The Traders Journal

Investing Lessons & Trading Rules

Gatis Roze

Gatis Roze

Author, Tensile Trading: The 10 Essential Stages of Stock Market Mastery

Images (2)The stock market has always attracted a disproportionate number of exceptional intellectuals and uniquely independent souls.  By their nature, they are reluctant to live by the lessons of others and tend to be rule breakers instead of rule keepers.  In his book Trading Rules: Strategies for Success, William Eng talks about the learning curve for these investors.  As he says,  “the smarter you are, the longer it takes to win.” 

Economist Pierre Lemieux described self-enforcing lessons that are in each individual’s interest to obey.  For example, once more than 50% of car operators drive on the right side of the road in a particular area, more and more drivers will notice that adapting to this behavior reduces their risk of an accident.  Both the reluctant lesson learners and the rule breakers will soon realize that if you do otherwise, you will incur a very high cost. 

Similarly, the stock market also has vital survival lessons –many so aptly articulated by Warren Buffett.  Buffett’s basket of fundamental lessons is the pillar of investment survival – homilies such as spend wisely, focus on the long term, no one will care for your money as much as you do, and always sell losing stocks.  The Internet is chock full of these “Buffettisms”.  If you don’t have these survival basics down pat, get on the Web and start trolling.  But rather than focus on stock market survival lessons, this blog instead concerns those self-imposed rules that are more often than not in one’s own interests.  Stock market trading rules fall into this camp because they are all about gaining control of your investor self and mastering stock market moves. 

While stock market lessons are the non-negotiable foundations of investment survival, trading rules provide the indispensable backbone necessary to achieve profits and stock market mastery.  I’ve written previously about how I utilize my pocket pads and daily journal to help fine-tune my trading rules.  I won’t revisit that material here, and I certainly can’t list all my rules.  What I will hope to do, however, is to encourage you to assemble and customize your own personal rules binder.  Think of it as your pathway to profits.  The following list of suggested trading rules is offered as a potential starter kit.

  1. Establish your risk and stop loss before you hit the buy key.
  2. If it’s worth trading, it’s worth writing it down. Keep a journal.
  3. Embrace the “Law of Probabilities” and execute your system with consistency.
  4. Embrace technology and take it with you to track positions when you travel.
  5. Investing is a competition.  Bring your “A” game mindset to the table every day.
  6. Yesterday’s state of mind doesn’t matter.  The only thing that matters is today, here and now.
  7. Listen to the market.  Focus on what the market is telling you, and don’t concern yourself with trying to figure out why it’s happening.
  8. Every trade should yield a key takeaway lesson.
  9. Stay true to your methodology and your system, not your emotions.
  10. Be brutally honest about your personal “enemies within” and deal with them. Know yourself.
  11. Procrastination and denial have no place in a trader’s tool kit.
  12. Do not trade when you are discombobulated or out of equilibrium.
  13. Don’t focus on the dollars.  Focus instead on the execution of your trading methodology.
  14. Devise both a bullish and a bearish scenario for your equity when the market is closed.
  15. Never give back more than 50% of your profits on an equity.
  16. Selling is a solo inner struggle.  Don’t look for company.
  17. Never lose sight of your money management routines.

Remember, stock market mastery is about lessons and rules, discipline and emotions, more so than about absolute intelligence.

Trade well; trade with discipline!
-- Gatis Roze

Personal Note:  I want to thank my readers for all the kind comments and encouragement.  Your responses most definitely motivate me.  For those of you who are not yet using the automatic delivery feature, please check it out.  This feature makes it easy to receive fresh content every Friday by various delivery methods of your choice.  See the options under the heading “Subscribe to this blog” on the right.


Gatis Roze
About the author: , MBA, CMT, is a veteran full-time stock market investor who has traded his own account since 1989 unburdened by the distraction of clients. He holds an MBA from the Stanford Graduate School of Business, is a past president of the Technical Securities Analysts Association (TSAA), and is a Chartered Market Technician (CMT). After several successful entrepreneurial business ventures, Gatis retired in his early 40s to focus on investing in the financial markets. With consistent success as a stock market trader, he began teaching investments at the post-college level in 2000 and continues to do so today. Learn More