.


1)    Sell based on technical indicators and find out the fundamentals later.

2)    Accept losses to get gains.  Risk and reward are always part of the equation.

3)    Pick your favorite couple of indicators, learn them and trust them in depth.   Learn how and when they work, when they don’t.  Ignore the rest.

4)    Understanding yourself as an investor / trader is crucial to success.  Mark Douglas’s book, Trading in the Zone, is sensational.

5)    Keep track of your trades.  Know why you bought and why you sold.  Review your reasons after you close out a position.

6)    First review your long-term charts, then your medium-term ones, then short term and finally minute-to-minute charts.  Go from a telescope to a microscope.

7)    Knowing the individual equities that comprise your ETFs and mutual funds is an insight worth utilizing.

8)    Watch for sectors and industry groups breaking out of a base – then find the best stocks in that industry.  At least fifty percent (50%) of the performance is determined by these and will help rescue you from a poor stock pick.

9)    A chart tells you about the true market fundamentals of a company – believe in the charts first.  They matter more than the fundamentals.

10)     Thinking of the market as being manipulated by Mr. Market as he tries to achieve his objectives has been truly a revelation.  I’ve discovered that Mr. Market’s true intentions are revealed in minute-to-minute charts and money flow.

11)     There is a difference between a good company and a good stock chart.  I want both.

12)     The market is always changing and evolving.  You must be willing to change along with it.  Don’t fight it.  You aren’t big enough.

13)     Appreciate that the market offers you a menu of probabilities.  Certainty is not on the menu.  Be comfortable playing the probability game.

14)      Read my own rules every week.

15)     Constantly be aware of shedding old habits that fail to contribute to the “new you” – the improving investor you’re becoming.  Shed weakness, feed strength.

16)     Charting sister stocks along with the stock I bought has proven to be surprisingly powerful.

17)     Know what you’ll do in a bullish scenario.  Know what you’ll do in a bearish scenario, so you won’t start second guessing yourself in the midst of a big move during market hours.

18)     Understanding myself as an investor is far more important than I ever previously acknowledged.

19)     Sophisticated money managers talk about the importance of money management.  I did not appreciate its importance for profitable investing until just recently.  It’s made a big difference.

20)     Pyramid purchases into your model position and let the market prove to you that your first buy was correct.  Pyramid out faster than you pyramid in.

21)     Know your stop.  Adjust it regularly as the stock moves up.  Don’t ignore your stop.

Trade well; trade with discipline!
- Gatis Roze

 

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I picked up the DVD at Chartcom 2014 and have studied it and all your blogs. I was surprised by the mention of a 12% stop. O'Neale teaches 8% as a suggested stop. Perhaps this might be a suggestion for a blog.
Thank you for your comment James. I'll need to revisit that portion of the DVD for it is not my intent to suggest a 12% stop. I have never believed % stops work ( unless personally one needs them for discipline reasons) & have seen many academic studies to reinforce that fact. One study I did read years ago concluded that if you absolutely must use a % stop, they concluded that 12% was the optimum % from their research.
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