Within the mentor program Reminiscences of a Stock Operator is compulsory reading. I have the newer annotated version on my desk where it lives. One fot he things that reading older books a bout trading highlights is that there is nothing new under the sun. I know everyone likes to think they have discovered something or invented something new with regard to trading. Everyone also regards their trading journey as unique – bollocks there are no Robinson Crusoe’s in trading. Everyone has followed pretty much the same path.
The thing that strikes me in reading books such as Livermores is that rules for success are universal and timeless. They show that the basic precepts of trading are simple but not easy, which is a paradigm that defeats most.
Lesson Number One : Cut your losses quickly.
Enough said – its not worth expanding on this you either have the courage to do this or you dont.
Lesson Number Two : Confirm your judgement before going all in.
Livermore is reputed to have sniped at positions and used a staggered entry system so that his last purchase was always at a higher price that then first. Once a move was confirmed by way of rising price he would load up on the trade.
Lesson Number Three : Watch leading stocks for the best action.
Trade those that are moving not those you hope will move.
Lesson Number Four : Let profits run.
What else would you do? Oh yeah……. thats right if you buy it at a $1.00 you then sell it at $1.10 and crow to all you friends about how clever you are. Meanwhile the stock you sold goes to $5.00
If I am ever going to ask a trading if they are mental it is after seeing them sell a strongly trending share because they lost their bottle.
Lesson Number Five : Buy all time highs
Notice this says all time highs not all time lows – which it what most traders/investors do. By the way hello to everyone buying TLS – you might want to pay attention.
Lesson Number Six : Use pivot points to determine trends.
This is merely a different way of saying know what the trend is and stick with it.
Lesson Number Seven : Control your emotions.
Trade like Spock celebrate like Kirk