There are few certainties in the stock market but there are some basic rules that if followed will greatly increase your chances of success.
These are my Ten Commandments of Trading:
1. I am the Market and thou shalt not know what I will do next.
Trying to predict what the market will do in the future is an impossible task. All we can know for sure is that it will go through a variety of cycles of varying lengths. Rather than trying to guess, it is better to formulate strategies that can be quickly implemented as conditions change.
2. Remember to honor and keep holy price action.
Complex macroeconomic arguments, valuation calculations, and technical indicators hold great appeal to traders that are looking for "the secret" to the market but only price action ultimately matters and should always be the primary focus. Price is truth. Everything else is hope.
3. Thou shalt keep accounts as close to highs as possible.
The key to long-term market success is to keep your accounts as close to highs as possible. Making up losses is the most unproductive thing you can do. When accounts are kept at highs you benefit from the great power of compounding. When you are losing money don't just sit there. Do something.
4. Thou shalt trade in various time frames.
The secret to great trading is to average into and out of positions. Rather than trying to guess the best entry and exit points, use a variety of entries and exits and vary your holding periods. This is the only real diversification you need to manage risk.
5. Thou shalt not worship conventional Wall Street wisdom.
The primary goal of the investment business is to gather assets to manage. Making your money and giving you good investment advice are secondary considerations. You are the best person to decide what will benefit you most and should control your financial future.
6. Thou shalt honor and love the gift of selling.
Your most powerful investment tool is the ability to sell any stock or your entire portfolio in a matter of seconds. Selling is the ultimate form of insurance and can be undone in a blink of an eye. There is no better way to control risk and there is no better strategic tool than the ability to sell and rebuy.
7. Thou shalt not worship any single stock.
One of the most costly mistakes that traders and investors make is that they become emotionally and financially invested in one stock. What wipes out more traders than anything else is building too big of a position in a stock that is acting poorly because they are emotionally attached to it and their objectivity is impaired. The only good stock is one that has already been sold for a big gain. All other stocks hold the seeds of your destruction if they are not treated with skepticism.
8. Thou shalt love the Market for its bounty of endless opportunities.
What makes the market so powerful and mighty is that it provides an endless sea of opportunity. Every day there is a new trade and another chance to make money. The market will provide these opportunities but it is up to us to do the work to find them and to look for ways to profit.
9. Thou shalt be true to yourself and find your inner source of wisdom.
There is no one right way to approach the market. What works best is a function of your personality, emotions, needs, and desires. You have to know yourself well before you can develop a market approach that works.
10. Thou shalt give thanks for the endless bounty and maintain a positive state of mind.
There is great power in positive thinking. If you are convinced that you can make money in the stock market then the likelihood is that you will find a way to do so. It doesn't matter if it is a bull market or a bear market, there is always a way for an astute and hard-working trader to produce profits.