Successful Trading Rules
The Smart Profits Report: Issue #413
Wednesday, April 18, 2007
Successful Trading Rules: Top Trader Michael Guido Reveals 3 Timeless Trading Rules
By D. R. Barton, Jr.
Quantitative Analyst, Mt. Vernon Research
When my business partner alerted me to a Trader Monthly article, featuring Société Générale’s head of commodity trading, Michael Guido, it was immediately one of those “must-read” pieces. You see, I’m constantly fascinated by the thought processes of top traders around the world. And when it comes to top traders, Michael Guido is definitely in that category, having traded for several major hedge funds in his 39 years, and has now landed a prestigious job with the huge French bank’s U.S. operations.
One of the most remarkable and revealing things that I find about guys like Guido is that many of them share similarities in both philosophy and practice. So let’s take a look at how his top three successful trading rules could affect your bottom line - starting today.
While Michael Guido’s successful trading rules aren’t new, they are timeless and extremely useful. Let’s look at each rule and how we can apply them:
See The Big Picture
I could rephrase this rule as: “See the complete picture.” This essentially means that you must look at trades from both a technical and fundamental perspective. As Mr. Guido’s states: ” Any trader with a foot in only one camp will eventually get his comeuppance.”
Every good trader I know follows this rule. I can count the “purely technical” or “purely fundamental” ones on one hand.
So if you focus on the fundamental analysis, remember that while it’s a very useful method, it’s not the only one - and you must not simply follow it blindly. Apply Guido’s first rule by mixing in some technical tools - especially for timing your investments, so you avoid jumping in or out at the wrong time.
Take Note Of The Key Numbers
Massaging the numbers to fit your theory is a sure path to disappointment (or disaster). To avoid this, you must watch key market indicators like price volume and open interest to make sure you don’t endure the frustration of getting into a trade after the market has already fully priced the event or news into the stock.
And again, if you combine this with some numbers from technical analysis, you’ll get the complete picture. For example, make sure you…
- Don’t buy just below key resistance areas.
- Don’t set your stop-loss points just above key support.
- Know the difference between “stopping volume” (high volume that indicates the end of a trend) and “breakout volume” (high volume that accompanies a breakout or breakdown).
Forget About Being Right
Mr. Guido’s counsel: “Never trade with the mentality of, ‘the market is wrong; I’m right.’”
Many investing mistakes can be traced back to “the need to be right.” Failing to adhere to stop-losses and hanging onto your losers is a major source of trading pain that results from “the need to be right.”
But you can combat this pitfall in a very simple way: Make sure you have a simple trading plan. If you have a written reason for everything you do in the markets, your emotional “need to be right” will be exiled to other endeavors outside of your trading activities.
Improve Your Results with Successful Trading Rules
Learning from folks that have already paid their “trading tuition” is a prudent way to consistently improve your own results. And these three trading rules, although simple, are highly effective, and come from one of the world’s best moneymakers. So try to fold them into your own trading plan.
Great trading,
D.R. Barton, Jr.
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Today’s Smart Profits Cribsheet
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Related Articles:
- Stock Market Investing: 3 Things Investors Must Master To Improve Their Trading
- Trading With Confidence: How You Can Develop More Confidence In Your Trades
- Common Option Mistakes: Four Options Resolutions to Make Today
The Chart Of The Week
Two weeks ago, we showed the chart of the iShares MSCI Australia Index (AMEX: EWA) and noted the Aussie market’s strength, relative to its U.S. counterpart. True to form, Australia has stayed strong and rallied almost 7% in the last 10 trading days.
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One Response to “Successful Trading Rules”
[...] But it’s also just about plain old common sense. While there’s no way you’ll ever master the art of working the markets to your advantage armed only with a 2-page How To guide, these are still tips to take to heart whether you’re intent on becoming the next Warren Buffett or you simply want to monitor your 401k during these volatile times, taken straight from the Smart Profits Report Archives. [...]