SIMPLE WORDS BUT TRADING WISDOM

by Mike Lally

You must determine your risk-reward ratio
You can use your risk management strategy to set the entry point
Condition your position size to your risk strategy
Include the cost of doing business in your projections
Use a technical stop based on the chart where possible
You can survive in trading if you lose more often than you win providing you cut your losses and let your winning trades run
Setting your stop-loss according to the prevailing volatility is highly recommended
Enter each trade with a stop-loss in place

Buy and Hold is a passive form of investing
Compare the performance of your system with a corresponding buy-and-hold result
The random walk theory may be outdated
Dollar cost averaging should be avoided
Pyramiding into successful trades can be a good strategy since it is based on adding to a winning    position
Reduce the position size and risk for each leg when pyramiding
Market breadth can help the trader to gauge how buoyant the market is
Market breadth can be measured by:
    Advance Decline Line
    52-week new highs and lows
    Volume up and down
Traders need to make money irrespective of market conditions
Short Selling is an underused facility for making money in a market downturn
The main risks of short selling are:
The price moves up after the stock is sold
The lender demands the return of the stock
Leverage is a very dangerous weapon since the risk is greatly increased

Pay no attention to the assortment of easy wealth gimmicks
As traders and investors we take on board the lessons of the past
Successful traders keep things relatively simple
The technology stock collapse in 2000 can happen at any time
Try to think long-term when investing
In difficult times the fundamentals come into play
Do not believe it when you are told “this time it’s different!”
Stick to your game plan when times are uncertain
The results from growth stocks and value stocks vary during the economic cycle
It’s not hard to make money during a bull market
It’s difficult to make money during a bear market
Smart companies are making considerable cost reductions through e-commerce activities
There are opportunities and risks every day in every market
Reduce your exposure to equities during a downturn
Beware of laziness particularly during a downturn

To succeed in trading you must be strong psychologically and emotionally
You need to be aware of the behaviour patterns of successful traders
You need to examine your self-destructive tendencies
Trading is a long journey full of self-discovery
The crowd moves the market
You need to be aware of the economic environment
Markets move in cycles
You must know the market cycles
A bear market is not over until it’s over
You must know your investing timeframe
Most technical indicators lag the market
Fibonacci ratios can help you to reduce risk
The probability of an ordinary event following an extraordinary event is greater than the probability of successive extraordinary events
Successful trading requires control of fear, greed and pride

You need to control fear, greed and pride
You need to know in advance how you will respond to certain trading events
Cognition Behavioural Therapy can help you to help yourself
You may need to remodel your thinking
You must clear the psychological barriers affecting your performance
You need to able to judge a trade only on its merits
You need to judge your trade performance after its completion
You must know what is happening in the wider economy
Do not read too much into small samples
People are generally risk-averse when ahead and risk-seeking when behind
The loss of $1 generally causes more concern than the joy of winning $1
Investors are influenced by many factors including:
    The crowd
    The amount of risk
    The advice of their broker
    Greed, fear and pride
Supply and demand drive markets
You must be psychologically ready to trade well
You must realise that losses are inevitable
You must keep a trading diary
You must understand the risk associated with each trade
“Mastering Risk” is vital