- Emotion is the money killer! Your opponents on the other
side of the screen will never stop trying to push your buttons.
- Action is for gamblers, not traders. If you want to "put
money to work", park it in bonds or dividends or cash and leave
it.
- A strong hand with a correct thesis wins the most. It
is better to be a weak hand and lose a little, than to have an
incorrect thesis and lose a lot.
- Nibble into positions as slowly as you can stand. An
entry you haven't waited for is probably not a good one, so wait.
- Let your winners run. Exit because your thesis has played
out, not because you want the money for something else. If you exit
because you need the money for something else, they got
you.
- Use margin only to hedge or with adequate precautions.
The person who is forced to sell at any price by his margin clerk
should be the other guy, and the person buying from him
should be you.
Margin Equity % = (Longs + Net Cash - Shorts) / (Longs + Shorts)
- Never put too many eggs in one basket. Don't let a single
incorrect thesis give them the ability to wipe you out.
- Don't catch a falling knife. Buying to "break even on
the rebound" is how it starts. Admit you now hold a lottery ticket,
or get out.
- Always consider the contrarian viewpoint. If enough
people do the same thing, rest assured that somebody somewhere will
exploit them.
- Financial news is how they drive the herd. Big stories
create strength that strong hands dump into near the end of
moves.
- Beware the Morning Whipsaw, the Afternoon Surprise, and
Expiration Day. This is how they scare, suck in, and screw the
little guy.
- Volatility inflates option premiums. Buy quiet, sell
hectic.
- Covered calls are for milking, not hedging. You should
expect to get trapped at a loss or with a clipped gain, because
you will.
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