In chapter 19, Mr Bernstein lists ten psychological stock trading principles he believes to be essential to a trader’s success. The ten principles are as follows:
1. Plan your trades specifically and in advance. “If you are specific, organized, and act on plans, you will avoid costly efforts often caused by spontaneous decisions.” Obviously without some sort of plan we are much more likely to trade off fickle emotion instead of steadfast reserve.
2. You alone are responsible for the success or failure of your trading. By taking total responsibility for your trading results, good or bad, and not blaming friends, brokers, market letters, etc. you will be “consistent and truthful to your trading system. And consistency is the single most valuable key to success.”
3. Never hope that a position will go your way; never fear that a position will not go your way. Once in a trade you have absolutely no control over its eventual direction no matter how many prayers or petitions are offered. “Hope and fear are two of the greatest enemies of the speculator, fostering only false perceptions. You must avoid these feelings at all costs. The more rigid you can become in your execution of trades, the more profitable will be your results.”
4. Monitor your performance feedback of results. The only feedback a trader can depend upon is the written record of trade results and the recorded thoughts surrounding each trade execution. “At any time you must know how well or how poorly you are doing. You must also know if poor results are caused by your inability or that of your trading system.”
5. Attitude is your greatest asset. “A good trading system is perhaps only 20 percent of the total picture. A positive attitude may very well comprise the balance of successful trading.” No matter how many losses you have and no matter how irrational the market seems to be it is imperative that you keep the proper, level-headed attitude. If you don’t then the market will take advantage of you.
6. Don’t take the market home with you. “The market must be seen as a means to an end. It should not become a way of life, and it should not dictate your every move.” Much like what I like to refer as a life outside the charts. It does help to look at the market from without instead of from within all the time.
7. Cultivate effective and positive relationships. Trading can be a lonely game and one of like attracts like, therefore, it is important for us to grow and maintain a healthy relationship garden. “If we associate with those who are highly motivated, who seek to achieve, who have ambitious goals, and who are willing to forge ahead regardless of obstacles, then we will acquire similar drives.”
8. Enjoy the fruits of your labor. Motivation is tantamount to a successful trading strategy. The positive feelings you can experience from acquiring things as a result of trading efforts can act as positive reinforcement for future trading decisions. “Make it a regular practice to remove profits from the market. Spend some of them and save some of them.”
9. Avoid overconfidence. With the enjoyment of the fruits of your labor its cousin, measured control, should not be far behind. You should not become over emotional about your trading so “the best course is to even out the peaks and valleys. Each loss should be a negative experience, but not a totally destructive defeat. Similarly, each profit should be taken in stride. Overconfidence may, in fact, be even more potentially destructive than lack of confidence, since it will make you take chances that could destroy you.”
10. Your next goal should always be in sight. “Once you have obtained an objective, make certain that your next challenge is set.” If you have met a profit objective then set a new one so that you have created a new challenge, a new mountain to climb so to speak. If you do not start to work on climbing a new mountain then you will have a tendency to fall off the current one, giving back all that you have accomplished.
Most of these are fairly common and well-known stock trading principles but just like in life the simple and obvious are most often overlooked while we spend out time searching for the rare, complicated and not so important.