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Optimal Finance Daily - Financial Independence and Money Advice
3451: [Part 1] My Top 13 Rules for Profitable Trading in Any Market by Bob Byrne with James Altucher
00:11:12
Bob Byrne distills decades of trading experience into seven time-tested rules for thriving in bull markets
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This is Optimal Finance Daily My Top 13 Rules for Profitable Trading in Any Market Part 1 by Bob Bryan with JamesAltucher.com during my first week trading, all I could do was stare at my desk. Phone numbers covered every inch of my workspace. Traders buzzed past me. I quickly realized that I didn't have a clue where to begin. That's when Big Lou, one of the senior members of the firm, recognized the mix of panic and confusion on my face. He made me an offer. I buy him lunch and he'll tell me what I need to succeed as a market newbie. I met him at a deli near the office. The waitress pointed us toward an undersized table for two in the back corner, where Big Lou ordered an oversized corned beef sandwich. I got a salad. I don't know why I ordered a salad. I didn't want one. Maybe subconsciously I was playing sheep to his wolf. With notepad in front of me and pen in hand, I readied myself. For all his wisdom cliches, he sputtered through a mouthful of rye bread and beef. I waited with bated breath, but he said nothing else. I gathered up my big boy voice and said, come on, man, you gotta give me something more. He stopped chewing and set his sandwich down. You really want to do this, kid? I took a deep breath and nodded. You've got to learn the cliches, Bobby, he said. Not just learn em, but live em. In this business you're going to hear a lot of sayings. Some call them cliches, other call them Urban legends. I like to think of them as seven little nuggets of success. I thought he was kidding at the time, but after 20 plus years in this business, I can say that he was right. There are seven investing cliches that, when combined together, provide a killer blueprint for profitable trading. Now I'd like to share these investing rules with you. The first seven rules, the ones I learned from bigloo, will mostly be useful in a bull market. For investing in a bear market, I've added some rules I learned through decades of successful trading. 7 rules for bull market investing Bull market rule number one the trend is your friend. Would you rather trudge up a steep hill or stroll down a gentle decline? The majority of people will follow the path of least resistance. All you want to do is what we're programmed to Keep things simple. By the same token, don't make trading harder than it needs to be. You don't have to be an experienced trader or technician to glance at a chart and see if a stock has been moving higher, lower or sideways. It's like crossing the street. Look before you make a move. I like to focus on something simple like the moving average of a stock. The moving average is a technical indicator that you can easily check on Yahoo Finance. Checking the 200 day moving average or the 50 day moving average can help you decide if the stock is trending up. Essentially, if a stock is trading above these lines, it's a good sign. Bull Market Rule number two Let winners run. It's human nature to fear losing. And as a trader, there's few things worse than watching a profitable position turn into a losing one. This creates an itchy trigger finger for many traders. They become so worried about a winner becoming a loser that they sell too soon. Trading stocks is as much about managing emotion as it is clicking the buy or sell button. The big money is made by controlling emotions and often doing the opposite of what you'd like to do. Logic should drive decisions. Every time I enter a trade, I have a plan in place. This prevents me from selling my winners too soon and missing out on potentially huge profits. Bull Market rule number three don't fall in love with a stock. Speaking of emotions, while we want to let winners run, there comes a time to sell. Something will inevitably change in the narrative, and for this reason, it's best not to get attached to any one position. When that time comes, hit the sell button and don't look back. Bull Market rule four Pigs get fat. Hogs get slaughtered. Setting targets and sticking to them is a crucial element to trading. When a holding hits a target, we want to lock down profits. This is different from selling an entire position. We can sell some amount of stock, extract profits and continue riding the wave. This also frees up capital for other investment opportunities and can diversify our holdings. If we don't take profits from time to time, we run the risk of letting our positions run stale. Bull Market Rule Number five Don't let trades become investments A key difference between a trade and an investment is time. In trading, we use triggers to buy and sell a stock. It's crucial that we adhere to sell triggers, even if it amounts to a loss on occasion. Often traders will hold a losing position simply because they're worried the stock will skyrocket right after they exit. If that happens, losers, not winners, become the mainstay in portfolios. We must resist the idea of giving a non performing stock another day or another week. Before you know it, one week becomes two, then two becomes a month. Then a month becomeswell. You get the point. Bull Market Rule Number six Don't catch a falling knife it may be tempting to buy a stock that falls 10 or 20% in a single day. How about one that falls 50% in a week or 70% in a month? It's gotta bounce, right? The answer is a big resounding no. We aren't in the business of playing hero and calling bottoms on a stock. Let someone else be the first player. We don't need to make every penny when a stock bounces. We only need to make the easy ones. It's important to remain disciplined and wait for signs that a stock has bottomed. You'll be amazed how quickly a 20% drop can become 40%. And bull market rule 7 markets can stay irrational longer than you can stay solvent. This point isn't actually a cliche, it's fact. No one, not even the largest financial institutions in the world, can stand up to the market. Whenever you think something has gone up too much or down too much or it's due to move, you've fallen into the same trap that has destroyed traders for decades. Our goal is to take what we're given, stay disciplined and use Big Lou's words of wisdom to to achieve success and financial independence. Six Rules for Bear Market Investing Hear that on tomorrow's episode? You just listened to part one of the post titled My Top 13 Rules for Profitable Trading in Any Market by Bob Brine with JamesAltucher.com the New Year.
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Reggie, I just sold my car online. Let's go Grandpa. Wait, you did? Yep, on Carvana. Just put in the license plate, answered a few questions, got an offer in minutes. Easier than setting up that new digital picture frame. You don't say? Yeah, they're even picking it up tomorrow. Talk about fast. Wow. Way to go. So about that picture frame. Ah, forget about it. Until Carvana makes one, I'm not interested.
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Car Selling made easy on Carvana. Pick up fees may apply My curiosity about this article led me to another article by one of our contributors, the College Investor. The article is titled how to Get Started in Trading Stocks. While this article acknowledges that trading gets a bad rap and is compared to gambling, it makes a pretty compelling point that most buy and hold investors lack an exit strategy. Here's a quote from that article that I found interesting. A good trader will never take a trade that doesn't have a predetermined entry price, protective stop, loss and target. This means that the potential outcomes of the trade are already known before the trade is ever taken. How many investors genuinely know what their exit strategy is before they enter the investment? Virtually none. Now this isn't going to convince me to start day trading tomorrow, but it does make me think about how I will adjust my portfolio as I approach my target fi number, which is defined as 25 times my yearly expenses. My friend Frank Vasquez, who hosts the Risk Parity Radio podcast, has said to me that when you win the game, you should stop playing, meaning that when you reach your Phi number, you should shift from accumulation goals to preservation goals. I think that's one way that us long term investors can learn something from the considerations around day trading mentioned in today's article. Well, that will do it for today. Have a happy rest of your day and a great weekend, and I'll see you in tomorrow's show where we'll finish up this post and where your optimal life awaits.