Friday, August 02, 2013

OT: Seven Habits ...

There is the famous book Seven Habits of Highly Effective People (wiki link). Off the cuff, here are seven for traders:

1) Know yourself - I always tell beginners that there are a thousand ways to make money in the markets. Find one or more that work for you. What works for me, may not work for you.

2) Stay humble - When I was a young trader, I was too cool, I was smart, I didn't need to learn from others. An acquaintance of mine started trading. Instead of asking me for advice, he was mostly concerned with preaching to me. At that time I had over 10 years in the markets and he was still wet behind the ears. Odds were way against him because of ego. These days, I still sometimes try and have a beginner's mind, open to learning from anyone that may have a lesson for me. I now have over 25 years in the markets, and sometimes still have something to learn from a beginner.

3) Noise vs. signal - There is a lot of noise out there. A person can watch the financial news or read websites all day long. It adds little, and after a modest point detracts. If something isn't adding to your decision making, try tuning it out. A lot of it is more about entertainment, and possibly generating commissions than useful financial information.

4) Keep it simple - ironic coming from an options trader that often does complex trades. Many strategies can be boiled down to a relatively simple idea. Complexity is often sometimes used to hide something.
5) Risk management is just as important as correct calls - so many beginners focus on market timing, and many want to go "all in." Live to trade another day, is a strong motto, especially for beginners. All in traders tend to crash and burn because at some point their number comes up, and nothing, nothing is 100%.

6) Perspective - despite all the bad news, most of us are blessed to live in the U.S. Most have relatively good health, and those reading here, almost certainly have money to invest. That is better than most, though not as good as some.
7) Look ahead - there are cliches about driving while looking at the rear view mirror. Early on, I learned about curve fitting, finding what worked in the past, and trying to apply that to the future. Indicators often work until widely publicized, and after they become popular stop working. 

Another related point is that many folks focus on the bad news, the bad economy, the debt levels, the underfunded pensions, corruption in government and business, and on and on. The future does not have to be dismal. Back in 1900, middle class Americans lived to about 45. Who knows what that age will be in 2100? Young people may well live to 120 or 150 or 200. They may also have the chance to leave the planet and explore new worlds. I've never been accused of being a rose-colored optimist, but the future may be brighter and better than any of us can imagine.

Think of the inventions that changed the world, such as electricity, steam engines, automobiles, airplanes. The Iphone is less than 10 years old. The Ipad about five years old. These are already seen as old news, but have already had a huge impact in a short time. There are sure to be bigger inventions, hopefully that will improve the lives of average Americans.

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