THE NINE RULES OF TRADING

“It’s not the years in your life that count. It’s the life in your years.”  -Abraham Lincoln

A good article in National Geographic got me thinking not only about my own health, but also my own rules to trading.   I’ve attached both the National Geographic article and my 9 rules below.  Enjoy:

The Power Nine: Secrets of long life from the world’s healthiest humans
1. Move: Find ways to stay active

2. Plan de Vida: Discover your purpose in life

3. Downshift: Take a break

4. 80% Rule: Don’t overheat

5. Plant Power: Choose greens

6. Red Wine: A glass a day

7. Belong: Stay social

8. Beliefs: Get ritualistic

9. Your Tribe: Family Matters

The Power Nine: TPC’s 9 rules to successful trading

1. Move: Always be flexible.  The beauty of the stock market is polygamy is perfectly acceptable.  Never get married to a particular position or a particular strategy.   The market is complex, dynamic and always changing.  Learn to change with it if necessary.

2.  Plan de Vida: Always invest with a plan.  Have strict rules and a machine-like approach.

3.  Downshift: Pulling yourself out of the game when you’re not certain will help you from making debilitating mistakes.  When in doubt get out.

4. 80% Rule: Never let more than 20% of your portfolio put 80% of your portfolio at risk.  Position sizing is key to risk management.

5. Hope is a 4 letter word: Holding and hoping is not a strategy.  Cut your losses, learn from it and never look back.   Never ever get into something you can’t get out of.

6. Understand your risks: You can’t avoid black swans, but they don’t have to rip your face off.  Understand your risks and your rewards.

7. Goals and accountability: Set goals and keep track of your performance.  You are responsible for your own decisions.  Own your mistakes.

8. Psychology: Learn to control your emotions and understand the emotions of those around you.  Always remember what General Patton said: “if everyone is thinking the same then someone isn’t thinking”.   Also the famous Buffett quote: “Be fearful when others are greedy and greedy when others are fearful.”

9. Your Tribe: Always remember that there is more to life than investing.  Don’t live to invest.  Invest to live.  Being the richest man/woman in the graveyard is worthless if there isn’t anyone to bury you there.

Do you have some rules of your own?  If so, use the comment section to add to the list.

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Got a comment or question about this post? Feel free to use the Ask Cullen section, leave a comment in the forum or send me a message on Twitter.

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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  • jim

    correct, especially this one:

    Always remember that there is more to life than investing. Don’t live to invest. Invest to live. Being the richest man/woman in the graveyard is worthless if there isn’t anyone to bury you there.

  • StockY

    Awesome post. Great site.

  • Aki_Izayoi

    Do you like Magic The Gathering prag???

  • Frederick

    Good post. Aside: I swear the Red Wine industry has one powerful lobby and publicist group. Like clock work every year they bombard the world with “new” press releases about the health bennies of red wine. Can’t you just eat grapes and raisins? Every time I see a story about an interview with someone turning a 100, they don’t ever say their secret is getting sauced every day. On the contrary, most don’t drink at all. (TPC, I realize this was hardly the thrust of your post…just ranting/had enough of the red wine industry propaganda machine. Smile.)

  • http://www.pragcap.com TPC

    Magic Gathering. Never heard of it. What’s that?

  • Tommy

    Hard to beat Ed Seykota’s 6 rules of investing. Here for your listening pleasure…

    http://www.seykota.com/tribe/essentials/index.htm

    Tommy

  • Aki_Izayoi

    I asked because of the reference to “The Power Nine.” I thought it was a way to reference Magic: the Gathering.

    http://en.wikipedia.org/wiki/Power_Nine
    http://en.wikipedia.org/wiki/Magic:_The_Gathering

  • http://www.pragcap.com TPC

    I’m not up to snuff on my magic. I’m too busy trying to figure out the hocus pocus of the stock market….

  • van

    between you, Toddo, Tim Knight, Barry R. and Doug Kass, I can’t think of anyone better. Kuddos on your neutral call, jibes with my numbers.

  • Tyler

    TPC,

    Thanks for your rules. Do you have a money/risk management reading list that you would like to share for those of us who are still students in this business? Personally, I am struggling to define my rules for the long term (20-30 yr) retirement portfolio and then for the shorter term (up to 24 months I guess) discretionary non-retirement portfolio. Any helpful reading ideas would be welcomed.

    Thanks.

  • http://www.pragcap.com TPC

    Tyler,

    I would rummage through the “how to” section. You should find what you’re looking for in there. Also, my recent article on why you’re likely a bad trader.

  • http://twitter.com/derekhernquist derek

    Your work is outstanding…thanks for the daily gems! Hope my twitter posts generate some traffic to your great site