Investment: The Top 10 Trading Rules - Part 2

This is continued from my earlier post.

(6) Adapt your style to the market
At various junctures, different investment approaches are warranted and applying the right methodology is half the battle. Identify your time horizon and employ a risk profile that allows the market to work for you.

(7) Maximize your reward relative to your risk
If you're patient and pick your spots, edges will emerge that provide an advantageous risk/reward. Proactive patience is a virtue. (aC: This is very true in a sense; I realised that my Contra trades will never do better than the stocks that I hold even for just a few months)

(8) Perception is reality in the marketplace
Identifying the prevalent psychology is a necessary process when trading. It's not "what is," it's what's perceived to be that dictates supply and demand. (aC: On the philosophical side, isn't "Reality" itself just a matter of one's perception? One person's reality may be completely different or even opposite from another person's)

(9) When unsure, trade "in between"
Your risk profile should always be an extension of your thought process. If you're unsure, trade smaller--or paper trade--until your identify your comfort zone. (aC: THIS is the time to do that - during times of great volatility and extreme price fluctuations.)

(10) Don't let your bad trades turn into investments
Rationalization has no place in trading. If you put a position on for a catalyst and it passes, take the risk of win, lose or draw. (aC: Alright, hands up! I'm guilty of this too, but there ARE times when bad investments can be turned into good ones; That's a strategy I will leave till another time.)

There are obviously many more rules but I've found these to be my common threads through the years. Each of you has a unique risk profile and time horizon, so some of these commandments may not apply.

As always, I share these thoughts with hopes that they add value to your process. Find a style that works for you and always allow for a margin of error. No approach is failsafe and any trader worth his or her salt has endured periods of pain.

Good traders know how to make money but great traders know how to take a loss. For if there wasn't risk in this profession, it would be called "winning" rather than "trading."

Source: CNN Money.com