I’ve often wondered what would happen if I could tell my younger self things that would help in my investing and trading career. If I could somehow go back in time and give myself a bullet point list of lessons learned over the years on my stock market journey, it would look something like the below list. The knowledge one gains from their experience can’t be replaced, but it would have been helpful for me to have these pointers along the way. There’s probably many more things I could list, but these are the ones that came to mind this past week. Maybe at some point I’ll do a follow up list or make a post expanding on some of the items below:
Don’t go all in – It’s just dumb. And a very easy way to blow up account. Position size is of paramount importance.
Losses teach more than winning trades. “It’s not a loss if you learn from it.” If you’re facing a loss, ask yourself what you did wrong, how you could have done things differently, and don’t forget it.
Let winners run! Learn how to maximize your time in a trend. Home runs and grand slams will do wonders for your account.
Picture the market as an oven, and all the thousands of daily opinions and convictions are mixed together and placed inside. What comes out is price. Focus on price. Price doesn’t care about your opinion.
Keep watch lists short – do your homework on the weekends so you can take action during the week.
Save your charts, make a journal of trades, provide rationale for entry and exit. Go back and study results 3-6-12 months later.
The longer the time frame, the higher the profit
Weekly charts are so underrated. Learn to chart these ASAP
Monthly charts as well
Having a good idea on how a stock will behave and actually capitalizing on it are two different skills. The execution portion is just as important as the setup. Be prepared to take action. If you’ve done your homework, this will become automatic.
When in doubt, sit it out. Get a clear head. “There’s always another train leaving the station.”
Learn to use and become comfortable with log scale - so important when charting
Learn how to plot log scale parallel lines - make a spreadsheet that will give you the coordinates
Point and Figure charts are worth the time to learn. Your portfolio performance increased from day 1 on PnF. It was your “beginning to believe” moment from the Matrix. PnF “showed you the door, you just had to walk through it.”
PnF Objectives are extremely helpful
Objective 45° trend lines in PnF are just as helpful
Learn how to count PnF objectives in % box sizes
Block out the noise. Turn off CNBC – it has rarely helped. Also a major turning point for your portfolio gains once you stopped watching.
Pay attention to Earnings price reaction. Often times it is much more important than the news.
Seek entries at high probability points.
Look for points of confluence
Momentum extremes
Trends often will bail you out. Do not doubt the significance or importance of a major trend line.
Horizontal lines vs. diagonal lines on bar /candle charts:
Experience has been better with horizontal lines
Diagonal lines are subjective by nature, and its easy to convince yourself to continuously adjust diagonal lines to fit a narrative.
Diagonal lines great on PnF (45°) – the exception when using diagonals
Historical analogs – they are nice to study and analyze the behavior of – they may provide clues as to how price might react, but in the end it’s just an analog. The market is forward looking, each event is different, learn to trade the market action in front of you.
At one point you made charts with 20 lines on them, zig zagging all over with 5 or more indicators. Eventually you found that less is more. Less lines, indicators, less time spent on charting.
Perma-anything is bad for your portfolio health. On both the bull side and the bear side.
Be open minded to setups failing. Determine your stop out level before the trade is placed, if it hits, take the loss and move on.