Humans don't like rules. We are born rule breakers. We don't like boundaries. Parents get worn out saying "NO" to toddlers because toddlers want to explore ....they want freedom. We constantly are bound by , "NO!". We get our driver's license and we get that euphoric sense of freedom. That freedom lasts until the blue and red lights appear in the rear view mirror. Rules!, restricting our freedom.
We get our first job and we soon learn to abide by new rules in order to get reward...our paycheck. We have to arrive at work at certain times and work, work, work, until a certain time. We have to produce a certain amount of " work", in the proper manner bound again by more rules.
I submit that the market is such an outlet. Here the individual finds an environment of "Freedom". It is estimated that there are billions of possible trade combinations in just the bond market alone. The trader sees an infinite playground and he feels empowered because he is finally free. No rules....finally.
Here we can take tips, buy, sell, straddle, strangle, you name it, there is a playground where we are in charge. No parents, teachers, policemen, or bosses to control our behavior.
The problem is that there are an infinite number of things we can do and it is stimulus overload. We cannot handle(process) the infinite number of possible trades or results. We buy high, sell low, get scared and sell early or get in late, it is too much, harried, random, overwhelming, and we are inconsistent and see our accounts dwindling or BK.
I submit we need rules to be consistent. We need to get our mind around making consistent money instead of the big score. We need entry rules, sustaining rules, during the trade, and exit rules. We need to get our mind into a place of trading without fear. Trading with rules provides boundaries, which provides true freedom. No fear, no loss of sleep. Knowing if a loss occurs you calmly remove your trade and enter the next one. Consistent money making.-;)
Certainly have to agree with Doc on this one. Equally important to rules is tools --- you have to have the right tools to do the job properly ... within the rules. And then there's training/learning. Like life, investing is a learning experience. Sometimes you can "go to school" on the learning experiences of others (like Doc), but thee are times when you have to make your own mistakes to learn. It's a complex world out there that we struggle to understand; rule & tools & training/learning bring order to an otherwise unruly world.
Yep- discipline- taking a loss- admitting you were wrong- resetting yourself for the next round. gong on vacation next week (April 1)- will bring the book you suggested (trading in the zone).
Well said, Doc.
Unless you are using something esoteric like horoscopes or chicken guts, there does not seem to be existing rules other that "buy low, sell high" that apply to short term traders.. My feeling is using historical data to develop a system for buy and sell points, and limit losses, such as your GLAD system, is an approach that can produce consistent profits, provided they are followed consistently. I appreciate your generosity in sharing it.
I like working with the monthly dividend group, because the cycle time interval is shorter, thus reducing loss exposure. I have worked a little using a foundation of daily trades to develop a buy/sell formula that reduces losses, but have not yet found anything that works consistently. A moving average approach for entry might be worth study.
I was harried by some here for offering a very simple MA play for a poster who wanted a simple trading paradigm. I suggested the poster who scoffed at my suggestion try it on AAPL or GOOG for three months and we would "see".
Check it out: 28 SMA on the three month chart for AAPL or GOOG, take your pick or both. Buy when the daily PPS crosses up over the 28, sell in the other direction. What can I say? Is trading really "that" easy....;-)