Because of the way the market is acting we need a new set of rules, and today we were given “10 Commandments of Trading.” Trading and investing are not the same thing, with trading you need to take some off the table, while investing takes long term holding of a stock. The day you buy a stock you must make the decision whether it is an investment or a trade. The commandments are:

  1. Never turn a trade into an investment. When buying for a trade if the catalyst doesn’t happen get out. Never hold the stock for an investment, the company hasn’t changed so your mind shouldn’t.
  2. Your first loss is your best loss. Cut losses quickly and get over them quickly, this will cause your losses to have less of an impact on you. Do not let ego or pride rule you.
  3. It is ok to take a loss when you already have one. Do not pretend that a loss is not a loss just because you still have a trade on the table. Jim said “a loss is a loss whether it is realised or not.” Acknowledge it before it hurts you to the point that you can not recover from.
  4. Never turn a trading gain into an investment loss. The example used was a trader who bought Altria Group Inc (MO) before the quarter, watched it jump then couldn’t decide whether to hold the stock or take the gain. The lesson is “if nothing is booked, nothing is gained.” Remember to never overstay your welcome.
  5. Tip are for waiters. You need to do your homework, never trade on hearsay.
  6. You do not have a profit until you sell. People sit on paper gains trying to avoid paying taxes when they sell but the tax is nothing compared to the potential loss if you don’t sell.
  7. Control your losses because the winners take care of themselves. As a trader you need to spend the majority of your time looking at problem stocks. Never say “I’ll just wait for this one to come back and then not do it again.”
  8. Do not be afraid that you are missing out. If this is your mindset you are probably coming in late. Jim said “acknowledge that you’ve missed out on the opportunity.”
  9. Do not trade on the headlines. He always talks about this, the press is almost always wrong in the quick takeaways.
  10. Do not trade on flow. When watching a financial channel you may see multiple takes, multiple trades to the upside you might think they know something you don’t. Do your homework before any trade or you will lose more money than you will make.