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GoodVibe4Ever (< 20)

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GoodVibe Classroom - Lesson (1) Trading Rules

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January 24, 2009 – Comments (29) | RELATED TICKERS: DO , GOOD , V

This is the first and probably the most important post in a series of posts I'll write here in Caps in an effort to share what I believe to be an accurate and trusted way of making money in any market. This lesson will be devoted to my trading rules. You must develop and quantify your own set of rules before making major financial decisions or you will fulfill the saying; "if you don't know where you're going, you will probably end up somewhere else" and that place might not be of your liking. Although unfortunately they came to me after a lot of pain and heartache, I am glad that I have them. They are the corner stone of my trading style. They served me well and I rarely if never fail to follow them. I developed them from my own experience, others, and from Mr. Market's wisdom - the greatest teacher of all. 

Before I tell you what my trading rules are, I want to bring something to your attention. Trading or investing is a general term that encompasses a multitude of styles. It is arrogant to think one style is superior to the next. Rather, there are always people at the top of their style who are consistently performing exceptionally well. One of the biggest issues facing many people who desire to venture down the trading path, is not correlating the style they desire to learn with their personality. So venture slowly, take your time; give it a fair trial while paying attention to your character. Let's go. Here they are:

1. Believe it! Want it! Want it more! Keep your energy positive. Have fun. Winning begins within.

2. Remain humble or the market will do it for you. Know what you know and make sure to know what you don't. Check your pride at the door. You’re only as good as your last trade

3. Capital preservation is the first step towards prolonged profitability.

4. The ability not to trade is as important as trading ability. When in doubt, sit it out. Opportunities are made up easier than losses. Don’t let the fear of missing trigger emotional financial decisions. It's not necessary to play every day; it's only necessary to have a high winning percentage on the trades you choose to make. Your risk profile should always be an extension of your thought process. When unsure, wait till you identify your comfort zone.

5. Emotion is the enemy. Emotional decisions always have a way of coming back to haunt you and deplete your most valuable asset, your emotional capital. Logic Wins, impulse Kills. Objective and critical thinking, planning, and firm execution are your best allies.

6. Do your homework before every transaction. Never fear but always take a deep breath before risking your hard earned coin. Maximize your reward relative to your risk. If you're patient and pick your spots, edges will emerge that provide an advantageous risk/reward. Proactive patience is a virtue.

7. Don’t let big picture thoughts cloud short-term trades and don’t let near-term noise interfere with the macro bent. Respect the price action but never defer to it.

8. Discipline trumps conviction. The mechanics of the swing outweigh the results of the at-bat. If you're personally attached to a position, thesis or a game plan you developed, your decision making process will be flawed. No matter how strongly you feel on a given position, when trading you must defer to the principles of discipline:

A. Never fight the market. Adapt your style to the tape. Identify your time horizon and employ a risk profile that allows the market to work for you. Never believe that you're smarter than the market. Let the chart be your guide. Do not impose your believes on the charts. Sooner or later, everyone sits down to their own banquet of consequences. Always define your risk. The market can remain irrational longer than you can remain solvent. Perception is reality in the marketplace. Identifying the prevalent psychology is a necessary process when trading. It's not "what is," it's what's perceived to be that dictates supply and demand. Applying the right methodology is only half the battle.

B. Don't let your bad trades turn into investments. Allow for a margin of error. No approach is failsafe and any trader worth his or her salt has endured periods of pain. When trading, you may trip, but never fall. Ride the winners, try the losers and weed out the laggards. Rationalization has no place in trading. If you put a position on for a catalyst and it passes, take the risk off—win, lose or draw. Good traders know how to make money but great traders know how to take a loss. Hope is not a viable strategy. Hanging on laggards drains precious emotional capital along the way, as well as the unlimited amount of lost opportunity cost associated with tied up funds. Accepting the fact that you will be wrong is crucial. The key to successful trading is not avoiding being wrong but how quickly you can identify you are wrong so you can make a change and reposition yourself.

C. Act when you can and not when you have to. Never let a profit turn to a loss. Always put a stop to every position you take and move your stop according to your game plan.

D. Taking some chips off the table is never a bad idea. Nobody went broke taking a profit.

E. When the market is open, it’s game time. Stick to your game plan and avoid new ideas. During the game, it is hard to learn a new play. Wait until the market is closed to learn and perfect a new play rather than trying to learn it on the fly?

F. If you get hit after a poor decision, which result in a loss of capital, you will be zapped of your confidence but It ain't about how hard you get hit, it's about how hard you can get hit and keep moving forward. Take a deep breath, pick yourself up, dust yourself off and start all over again. Dark days happen to the best of us, the more enjoyable your journey will be as you find your way to better tomorrows. Sticking to the principles above minimizes the impact.

9. Zig When Others Zag. Sell hope; buy despair and take the other side of emotional disconnects (in the context of controlled risk). If you can't find the sheep in the herd, chances are that you're it.

10. Don't Compare Yourself With Others. Keep your expectations in line. You must crawl before you walk and walk before you run. Slow and steady wins the race. Trading is a marathon, not a sprint.

11. Trading takes dedication and hard work. It takes time for these lessons to sink in but if you desire a change, commit yourself to excellence today and start making a difference. Keep learning and honing a style that works for your personality, time frame, and risk profile. Once you perfect your skill set, you will be able to successfully trade even the worst stocks. Without your skill set in place, you may end up losing money even if you're trading some of the best stocks. 

Until our next lesson, I wish you as much as you wish for yourselves and yours and maybe a little bit more. Be happy, do good, and the rest will be taken care of.

GoodVibe
Mr. Lucky

29 Comments – Post Your Own

#1) On January 24, 2009 at 7:09 PM, binve (< 20) wrote:

Goodvibe,

Excellent list! Wow, I couldn't agree with those more (now, if only I was good enough to live by all of them :) ).  Thanks!

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#2) On January 24, 2009 at 7:38 PM, anchak (99.86) wrote:

Good ones.....

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#3) On January 24, 2009 at 10:47 PM, Mary953 (66.50) wrote:

GoodVibe,

The strength to walk away, to cut your losses may be the hardest.  Proactive patience?  I like the idea of that.  Thanks.  I look forward to this.

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#4) On January 25, 2009 at 12:46 AM, Tastylunch (29.54) wrote:

it's only necessary to have a high winning percentage on the trades you choose to make.

I personally prefer to try to do it that way too, I think it's easier to maintain discipline and your emotions which seem to go hand in hand. But I do know the Turtle trend traders have something like a 35-40% win rate and still make money due to their tight stops and risk/reward targets....So I guess what constitutes as a high winning percentage may depend on your style...

oh the tickers are nice touch. :-)

Thanks for sharing Goodvibe that was a very well written, very concise list. I particularly liked the line "Nobody went broke taking a profit". That was a line my grandfather always said to me.

I think for new traders and any really anybody, the last rule, rule number 11 is the one they must never forget before all others. I know so many guys who think it's easy and/or don't put the necessary time into it and that's why they lose money.

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#5) On January 25, 2009 at 1:22 AM, kaskoosek (92.46) wrote:

"Identifying the prevalent psychology is a necessary process when trading."

 

Best advice I have heard

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#6) On January 25, 2009 at 5:02 AM, TheGarcipian (58.28) wrote:

GoodVibe, that's a great list. I agree with all of your points, but like most good advice, it's often easier said than done. The devil is certainly in the details. I've been investing since 1992, but have really only been trading (i.e., holding positions under 3 months) over the past 2 years. And I sometimes still forget Rules #3, #4, and #8B, but especially the latter two (4 & 8). I've got no problem with #2; Mr. Market has handed me my intestines so many times in the past that EGO is the last thing I have to worry about!

Great advice on Rule #8E. Don't try to figure out a trend while the market is running; you'll end up not seeing it correctly or (worse) letting your emotions carry you out into deep water in a strong current.

I'll admit, you've piqued my curiousity. But like I wrote above, the devil is in the details, so I'll wait and read more to see what specifics you offer in the way of trading. And don't worry. I know my style and won't adopt anything that I don't agree with.

BTW, love the music selections from today & and the "Introduction". Excellent choices! Anytime you get to hear Robert Cray's guitar work or Hooker's, well, that is a good time.

Thanks for bringing some quality to our CAPS discussions,
--Gar

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#7) On January 25, 2009 at 11:06 AM, isusan (< 20) wrote:

GoodVibe, where were you when I was in college?  We would have been lined up for your class. 

Great lesson.  Solid, reasonable advice with belly dancers, the blues, Nat, and an additional resource link sprinkled throughout.  This is going to be fun.  Thank you!

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#8) On January 25, 2009 at 12:03 PM, GoodVibe4Ever (< 20) wrote:

For binv, anchak, Tasty, kask, Garcipian, susan, those who rec. but didn't comment, and last but not least for the great motivator aka. lovely Mary....

Thank you all for your kind words, loud applause, and sincere reflections! 

I'll be back.

GoodVibe
Mr. Lucky

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#9) On January 25, 2009 at 12:50 PM, UltraContrarian (31.30) wrote:

"The market can remain irrational longer than you can remain solvent."

I dunno man, I'm pretty solvent and the market doesn't seem to have much stamina right now.  I think I can take it.

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#10) On January 25, 2009 at 2:46 PM, Tastylunch (29.54) wrote:

UltraContrarian

Ultra the point of that saying/truism is that a trade always has the possibility of going against you longer than you can stay solvent, thus you must be willing to cut losses quickly. When you're wrong you are wrong. Even the best systems/traders encounter trades that behave differently than they anticipate, sometimes for random or undiscernable reasons.

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#11) On January 25, 2009 at 5:19 PM, BigFatBEAR (29.55) wrote:

I really really like #3 - which basically boils down to don't bet the farm.

Many experienced and smart traders I read risk way too much on a single trade/investment. Small stakes are key to financial survival in this time of volatility.

I have a very small IRA (I'm just beginning to save and invest for my retirement in my mid-20s), but I'm usually very shy to risk more than 10% of my portfolio (with a 10-15% stop-loss) on any one ticker, unless it's crazily diversified (like VTI), and for a long-term holding.

Great thoughts, look forward to reading more.

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#12) On January 25, 2009 at 5:46 PM, BradAllenton (31.38) wrote:

I liked all of them better the first time I read them. Good thing there aren't any

plagiarism police on Caps. Next time you quote ideas that are in many popular investment books at least name the source.

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#13) On January 25, 2009 at 7:24 PM, Mary953 (66.50) wrote:

MrAllenton - If you are fortunate enough to have encountered these guidelines before in other forms, I am pleased for you.  I have not.  Also, I am close enough to retirement to need the aid and to greatly appreciate GoodVibe's effort to help us (well, me) learn.  Offer questions, offer comments.  Save critique please.  GoodVibe is doing this as a kindness at my request.  I honestly never expected detailed instruction but will happily learn as much as my brain can grasp.  These charts are intimidating enough by themselves.  I am certain that if you wish to hang in as part of the group (one of the ones that knows what is going on as opposed to those like me - the totally clueless) you would be a welcomed addition.  :)

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#14) On January 25, 2009 at 7:58 PM, Tastylunch (29.54) wrote:

BradAllenton

man are you in a bad mood today or what? Haha man I've seen your other comments today and figure you must have had a whopper of a Saturday night. Hope eveything is alright.

a lot of these are old cliches, so what source should Goodvibe be quoting?  I don't think it's plagiarism FWIW,  Goodvibe definitely put his own spin on it and I'm not really sure there is anyone that can be definitively proved as deserving credit for coming up with most of these ideas originally anyway.

The nice thing is Goodvibe took the time to compile them all in a fashion that makes it easy to remember and I appreciate that.   It's like a Flight Check you should run through before trading.

For the newer traders especially out there I think they could really find this a useful list.

Stuff like this is what make CAPS a good place.

 

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#15) On January 25, 2009 at 11:50 PM, Mary953 (66.50) wrote:

Thanks, Tasty, for the perspective.

BradAllenton -  Sorry, I sounded really rude and didn't mean to be.  I am a bit nervous about my ability to grasp all of this and I really need to start at square one.  I would pull that last post back and change it if I could.  As is, I can only offer apologies.  It came out a lot more harsh (harsher?) than I meant for it to.

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#16) On January 26, 2009 at 1:05 AM, GoodVibe4Ever (< 20) wrote:

Brad -

No offense taken, brother. You're always welcome to come and reflect your thoughts. I am happy that you're aware of these rules before and found liking and value in them.

Mary -

Thanks for your protectiveness’ instinct but many many thanks for being you. You didn't only noticed -on your own- that you treated Brad little bit harsh but also were not shy from stepping in and quickly offering an apology. I want you to know that I appreciated that greatly. Since I knew you few days ago, you’re quickly adding a lot of very valuable traits, which I admire, in your slots. You’re funny, eloquent, eager to learn, inquisitive, ready to help, courageous, humble, and stand up fine woman. And I bet that you’re good at telling stories too.

And you think that I can’t learn anything from you? You bet I will.

And no intimidation, lady! It’s very easy even a cave woman can do it. ;) When I started I was confused not because it was hard but because I didn’t know where to start. I’ll show you where to begin and will weed out what is not needed. Soon you will be up and running on your own. Who knows if one or two people more might get to benefit from what you started. Just keep me in your thoughts and prayers that I’ll be of little help. I also hope you’re patient and not in a hurry cause I want to put things together not only for the class but also for my open trades. Next lesson will be coming your way very soon.

Tasty -

Aren't you the sharpest cookie in the block or what?

Goodnight to all. Sweet dreams and better tomorrow.

GoodVibe

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#17) On January 26, 2009 at 1:06 AM, BradAllenton (31.38) wrote:

Hey Tasty, glad to see you are still active. You haven't posted much. You and Russiangambit are 2 of my fav. thinkers. I had a slow relaxed weekend, so I can say I'm in a pretty good mood.

Mary, don't sweat it. I have thick skin. Besides, I wasn't poo pooing the advice goodvibe threw out there, it was the "my" rules thing that made me laugh and the willingness to take credit for ideas that aren't original. Thumbs up for the ideas for sure, thumbs down for the delivery.

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#18) On January 26, 2009 at 1:15 AM, Tastylunch (29.54) wrote:

BradAllenton

Ha good to hear that your weekend went well. and thanks for the props!

Yeah the last two months I've been busy trying to get my second store open but I'm still around. Hopefully things will go smoothly and I'll have my work/life/CAPs balance back to the old norms before too long.

Now that you mention it I haven't seen russiangambit much lately either.

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#19) On January 26, 2009 at 1:28 AM, BigFatBEAR (29.55) wrote:

Mary953

Think Tasty's right - ya gotta laugh at the irony of people getting cranky on GoodVibe's very harmless and helpful blog post, with the tickers "DO GOOD". :) Best to just ignore the detractors and people who don't add value to the conversation.

Also - don't be so hard on yourself. You seem relatively new to CAPS / investing, and you're already in the top 2% of players. Congrats! Keep reading, playing, learning, and you'll retire in style. Now if you could just convince my mom to start paying attention to this stuff...   ;)

-BFB

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#20) On January 26, 2009 at 10:11 AM, binve (< 20) wrote:

GoodVibe4Ever, I just want to reiterate, what you are doing is a great thing. Caps is full of fantastic investors who are willing to share their knowledge and are extremely generous with their time. I count you among the top. Seiously, thank you.

Mary953, Thank you for instigating all of this.Your encouragment of others and desire to learn epitomizes Caps: we are all here to learn and share to become better investors. I have to agree with BFB, top 2% in a couple of months. No worries, you are obviously investing minded and on the right track :)

BradAllenton, I have ready absolutely all of these in one form or another over the years. Some of them are now common sayings, or have morphed into common sayings, and as such they are not attributable to anybody. Besides, why bust somebody's balls for compling a list of useful aphorisms that form the basis of good investing? I think the "my" refers to rules he finds useful, and not necessarily that they are "his".

Tastylunch, Nice way to diffuse the situation. You are quite concilliatory :)

BigFatBEAR, Yep I am also a big fan of GoodVibes "Do Good" message. Yeah, I also wish my parents would take this stuff more seriously too.

 

 

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#21) On January 26, 2009 at 1:18 PM, anchak (99.86) wrote:

How did this post become a fistfight ...on GoodVibe's page of all places .....man''s a believer in positive energy.

Hey Brad.....I read your stuff man .... something must have gone off when you made that comment - clearly uncharacteristic.

Tasty ...as usual trying to make sanity prevail.

Folks...this guy is an asset to CAPS....lets keep our cool and wits together. 

 

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#22) On January 26, 2009 at 5:04 PM, Mary953 (66.50) wrote:

anchak - My fault.  I'm still getting my bearings on this blogging thing.  Conversation without faces takes some getting used to and I haven't tried blogging before.  I over-react at times, then come back later and think 'Did I type that?  Ouch!'  My first conversations were with Alstry.  That may have been a misstep in hindsight because I had no idea what he was talking about most of the time.  My kids taught me a bit about predatory behavior on the web (including by women).  Now that I know, I'm a bit gun-shy.  I'll try not to do anything dumb like that again.

BTW, my first venture into investing was a brand new mutual fund run by a complete unknown as fund manager - Magellan Fund with Peter Lynch.  It seemed the most reasonable option available and there was a new tax break called an IRA to be used.  I doubt lightning strikes twice without a bit of luck and a lot of work, study, and knowledge.

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#23) On January 26, 2009 at 5:29 PM, PrestonCheek (31.09) wrote:

Thanks alot GV and good luck to all, this is a great community of investors and bloggers.

Good luck to all.

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#24) On January 26, 2009 at 7:48 PM, murugan2 (28.59) wrote:

GV,

Thanks for the timeless wisdom, no matter what the source.  Some things are worth repeating because they are so true!  Maybe if I read these over and over again, I might actually absorb these lessons rather than learning them the hard way.  Trading has certainly brought me face to face with some of my character defects, whether I wanted to face them or not.  I appreciate your optimism and your positive energy, its a lot harder to be negative all the time.  I also appreciate your reminders about emotional capital, I'd add another rule I learned from difficult experience:

Never trade when you are in a painful emotional situation or in bad health.

Next time I get sick or am in a painful family situation, I will definately close my positions and use the time to study.  Every trade I made under these circumstances cost me big time.

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#25) On January 26, 2009 at 9:31 PM, GoodVibe4Ever (< 20) wrote:

To all friends, brothers, and sisters,

Let's put this to rest once and for all. I tried to cut this debate Brad started but people are starting to get dragged into "defending" me, rebuking Brad, or both. I look to the best in others, stay positive, build, add, or keep my peace. I would love you twice if you will keep this positive vibe in our conversation. I respect and appreciate your protectiveness and support but this is not the way I lead my life. When you carefully read my reply to Brad, you would know that the topic should end there. Here’s why? 

1. Brad or anyone is entitled to believe and express their opinions in any form or shape even if they’re not justified, period. He’s my brother and welcome to come back and say whatever he wishes. We must unite, bond, and stay together. Now more than ever. We must make a difference. If you're not part of the solution, chances you're part of the problem. 

2. I didn't get offended by his words. Not even a bit. What people think of me is none of my business.

3. I live in defenselessness mood and never explain myself. If I wanted to rebuttal him I would go into a lengthy and convincing debate that is waste of energy to say the least if not flat out provocative. This is not my cup of tea. I also could link him to the second paragraph here to take the wind out of his sail but I didn’t because it will start a negative conversation.

So, why am I doing this now? First, to end up this immediately and second, to show you why we will take the high road if and when this situation occurs again towards me and hopefully also if it happens to you while you’re hanging around in GoodVibe’s quarter.

Look to the best in others, stay positive, build, add, or keep your peace.

GoodVibe

Thanks for all your kind words, comments and Rec. I compiled this list after a lot of painful mistakes. For more than a year, I used to read it daily once I wake up and before making any trade. It took me sometime for them to sink in. Until today, I am still trying. I hope it will be of help to you as much as it was and still for me. If you have more rules to offer or a story to share like murugan, Tasty, and others did, it will be a beautiful thing to do.

Hope this find you and yours well.

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#26) On January 27, 2009 at 12:22 AM, d1david (29.51) wrote:

good read, thanks

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#27) On January 27, 2009 at 4:40 PM, semper77 (33.58) wrote:

Don't let your bad trades turn into investments.

This is good advice. Shame that the CAPS scoring system doesn't do more to reward players who adhere to it. In fact, the reverse is actually true. Seems like the top players in CAPS rarely close out losing postions in order to keep accuracy scores high enough to score well.

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#28) On January 28, 2009 at 11:42 AM, goldminingXpert (29.76) wrote:

agreed with all of your rules, good advice. 1 rec for you.

Also, be careful buying a stock after it rises 50%; I think we got our answer on BAA Goodvibe.

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#29) On January 28, 2009 at 12:28 PM, GoodVibe4Ever (< 20) wrote:

Thanks G for your rec. and for your thought on BAA. As I told you before, I don't chase stocks. I buy on my own terms. I was curious to hear your thoughts. Your gold players are shinning today. Gold bugs should ask now why gold is not rallying? I am planning to get into gold if and when the price goes down to 650. Keep it coming! We stay together, we survive.

GoodVibe

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