Rules to follow:
- Always use market orders
- Buy low, sell high
- Do not follow financial advice from your broker. There is a reason why your broker is still doing his/her job and has not become another Warren Buffett or George Soros.
- Try not to risk more than 5% of your capital on a single position.
- Cut your losses quickly, let winners run
- When taking a new position, do not make it a 'hit or miss' one off bet. Take a small position and increase it if it turns out to be right.
- Do not listen to stock tips.
- Know what you buy and sell. Do not trade anything you do not understand. Know your stocks. If you can't picture the stock price chart in your head, you probably should not own the stock.
- Never meet a margin call... i.e. always have a stop loss so you never get a margin call.
- Be bullish in a bull market and bearish in a bear market. Therefore, you should be equally comfortable buying as selling short
- The market is always right. If you are losing money, your trading style/philosophy/moxie/mojo is wrong. Take responsibility and learn from your mistakes.
- Do not set yourself dollar targets which you must reach within a certain time period. The amount of money you make depends on how good you are. Do not expect a regular salary.
- If you have a gut feeling about something, that is your subconscious talking. It may be right or wrong. There is only one way to find out and learn from the experience so you know better next time. Remember to cut losses quickly if you are wrong.
- Control your emotions. Fear and Greed are both bad guides.
- Trust in yourself. Do not believe in luck
- CUT LOSSES QUICKLY -- use stop loss orders if possible. DO NOT listen to stock tips!
Update (December 19th, 2000): Trading tactics
Beware of "bargains", you could be catching falling knives.
Stocks in the gutter and/or those that are seriously in free fall are falling or have fallen for a reason. Just because something has fallen 50% does not make it a bargain.
Watch for trading gaps.
The gaps are often filled at some point later.
Watch the support/resistance levels.
These may be technical or psychological. Learn how the technical picture works and learn how to "read the tape". Don't always trust what some book says about technical support/resistance lines. The best teacher is experience, but it is an expensive tutor...
Keep an open mind.
The trading picture may change at any time. You must not be stuck in one frame of mind. Be willing to admit you are wrong. Read opinions on both the bullish and bearish perspectives.
Look at the derivatives.
You may not be trading the derivates, but there are gems of information to be gleaned from looking at the futures prices, COT (Commitment of Traders) reports, and the put/call positions in any particular stock or commodity or other security.
Update 14th April, 2001
Avoid mutual funds like the plague. These scum sucking bastards charge entry fees, annual administrative fees and exit fees and yet the small print will always say past performance is no guarantee of future performance while the large print in the front page of their glossy prospectus will show you the humoungous gains they made in the past few years. The fees may well add up to more than 5% per year. Take that away from their performance and see how good it then sounds. Leave the mutuals for the dumber investors. You didn't read this node to learn how to pick a mutual fund, did you?
More to follow.