Wednesday, December 29, 2010

11 Rules for Better Trading

I have published my "11 Rules for Better Trading" previously, but I thought they were so good that it was worth drawing attention to them again.  After all, it is the end of the year, and these are the kind of stories we generally see to get ourselves righted for the coming year.  

But let's take the list one step further and ask the question as a matter of self-evaluation: How did I do in 2010 adhering to my rules?

First, here are the "11 Rules" and below is my critique of myself.


With regards to Rule #1, I remained data centric in my approach.  Honestly, I don't know any other way to approach the markets.  Just "winging it" has never worked for me.

Rule #2 is a time saver for me.  Over time, it has become easier to adhere to my approach and not worry about missing the next 2%  move.  The discipline of adhering to a rigorous methodology has become easy to implement over time.   

Rule #3 is always important to keep in mind.  The markets are changing all the time, so it pays to be alert and accept change.

I have no problem with Rule #4; for the most part that is how I trade- on the edges and against the prevailing consensus.  I still think the only way to outperform is to trade against the consensus.  I don't mean to be contrarian for the sake of just being contrarian, but to understand when those bets will pay off or more importantly, to know when they have failed.

My market edge - Rule #5 - is probably my best attribute.  I continue to develop a "one size fits all" strategy that works across multiple assets.  This is a goal of mine.

My biggest disappointment for the year was with money management (Rule #6 and Rule #8), and ironically, this is the one factor I have the most control over.  Specifically, I had some good "calls" this year, but my bets were not properly sized in retrospect.  In essence, I did not have the conviction to make the big bet.  Clearly, there is room for improvement here.  

Interestingly, I did start the year off with a money management scheme or strategy known as risk parity.  Risk parity essentially is putting the most amount of money in your least risky assets and the least amount of money in your most risky assets.  In theory, it makes sense, but in practice, it is a money management scheme that is ill suited for a market timer like myself.  In addition, I think this past year was bad for asset allocators, like myself, because there was only 1 trade - either it was risk on or risk off.  Nonetheless, I won't make excuses, but recognize I can do better.  My approach is proving robust over time and across assets, and I need to take greater advantage of that fact.  

My time frame (Rule #7) still works for me; I prefer weekly data and I don't like watching the markets all day long!

Persistence (Rule #9) and Passion (Rule #10)!  I am still here despite the ups and downs.  I maintain an interest in improving myself and my ability to function in the markets.

Rule #11 - taking care of myself - has been a strong positive in my life over the past 2 years.  Even with a bad day in the markets, an hour at the gym seems to make it all better.  Do something for yourself.  Take care of yourself!!!  

May everyone have a Happy and Healthy 2011!!!!

4 comments:

the bonocelli said...

excellent rules. I shall post over the punched hole in my wall :>]

Thanks for all your hard work this year and sharing with us.

Guy M. Lerner said...

The B:

You are welcome! I wish I could get it right all the time every time -- but in the end, I just do my very best

Happy, Healthy!!

aldrin james said...

I never thought that there is this kind of rules that I need to follow. I just wish that those rules can really bring me to the top.

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