Art Huprich of Raymond James recently published this excellent list of trading insights for 2012. I wanted to pass the list along in case anyone hasn’t seen it (thanks to Barry Ritholtz):
“Technical analysis is a windsock, not a crystal ball. It is a skill that improves with experience and study. Always be a student, there is always someone smarter than you!
“Thou Shall Not Trade Against the Trend.”
Let volatility work in your favor, not against you.
Watch what our “Politicos” do, not say.
Similar to the Tampa Bay Buccaneers in 2011 (four wins and 11 losses as of this writing, versus 10 wins and six losses in 2010), markets tend to regress to the mean over time.
Emotions can be the enemy of the trader and investor, as fear and greed play an important part of one’s decision making process.
Portfolios heavy with underperforming stocks rarely outperform the stock market!
Even the best looking chart can fall apart for no apparent reason. Thus, never fall in love with a position but instead remain vigilant in managing risk and expectations. Use volume as a confirming guidepost.
When trading, if a stock doesn’t perform as expected within a short time period, either close it out or tighten your stop-loss point.
As long as a stock is acting right and the market is “in-gear,” don’t be in a hurry to take a profit on the whole positions, scale out instead.
Never let a profitable trade turn into a loss and never let an initial trading position turn into a long-term one because it is at a loss.
It’s not the ones that you sell that go higher that matters, it’s the ones you don’t sell which go lower, that do.
Don’t think you can consistently buy at the bottom nor sell at the top. This can rarely be consistently done.
Don’t buy a stock simply because it has had a big decline from its high and is now a “better value;” wait for the market to recognize “value” first.
Don’t average trading losses, meaning don’t put “good money” after “bad.”
Your odds of success improve when you buy stocks when the technical pattern confirms the fundamental opinion.
There are periods where traders, due to either economic or emotional reasons, don’t need to trade. When the market is acting poorly, don’t press trades on the long side.
We can’t control the stock market. The very best we can do is to try to understand what the stock market is trying to tell us.
Understanding mass psychology is just as important as understanding fundamentals and economics.
When trading, remain objective. Don’t have a preconceived idea or prejudice. Said another way, “the great names in our business � the Paul Tudor Joneses; the Stevie Cohens; the Andy Halls; the George Soros’�all have this same trait: the ability to shift on a dime when the shifting time comes.”
When trading, if a stock doesn’t perform as expected within a short time period, either close it out or tighten your stop-loss point.
Any dead fish can go with the flow. Yet it takes a strong fish to swim against the flow. In other words, what seems “hard” at the time is usually, over time, right.
Earnings estimates often follow stock prices
He who panics first (sells, cuts their loss – discern sell rules before buying), panics best… Realize that a loss in the stock market is part of the investment and trading process. The key is not letting it turn into a big one, as this could devastate a portfolio. The table below depicts the percentage gain necessary to get back even, after a certain percentage loss.
Parabolic topside moves almost always correct in the same way…
Don’t make investment or trading decisions based on tips. Tips are something you leave for good service.
Where there is smoke, there is fire, or there is never just one cockroach: in other words, bad news is usually not a one-time event, more usually follows.
To the best of your ability, try to keep your priorities in-line. Don’t let the “greed factor” that Wall Street can generate outweigh other, and just as important, areas of your life. Balance the physical, mental, spiritual, relational, and financial needs of life.”
Source: Raymond James via Ritholz.com
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.
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