Expat writes:

I am interested in your opinion and advice. I traded oil for eighteen years before retiring to the south of France where I tend my orange trees and teach at two business schools in the area.  Since I know pretty much nothing, I am forced to teach the little I know, which is commodity trading.

I have canvassed my friends and enemies in the business and read good and bad books and articles by experts, so-called experts, and outright frauds.  I have plenty of information on fundamentals and the mechanics of markets, but it’s harder to teach students how traders think.

So, would you impart a few aphorisms, tips, or vapid advice . . .

Thanks, Chris, I have been meaning to pull all of these together in one place, and you motivated me to get off my bum and do so.

Start with these various rules:

Livermores Seven Trading Lessons

Bob Farrell’s 10 Rules for Investing

John Murphy’s Ten Laws of Technical Trading

Rules for Shorting

Art Huprich’s Market Truisms and Axioms

DENNIS GARTMAN’S NOT-SO-SIMPLE RULES OF TRADING

Lessons from Merrill Lynch

Rosie’s Rules to Remember

The Zen of Trading

Then go to these books — they cover trading and markets generally:

Jack D. Schwager: Stock Market Wizards : Interviews with America's Top Stock TradersStock Market Wizards : Interviews with America’s Top Stock Traders by Jack D. Schwager

Schwager interviewed market legends at the height of their success. What makes the book so worthwhile are the consistent themes that evolve from currency traders, mutual fund managers, commodities traders, hedge fund managers. Regardless of what is being traded, there are related motifs that run throughout.

What results is not a “How to trade” book; instead, it is a book about “How to think about trading.”

Charles D.  Ellis: The Investor's Anthology: Original Ideas from the Industry's Greatest MindsThe Investor’s Anthology: Original Ideas from the Industry’s Greatest Minds by Charles D. Ellis

Instead of interviewing famed investors, Ellis gathered their best writings into one collection. He ends up with a series of short chapters by luminaries of days gone by. There is something worthwhile on just about every page. This is another favorite worth rereading every few years.

Maggie Mahar: Bull: A History of the Boom and Bust, 1982-2004Bull: A History of the Boom and Bust, 1982-2004,  What drove the Breakneck Market — and What Every Investor Needs to Know About Financial Cycles by Maggie Mahar

The best book about the 1982-2000 market, bar none.  There are a surprising number of lessons buried in these pages that will reward the careful reader. I found it both fascinating and informative.

Richard D. Wyckoff: How I Trade and Invest in Stocks and Bonds (Contrary Opinion Library)

How I Trade and Invest in Stocks and Bonds by Richard Wycoff

Quite simply, this is one of my favorite books on the markets and investing. The fact that it is from 1923 is totally irrelevant.

Another good book is When to Sell by Justin Mamis. Published in 1970s, it is filled with good observations about developing a sell strategy.

If you want some book ideas for Technicals, have a go at these:

Technical Analysis of the Financial Markets by John J. Murphy.
Technical Analysis from A to Z by Steven B. Achelis;
Encyclopedia of Chart Patterns by Thomas N. Bulkowski;
Japanese Candlestick Charting Techniques by Steve Nison;

Don’t think you need a full reference library; any pair of these books should do.

Last, there are a full run of books here:

Reading Is Fundamental

More Reading Ideas

Category: 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.

20 Responses to “Trading Rules, Aphorisms & Books”

  1. call me ahab says:

    I like this Gartman rule:

    “Trade Like a Wizened Mercenary Soldier: We must fight on the winning side, not on the side we may believe to be correct economically.”

    hard to pull off . . .as our minds are cluttered with ideas on what “should” happen

  2. louis says:

    Thanks for the list BR

    For a detailed history of Speculation, this was a great read.

    Book Review: Devil Take the Hindmost, A History of Speculation – by Edward Chancellor

  3. Big Joe says:

    Excellent work.

    Over the years, I note that you toss out some awesome pieces now and again — and i forget just how many of these that you have written or republished. This was a great reminder — you should do more of these “Best Of” collections

  4. macrotrader603 says:

    Barry,

    excellent, excellent post…

    Many thanks.

  5. macrotrader603 says:

    by the way…sign me up for the “living in the south of France, tending to the orange trees” program!

  6. Jim67545 says:

    Lots of food for thought. Thanks.

  7. Great stuff.

    My favorite rule is always: never make a purchase without a sell strategy already in place (contingent on the ever changing business dynamic on you sell points). It takes most of the emotion out of the trade

  8. cognos says:

    Barry –

    Your comment log continues to get more bearish. Hilarious.

    You sold yourself to the bears. Time to reverse course… classic recovery, LBO boom, and in a few years the typical euphoria the ends the upcycle. In the words of Mark Cuban… “get long, get loud”.

    PS – These books mainly suck. Follow the f-ing money: buffett, soros, tudor, steve cohen, paulson, bill gross, etc.

    NOTE — Dont not follow moderate wealth, lucky charlatans — Rogers, Cooperman, Grantham, Tilson, Thiel, etc. Third stringers.

    Dont accept losses. Use hard work or canny tricks to avoid.

    ~~~

    BR: I have to challenge you about Grantham . . .

  9. Arequipa01 says:

    I am surprised that the Zurich Axioms weren’t included the list:

    http://www.sharelynx.com/papers/TheZurichAxioms.php

    I haven’t an opinion on their value.

  10. mach1513 says:

    My favorites are from a book I read twenty years ago:

    The stock does not know you own it
    Do not become trapped in a souring venture because of sentiments like loyalty and nostalgia

    Long-range plans engender the dangerous belief that the future is under control. It is important never to take your own long-range plans, or other people’s, too seriously.

    Disregard the majority opinion. It is probably wrong

    A hunch can be trusted if it can be explained
    Never confuse a hunch with a hope

    Chaos is not dangerous until it begins to look orderly

    Worry is not a sickness but a sign of health. If you are not worried, you are not risking enough.

    Always take your profit too soon

  11. macrotrader603 says:

    If I can add to the list for Expat. Here are the 5 best “trading” books I’ve read, and I’ve read alot over the last 25 years:

    Reminiscences of a Stock Operator – Jesse Livermore’s story, one of the first big time speculators

    Market Wizards – interviews with Soros, Rogers, Jones, etc

    Trading for a Living by Dr. Alexander Elder – A to Z on systems, psychology and money management

    Trade Your Way to Financial Freedom by Dr. Van Tharp – forget the title, which sounds like an infomercial – teaches that trading is 60% psychology, 30% money management, and 10% system

    Trend Following by Michael Covel – interviews with futures traders who trade billions…

    The weakest link in any trading system is the trader himself. These books teach the most important aspect of how to think like a winning trader.

  12. NoKidding says:

    Gartmans list was best.

    “1. Never, Ever, Ever, Under Any Circumstance, Add to a Losing Position… not ever, not never! Adding to losing positions is trading’s carcinogen; it is trading’s driving while intoxicated. It will lead to ruin. Count on it! “

  13. The weakest link in any trading system is the trader himself.

    Yes!

    I often tell people: If you want to learn about yourself, your fear and greed points, trade stocks. That is one of the best mirrors on your character you’ll find

  14. Brent_in_Aurora says:

    Your links had some typos. The corrected links for your rules for shorting are http://www.ritholtz.com/blog/2011/02/rules-for-shorting/
    and the zen of trading is http://www.ritholtz.com/blog/2010/05/the-zen-of-trading-2/

    Thank you for doing this thankless blog, I appreciate your wisdom.

  15. “1. Never, Ever, Ever, Under Any Circumstance, Add to a Losing Position… not ever, not never! Adding to losing positions is trading’s carcinogen; it is trading’s driving while intoxicated. It will lead to ruin. Count on it! “

    I did this on INTC near the crisis bottom. My return from that low was 50%. I don’t understand why wall street keeps telling people not to buy low when good stocks in good companies that are being sold by big institutions are driving prices to bargain basement values.

    Do they just want to convince the small investor to stay out while they jump in? Someone at some point will buy the bottom when certain value price points are reached. Why can’t it be the small investor?

  16. macrotrader603 says:

    @Common Man … reason being that “buying low” usually implies buying into a downtrend which is a tough way to make a buck … in futures it will bankrupt you due to leverage …

    INTC peaked near 65 and trades currently near 22, CSCO over 80, now trades at 18 or so …one could have been “buying low” when those were 20%, 30%, etc down and thought they were “buying low”

    People who thought they were ‘buying low” in Enron, Worldcom, Countrywide, and GM, will never see their money back …Most who bought Cisco, EMC, JDS, Intel on the way down won’t see their money back in this lifetime…

    Actually sell-side Wall Street tells people to buy the dips, buy the lows, etc, which is a flawed strategy, unless you are buying pullbacks in an uptrend

    Buying downtrends is alot like roulette, every so often you can get lucky and catch one, but over time you give your money to the house…

    Most successful speculators and futures traders follow the path of least resistance, which is to get long uptrends and breakouts and short downtrends …

  17. macrotrader603 says:

    @ Cognos…Jim Rogers and Jeremy Grantham are FAR from 3rd stringers …seriously.

  18. @macro,

    I will agree with you about averaging down on futures because of their temporary nature. I also agree that it is easier to buy on the uptrend because you are ‘averaging up’ your gains. Buying INTC at $55 on a downtrend was probably sheer stupidity due to it’s valuations but when it hits $14 and its yields go over 5% with a market share of 85%, I can’t see how something like that wouldn’t be a screaming value buy. Yes, you need to really check your numbers for the whys and wherefores of why a stock has tumbled but if the only reason is that big institutions are in a market panic and are forced sellers AND you are buying something that you only intend to sell ‘at the end of the world’ sometimes great opportunities will present themselves

  19. macrotrader603 says:

    @ Common Man…I agree…there were definitely some good buys in the last 2 panics, ’02 and ’09, and I’m sure will be going forward…INTC yielding over 5% was a very good pick-up on your part

  20. [...] Barry threw up a master list of trading rules.  Bookmark that, soldier.  (TBP) [...]