Raymond James’ P. Arthur Huprich published a terrific list of rules at year’s end. Other than commandment #1, they are in no particular order:

• Commandment #1: “Thou Shall Not Trade Against the Trend.”

• Portfolios heavy with underperforming stocks rarely outperform the stock market!

• There is nothing new on Wall Street. There can’t be because speculation is as old as the hills. Whatever happens in the stock market today has happened before and will happen again, mostly due to human nature.

• Sell when you can, not when you have to.

• Bulls make money, bears make money, and “pigs” get slaughtered.

• We can’t control the stock market. The very best we can do is to try to understand what the stock market is trying to tell us.

• Understanding mass psychology is just as important as understanding fundamentals and economics.

• Learn to take losses quickly, don’t expect to be right all the time, and learn from your mistakes.

• Don’t think you can consistently buy at the bottom or sell at the top. This can rarely be consistently done.

• When trading, remain objective. Don’t have a preconceived idea or prejudice. Said another way, “the great names in Trading all have the same trait: An ability to shift on a dime when the shifting time comes.”

• Any dead fish can go with the flow. Yet, it takes a strong fish to swim against the flow. In other words, what seems “hard” at the time is usually, over time, right.

• Even the best looking chart can fall apart for no apparent reason. Thus, never fall in love with a position but instead remain vigilant in managing risk and expectations. Use volume as a confirming guidepost.

• When trading, if a stock doesn’t perform as expected within a short time period, either close it out or tighten your stop-loss point.

• As long as a stock is acting right and the market is “in-gear,” don’t be in a hurry to take a profit on the whole positions. Scale out instead.

• Never let a profitable trade turn into a loss, and never let an initial trading position turn into a long-term one because it is at a loss.

• Don’t buy a stock simply because it has had a big decline from its high and is now a “better value;” wait for the market to recognize “value” first.

• Don’t average trading losses, meaning don’t put “good” money after “bad.” Adding to a losing position will lead to ruin. Ask the Nobel Laureates of Long-Term Capital Management.

• Human emotion is a big enemy of the average investor and trader. Be patient and unemotional. There are periods where traders don’t need to trade.

• Wishful thinking can be detrimental to your financial wealth.

• Don’t make investment or trading decisions based on tips. Tips are something you leave for good service.

• Where there is smoke, there is fire, or there is never just one cockroach: In other words, bad news is usually not a one-time event, more usually follows.

• Realize that a loss in the stock market is part of the investment process. The key is not letting it turn into a big one as this could devastate a portfolio.

• Said another way, “It’s not the ones that you sell that keep going up that matter. It’s the one that you don’t sell that keeps going down that does.

The table below depicts the percentage gain necessary to get back even, after a certain percentage loss.

• Your odds of success improve when you buy stocks when the technical pattern confirms the fundamental opinion.

• As many participants have come to realize from 1999 to 2010, during which the S&P 500 has made no upside progress, you can lose money even in the “best companies” if your timing is wrong. Yet, if the technical pattern dictates, you can make money on a short-term basis even in stocks that have a “mixed” fundamental opinion.

• To the best of your ability, try to keep your priorities in line. Don’t let the “greed factor” that Wall Street can generate outweigh other just as important areas of your life. Balance the physical, mental, spiritual, relational, and financial needs of life.

• Technical analysis is a windsock, not a crystal ball. It is a skill that improves with experience and study. Always be a student, there is always someone smarter than you!

Great stuff, Art!

>

Previously:
Bob Farrell’s 10 Rules for Investing (August 2008)

Category: Apprenticed Investor, Investing, Rules, Trading

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

21 Responses to “Art Huprich’s Market Truisms and Axioms”

  1. contrabandista13 says:

    How about….

    The market always looks the best at the top and the worst at the bottom…..

    Once a pattern is established, it will be broken…..

    As soon as you hope, get out….

    Best regards,

    Econolicious

  2. b_thunder says:

    Great stuff for certain, but given a chance I’d ask the author this:
    If everyone was following the Commandment #1: “Thou Shall Not Trade Against the Trend” at all times, what would “prick” the resulting enormous bubble?
    Should the traders who are convinced about imminent “black swan”- type events still follow the trend?

  3. Ltdata says:

    More market truisms:
    We all know how the size of sums of money appears to vary in a remarkable way according as they are being paid in or paid out. ~Julian Huxley, Essays of a Biologist, 1923

    An investment in knowledge always pays the best interest. ~unknown, commonly attributed to Benjamin Franklin

  4. kaleberg says:

    Isn’t there a little contradiction between:

    Commandment #1: “Thou Shall Not Trade Against the Trend.”

    and:

    Any dead fish can go with the flow. Yet, it takes a strong fish to swim against the flow. In other words, what seems “hard” at the time is usually, over time, right.

    There seem to be a few other contradictions in there, but I suppose that is the essence of good advice.

  5. TapeReader says:

    I concur about Commandment #1 and to never trading against the trend…but what makes up a trend?

    IMHO, never trading against Order Flow is really the applicable idea in today’s electronic markets.

    Trends change…Order Flow drives the trends.

    Here’s a video that discusses how order flow affects changes in price.

    http://algofutures.com/blog/monitoring-order-flow-why-it-is-important-to-your-trading-a-video-primer/

    Hope that you find it as interesting as I do.

  6. aiadvisors says:

    Commandment #1… hmmmm… unless you’re a contrarian. Trends always change. But then contrarians, to be true to form, probably should do exactly the opposite of all of the commandments.

  7. louis says:

    • Any dead fish can go with the flow. Yet, it takes a strong fish to swim against the flow. In other words, what seems “hard” at the time is usually, over time, right.

    Would this apply to paying your mortgage?

  8. Pantmaker says:

    Never trade against the trend??? WTF is that supposed to mean? Raymond James?…Huprich…Saut…these guys are silly.

    ~~~

    BR: It means don’t be an aggressive buyer in bear markets, and don’t sell in a bull market.
    Its actually excellent advice

  9. mybestfunds says:

    Great job Art!

    Another one I like is “Trade what you see, not what you believe or what others are telling you.”

    All the best for the new year!

    mybestfunds.com

  10. roger erickson says:

    Very provocative – especially if extended to logical conclusions.

    >> When trading, remain objective. Don’t have a preconceived idea or prejudice.
    >> Said another way, “the great names in Trading all have the same trait: An ability to shift on a dime when the
    >> shifting time comes.”

    This simply reiterates, of course, the theory of evolution – especially if more accurately stated as “Commandment #1: Thou Shall Not Trade Against the [rate of change of the] Trend.” [i.e., don't fight adaptive rate, which can't fight rate of context change].

    Applied to human politics & cultures, why don’t the proponents of all cultures & all religious cults & all political parties admit this reality? Instead of investing in components, the greatest trade of all is to invest is further tuning of the entire system, i.e., “in order to make a more perfect union”.

    There are no “us” vs “them”, there are only the noisy habits of homo sapiens, shifted as dictated by context.

    The conclusion of this train of thought is that any and all “schools” of ethnic, cultural, political and religious thought are baggage, nothing more and nothing less. Among the spectrum of options always available, none of the competing precedents carries competitive relevance. Only entirely new levels of indirection matter. Since we have zero predictive power, any and all attempts to arbitrarily adhere to any prior plausibility can only slow, not accelerate, adaptation.

    Meaning that “culture” is no more and no less than an incredibly selfish resistance to “shifting” when the time to shift comes.

    Someone in every culture’s past was allowed to create that culture, and hence it is self-defeating to our species to refuse to allow our kids to create yet new cultures when & as needed.

    If your ancestors ask you to carry their original sin forever, or wail in front of their wall forever, or in any way grind their axe forever, the only honest thing to tell them – on behalf of YOUR kids – is “sorry, but you’ll just have to FOAD”.

    Ethnicities, religions, politics & cultures are always dead – long live the next ethnicities, religions, politics & cultures!

    I think you can bank on that reverse-entropy trade, but only by parsing new levels of indirection.

  11. Jack says:

    I’m seriously hung up on the Commandment #1/dead fish thing.

    But: the loss/get even chart is a killer. It’s something to put on the wall or at least look at on a regular basis.

  12. The Window Washer says:

    @Jack

    Understand that you don’t trade against the trend but you can invest against it and you reconcile the two.

  13. Pantmaker says:

    BR: “It means don’t be an aggressive buyer in bear markets, and don’t sell in a bull market.
    Its actually excellent advice”

    One of the hardest lessons to learn in trading (at least it was for me) is how to sell my beloved positions to someone else in the midst of a glorious, trumpet-sounding, cork popping, price raising bull market. Equally difficult is the idea of buying into positions as prices are falling in a bear market. Buy low sell high. It’s easy to forget we are trading with one another. We get lulled into a sense that the market is some big yellow party bus, some “trend” that we all ride together arms around each others necks like fraternity brothers. The truth is when someone gets on the bus, someone gets off the bus. Happy new year all!

  14. A great column to begin the year with. Thanks for the effort and here’s to 2011 and more growth in the blog/financial arena for you my friend

  15. [...] P. Arthur Huprich, “We can’t control the stock market. The very best we can do is to try to understand what the stock market is trying to tell us.”  (Big Picture) [...]

  16. dilbert dogbert says:

    I expect all of you have seen this: http://www.nytimes.com/interactive/2011/01/02/business/20110102-metrics-graphic.html?ref=business

    It was fun to look at our investment period. We have ridden the market up and down for two big periods – dot bust and the current mess. Took cash out (small amount) and bought rentals. Wish us luck with that.

  17. mark says:

    There is nothing new on Wall Street. There can’t be because speculation is as old as the hills. Whatever happens in the stock market today has happened before and will happen again, mostly due to human nature.

    So should we expect at some point in the future a 90% nominal loss in the big cap indexes? It’s happened before!

  18. VennData says:

    “When trading, remain objective. Don’t have a preconceived idea or prejudice. Said another way,” …You can’t beat the indexes over the long haul.

    “Always be a student, there is always someone smarter than you!” …and they are usually trying to sell you something, some service, some ideology, or some political party.

  19. NormanB says:

    HOPE IS NOT A STRATEGY.

  20. [...] • Art Huprich’s Market Truisms and Axioms [...]