If you're going to "invest" in the stock market here are some good rules to keep in mind. These are from an anonymous source.
1. Never, under any circumstance add to a losing position….ever!
Nothing more need be said; to do otherwise will eventually and
absolutely lead to ruin!
2. Trade like a mercenary guerrilla. We must fight on the winning
side and be willing to change sides readily when one side has
gained the upper hand.
3. Capital comes in two varieties: Mental and that which is in your
pocket or account. Of the two types of capital, the mental is the
more important and expensive of the two. Holding to losing
positions costs measurable sums of actual capital, but it costs
immeasurable sums of mental capital.
4. The objective is not to buy low and sell high, but to buy high
and to sell higher. We can never know what price is “low.” Nor can
we know what price is “high.” Always remember that sugar once fell
from $1.25/lb to 2 cents/lb and seemed “cheap” many times along the
5. In bull markets we can only be long or neutral, and in bear
markets we can only be short or neutral. That may seem
self-evident; it is not, and it is a lesson learned too late by far
6. “Markets can remain illogical longer than you or I can remain
solvent,” according to our good friend, Dr. A. Gary Shilling.
Illogic often reigns and markets are enormously inefficient despite
what the academics believe.
7. Sell markets that show the greatest weakness, and buy those that
show the greatest strength. Metaphorically, when bearish, throw
your rocks into the wettest paper sack, for they break most
readily. In bull markets, we need to ride upon the strongest
winds… they shall carry us higher than shall lesser ones.
8. Try to trade the first day of a gap, for gaps usually indicate
violent new action. We have come to respect “gaps” in our nearly
thirty years of watching markets; when they happen (especially in
stocks) they are usually very important.
9. Trading runs in cycles: some good; most bad. Trade large and
aggressively when trading well; trade small and modestly when
trading poorly. In “good times,” even errors are profitable; in
“bad times” even the most well researched trades go awry. This is
the nature of trading; accept it.
10. To trade successfully, think like a fundamentalist; trade like
a technician. It is imperative that we understand the fundamentals
driving a trade, but also that we understand the marketâ€™s
technicals. When we do, then, and only then, can we or should we,
11. Respect “outside reversals” after extended bull or bear runs.
Reversal days on the charts signal the final exhaustion of the
bullish or bearish forces that drove the market previously. Respect
them, and respect even more “weekly” and “monthly,” reversals.
12. Keep your technical systems simple. Complicated systems breed
confusion; simplicity breeds elegance.
13. Respect and embrace the very normal 50-62% retracements that
take prices back to major trends. If a trade is missed, wait
patiently for the market to retrace. Far more often than not,
retracements happen… just as we are about to give up hope that
they shall not.
14. An understanding of mass psychology is often more important
than an understanding of economics. Markets are driven by human
beings making human errors and also making super-human insights.
15. Establish initial positions on strength in bull markets and on
weakness in bear markets. The first “addition” should also be added
on strength as the market shows the trend to be working.
Henceforth, subsequent additions are to be added on retracements.
16. Bear markets are more violent than are bull markets and so also
are their retracements.
17. Be patient with winning trades; be enormously impatient with
losing trades. Remember it is quite possible to make large sums
trading/investing if we are “right” only 30% of the time, as long
as our losses are small and our profits are large.
18. The market is the sum total of the wisdom … and the
ignorance…of all of those who deal in it; and we dare not argue
with the marketâ€™s wisdom. If we learn nothing more than this weâ€™ve
learned much indeed.
19. Do more of that which is working and less of that which is not:
If a market is strong, buy more; if a market is weak, sell more.
New highs are to be bought; new lows sold. Not the other way around!
20. The hard trade is the right trade: If it is easy to sell,
donâ€™t; and if it is easy to buy, donâ€™t. Do the trade that is hard
to do and that which the crowd finds objectionable. Peter
Steidlmayer taught us this twenty five years ago and it holds truer
now than then.
From anonymous subimssion to upsidetrader.com