Alan Farley with an other collection of great trading tips, strategy, wisdom and common sense. As Alan writes, these "can mean the difference between healthy profits and nasty losses."
Here’s his top 25 (with some of my own editing):
• Seeing an opportunity and acting upon it are two different things.
• Price has memory. Odds are what price did the last time it hit a certain level will be repeated . . . (BR: Until support or resistance fails).
• Pay attention to price action, regardless of what the charts are saying.
• Look for a reversal at the same place you’re expecting a breakout or breakdown.
• Price action sets up against the majority; the best profits are often in the opposite direction of the way you’re planning to go.
• Add to your winners and cut your losers. ’nuff said.
• Opportunities come along all of the time. Wait for the best ones.
• Don’t overly anticipate or see things that aren’t there. Wait for your signals.
• The day isn’t over until the closing bell ring. The way it ends may be vastly different from how it begins.
• Your first job isn’t to make money. It’s to protect capital.
• Don’t rush to buy the lowest price or sell the highest price; It could get much lower or much higher before turning around.
• Most profits come during a few days each month. Play a waiting game the rest of the time.
• Traders lose the most money on the same days the market offers the greatest profits.
• Place yourself ahead of, behind or opposite other traders. The one place you don’t want to be is in the middle of the crowd.
• Read the charts with one eye on where the whales will act. These are the pivot points where the broad market will rally or sell off.
• Traders tend to be early rather than late into positions. Their fear of missing the move overwhelms their fear of being wrong.
• You lose money when you trade what you believe instead of what you see.
• Trade triggers, not patterns. The trigger is a perfect alignment of price and time.
• A nervous stomach gets in the way of short sales. Short-sellers see bull markets in every bounce and give up good trades to avoid getting trampled.
• Tiny pieces of the market puzzle reveal the big picture. Keep a diary of isolated observations because they pay off in time.
• Throw money at the market after an extended break. The action gets you in synch faster than sitting around and trying to figure out what you missed.
• The crowd gets excited about the long side when it’s time to sell short, and excited about the short side when it’s time to go long.
• Price moves along the path of least resistance.
• It’s a lot harder to follow your rules when things get really crazy.
• Whales portray themselves as smart money, but they are as confused as everyone else.
Awesome advice. Thanks Alan.
Source:
25 Trading Truisms to Take to Heart
Alan Farley
RealMoney.com, 4/5/2005 11:00 AM EDT
http://www.thestreet.com/p/rmoney/theswingshift/10216115.html
I’m a novice when it comes to the financial markets. This is my sense of how things work:
There are bulls and bears. They are constantly competing for the hearts and minds of the lemings in the middle. Some days the bull argument is stronger, other days the bear argument is stronger. The bulls are a proxy for equities, and by extension, the masses. They are capitalists, they are imbued with hope, and fueled by greed. The bears are a proxy for the bond market, and by extension, the ultra wealthy. These are the kind of people that are so wealthy, they are no longer capitalists. These people probably scoff at the idea of buying “votes” in a company. They are lords. They don’t give, they allow you to use their capital.
Is this too romanticized?
SoCalChris recently opined:
It’s a bit romanticized; plus I lost you on the Marxist train of thought.
But I think you bring up a nice point — someone has to lend; someone has to borrow…
In the United States of cheesburgers and credit, nothing rings as axiomatic as that.
I don’t apply much of the Marxist theory I read in grad school to the markets, anyway; Nietzshe is better for that.
Nietzsche wrote about herds.
Herd mentality — philosophy de rigueur for all of us stockjocks.