Skip to main content

Trading Rules - Forget how you got here!

"You shouldn’t care about how you got to the current state but rather about what you should do now. A trader who trades differentially because of swings in confidence is focusing on his or her own past rather than on current realities." - Bill Eckhardt.

Key trading rule: Forget how you got here!

Do not let your emotion affect you. If you keep thinking about how you got to your current state, your emotion will affect your decision making. For example, if you are sitting on the paper gain of 10%, you emotion may want to urge you to take profit even though the current market trend is still at your advantage. On the other hand, if you are sitting on a paper loss of 10%, your internal urge is to ask yourself to hold on to it hoping that it will turn around even when the trend clearly tells you that it will continue.

Eckhardt clarified, “What this means is that once an initiation is made, it should not matter at all to subsequent decisions what the initiation price was.”

It is important to make decisions according to what it is now. Now what it was before!

Learning to live in the present is tough. Human memory makes us tend to think of the past and anchoring will occur when we make decision. This is something traders need to get rid of.

Exit is more important than Entry!
Stop worrying only about how you enter a trade. The key is to know at all times when you will exit.

Comments

Popular posts from this blog

Spanish Debt Issues

There is a lot of talk about Spanish sovereign debts recently. I came across a research paper which I think is very useful for me and wish to share it here. This is taken from www.fundsupermart.com, an online fund broker where you can purchase funds form various fund managers. This portal provides some research and comparisons and it is essentially a self service portal. From the chart provided, we can see that there is a problem for Spain to service their debts for the next 4-5 years if the debts are not re-structured. With this kind of risk, no sane investors would want to risk their money to buy Spanish bonds. They can only turn to European central bank for bail out. The blue arrow is a fictitious line I draw assuming re-structuring is going to happen. Essentially, they have to move the payment of capitals into next 5-20 years to be affordable. In addition to that, they can't make additional loans. This is just taking a very simplistic view of the situation. To have that hap...

Always Do Your Own Analysis

I would like to share a great article that I had just read with all investors. Many gurus, seasoned investors always warn new investors to do their own analysis and research. Reading and referencing other people's work is fine, but, one must always know his own position and do complete analysis. As in the case of people who blindly follow Warren Buffett into Goldman Sachs and General Electrics in the 2008 crisis. Taken to Task: The Cult of Warren Buffett By Aaron Task | Daily Ticker – 9 hours ago Bank of America stock jumped over 9% Thursday on news that Warren Buffett is making a $5 billion investment in the bank. But, at $7.65, the stock closed more than a $1 below its high of the session and BofA shares were falling anew Friday morning, trading as low as $7.45 before stabilizing... ....... ....... ....... Moreover, investors who've followed Buffett into investments like Goldman Sachs and GE got burned, assuming they adhered to Buffett's dictum about ...

Think Like a Turtle Trader

Dos and Don’ts for Thinking Like a Turtle 1. Trade in the present : Do not dwell on the past or try to predict the future.The former is counterproductive, and the latter is impossible. 2. Think in terms of probabilities, not prediction : Instead of trying to be right by predicting the market, focus on methods in which the probabilities are in your favor for a successful outcome over the long run. 3. Take responsibility for your own trades : Don’t blame your mistakes and failures on others, the markets, your broker, and so forth.Take responsibility for your mistakes and learn from them.