1. Money management is more important than entry strategies. This means keeping losses to a minimum. In my opinion (and unfortunately, experience) 98 percent of all large losses were originally small losses. This fact must be ingrained into your psyche! Controlled position size combined with stop-loss management increases returns while decreasing risk.
2. The trend rules! About 90 percent of the time, I trade in the direction of a strongly trending market. This is identified by ADX, Relative Strength, New Highs/New Lows, and Moving Averages.
3. Sponsorship is critical. I do not have the patience to wait for Wall Street to discover the next Microsoft. I trade in the stocks that the momentum growth funds are in. Louis Navellier’s MPT Review newsletter and Investor’s Business Daily each do superior jobs of identifying which stocks are gaining sponsorship (participation in a stock by major players) and which stocks are losing sponsorship.
4. I start every day at zero. This means I will eliminate immediately any and all positions not moving in my favor. This reduces my overall risk and allows me to protect my profits.
5. Never forget: The longer a position is held, the more things can go wrong.
6. Because of the high turnover of trading, commission costs must be kept to a minimum. You will have a difficult time maximizing your profits if you trade for more than 6it/share.
7. Most stockbrokers are good people. Unfortunately, most (not all) do not have a clue. I therefore make all of my own decisions.
8. Trading is a serious business! If you were to open a retail store you would need a cash register, phones, etc. The same is true for trading. I recommend you get the best data feed, hardware, trading software program, etc., you can afford. Remember, you are competing against hundreds of brokerage houses and thousands of traders who have state-of-the-art equipment.
9. Overall, stock market direction is fun to ponder, but beyond a few days it is impossible to predict. My strategies are based on short-term factors, not macroeconomic views.
10. Most of my trading decisions are made by relying on technical analysis and pattern recognition. Fundamental factors, though considered, are not as important as technical factors.
11. I prepare for the day, as much as possible, the evening before. There is too much chaos in the morning to properly get ready for the day.
12. I became a much more profitable trader when I learned to scratch a trade. This means breaking even, losing an eighth or a quarter, etc. I have learned to put my ego in check and realize I am usually right approximately 60 percent of the time. If I can minimize my losses when I am wrong, I am assured of remaining a profitable trader.
13. Doubling-up is for losers! When a trade moves against me I look to get out of it, not add to it! I know an individual trader who kept adding to his Micron Technologies position as it dropped from 85 to 20! It will be years before he ever possibly breaks even. Thank you, but no thank you. Again- when a position moves against you-get out!
14. I lighten my positions and lessen my trading before news events (major economic news, earnings, etc.). Too many traders get killed when they make a “bet” on the report and are wrong. If you need to gamble, go to Vegas. At least there you get “comped” for losing!
15. This is not an easy game, especially when a major market move (like the bull market which began in 1982) ends. There are probably fewer full-time professional traders in this country than there are professional athletes. You must be prepared to work as hard and to be as persistent as a professional athlete to become truly successful.
- Part of book: Hit and Run Trading By Jeff Cooper