Trading 102

1.  Take only as much risk as your body can handle.  Sell down to the sleeping point.  I remember taking risk like a madman several years ago, and I would wake up in the middle of the night after sleeping just 3-4 hours because my subconscious mind was thinking about what the market was doing.  Chest pain.  Insomnia.  Your body will let you know when you go over your risk tolerance level.  Its better to be healthy and poor than sick and rich.  

2.  Have a view.  There is that trading cliche:  Don't predict.  Trade what you see.  What does that even mean?  Its vague nonsense.  Every trade that you take is based on a belief that the price will go in a certain direction.  If you don't have enough conviction to make a prediction, you shouldn't even be thinking about putting on a trade.  Without conviction, you are just a sitting duck for stop hunting HFT algos looking to flush out weak hands.

3.  You don't learn how to trade by reading books.  Market Wizards will not make you a good trader or investor.  People have this bias that books are educational.  Trading is the worst business to learn from reading books.  Most of the stuff is outdated and no longer working or just snake oil.  I enjoyed reading Market Wizards and Reminiscence of a Stock Operator, they were entertaining, not educational.  Nothing I read in those books apply to my current trading.  

4.  Experience is the best teacher.  You learn by doing in this business, putting serious money on the line.  Not by reading trading books, or joining some trading subscription service.  Occasionally I will pick up ideas off of Twitter, reading blogs or articles, listening to podcasts, but most of my ideas come from watching and trading the markets.

5.  Tops are a process, bottoms are events.  Indices can linger for weeks at the top and then suddenly drop in a hurry.  But indices usually only stay at the bottom for a day or two.  

6.  Investors extrapolate trends well into the future, without regards for sustainability.  Trend following used to work in the old days when prices didn't adjust quickly to new information.  But with so many trend followers and market watchers, prices adjust quickly, and often overadjust and shoot past fundamental value.  Trend following late in a trend is like picking up dimes in front of a bulldozer.  

7.  Daytrading provides an illusion of risk control because there is no overnight risk.  But the more trading decisions you have to make, the more likely that you will screw up.  And most daytrading edges are small in the bigger markets because you are competing with HFTs and predatory algos.  

On this market:  We got the 1st day of the month inflows into equities like clockwork, so letting the flows do their work and push up prices to levels where it is profitable to short.  Have a small short position, will be careful adding here, want to have dry powder for an even better short setup.