Rules, Rules and More Rules

If you are a follower of my weekly journal, you would understand that my approach for successful investment in the stock market is rules based and mechanical.

The SPA3 methodology forms the basis for my trading decisions, risk management and money management but I have additional list of “Golden Rules” that I use to trade with.

If you are an Active Investor managing your capital in the market, I encourage you to adopt and commit to the following “Golden Rules”.

The list is not meant to be exhaustive and it is a list that we share with all our SPA3 customers.

• Do not start trading unless you accept that everything about successful active investment is rules-based. You must create an environment of total consistency especially as far as the mental approach is concerned.
• Do not start trading until you have developed and committed your own Trading Plan on paper.
• Do not start trading until you have devised or obtained a Trading Methodology to determine your entry and exit price.
• Do not start trading until you have gained a full understanding of the processes that are required to execute as part of your strategy.
• Do not start trading until you have confidence in your Trading Methodology and are prepared to commit yourself to the role of active investor.
• If you apply inconsistent and subjective criteria to your list of potential stocks to purchase…stop!
• Do not start trading until you are prepared to take responsibility for all your actions as an active investor.
• Commit yourself to running an active portfolio and get your money into the market, i.e. be fully invested according to the Risk Profile you have formalised in your Trading Plan.
• Overcome the fear of experiencing loss trades and accept them as part of the business of an active investor.
• Understand that if you have followed the rules, there is no such thing as a “wrong” trade even if it turns out to be a loss trade. At worst it is confirmation of your ability to trade mechanically and one more trade that will bring you closer to achieving consistency and the expectancy of the methodology.
• Understand if you have not followed the rules, there is no such thing as a “good trade”. While you may have made a profit in the short-term you may have started along the road of subjective and ad-hoc trading which will have an unhappy ending.
• Never fool yourself that you know what the market is going to do. No one does! Always accept whatever the market does and know what you are going to do in response.
• Detach yourself from all subjectivity, noise, emotions and other distractions and trade in the “now moment”.
• Do not try to beat, fight or take revenge on the market. The market does not care!
• Detach yourself from the money, which is merely a by-product of the process.
• Never ignore a sell signal – you have to avoid the large loss trades from which it is so difficult to recover.
• Always assess the current direction of the market and react based on your risk management rules.
• Avoid “analysis paralysis” and avoid “let’s find a reason why we should not buy this stock”! Do the analysis as per your Trading Methodology and Trading Plan and then “pull the trigger”.
• Always trade the “strong stocks”, i.e. those that are outperforming the market and leave the “dogs” to others.
• Remember successful active investment is not an ego trip. You have nothing to prove.
• Always know your term and make sure your actions are always consistent with that term.
• If you happen to lose, do not miss the lesson.
• You cannot expect a different outcome by continuing to do the same things.
• It does not matter what happens, it is how you take it and what you do about it that counts.
• Remember the three R’s of active investment: Respect your method, Respect the market and be Responsible for all of your actions.

We wish you consistent and objective active investment! Achieve this and you will be profitable in the market over the long term.