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Principles of modern trading
By : Moustafa Bel Khayate
Introduction
It is the beginning of fall 2000. We are living in a revolutionaryera. Astonishing progress is realized in almost every field ofeveryday life. Everything is going faster and faster. We all have thestrong impression that our civilization has just considerablyaccelerated. To go where ? Nobody knows.Some are tetanized by this speed ; they hold their breath.Others, clinging to their references of yesteryear, look behind insearch of any refuge whatsoever against what seems to beuncontrollable to them and therefore dangerous.And there are those who simply move with the times, come whatmay. Depending on how we interpret what happens to us in thesemodern times, we decide whether to continue or stop living.This book is aimed at those who accept to continue; those whostill believe that something extraordinary might happen tothem...They have confidence. They are happy to live, happy withwhat will happen to them.This book is about money; about principles for making money onthe financial markets. This is a delicate subject because each oneof us has a very personal relationship with what is known as thesinews of war. According to this relationship, you will be anexcellent trader or a lamb.Some of these principles are personal. They are not thought inany university curriculum of international finance or financialmarkets. However, it is practically the implementation of theseprinciples that allowed me to win the international competition forportfolio management on futures market, leaving behindinternationally renowned traders. To date I am heading twocompetitions for portfolio management (Yahoo Finance andEtrade), which means that these principles are not only good butare VERY good. They have two main distinctive features:
 
 
1- They are valid for stocks as well as for currencies,commodities, Stock Exchange indexes, interest rates and anyother financial product,2- They do not require any knowledge of the laws ofeconomy and finance. One needs not to be an expert infinancial analysis nor micro-economy to earn money on themarkets. This looks like a tall story but the reading of this bookwill prove it to you.At whom is this book aimed ?This book is aimed at investors in general and traders inparticular. The former have a long-term vision on a position andcan keep it for more than 6 months, whereas the latter have ashort-term vision and their position does not exceed two to threeweeks in general.It is aimed at those who are thoroughly convinced that, outsidethe pure laws of finance and economy, the Stock Exchange circleis governed by laws that are almost imperceptible and inexplicable.As to the others, those indomitable rationalists, who believe onlywhat they can calculate, explain and understand, this book willmake them smile.This book is aimed at those who already have the principles ofwhat I intend to describe. The very fact of reading them andrealizing that they can implement them in trading can help them toimplement them in their souls and bodies.There are hundreds of (good !) books, video courses, seminarsand conferences about stock exchange techniques, strategies andphilosophies, etc. It is therefore not information that are missing.Yet a very small minority of traders manage to regularly achievegood results. It is estimated that, on the Stock Exchange planet,5% of the traders rake in the money of the remaining 90%. Thismeans that information and knowledge are not sufficient.These exceptional traders have something more...and this isexactly the main subject of this book : studying in details theprinciples that make the difference between the best and theordinary. In trading, as is the case in life, the majority of peopleknow what they have to do, but for reasons of which they are more
 
 
or less aware, simply manage not to take the decisions thatcorrespond to what they know. Why?Here is one of the most important questions in order tounderstand the success or failure of a trader. The principles thatwe are going to study here will attempt to give an answer.This book is aimed at those who dare to look at themselveswithout judging nor criticizing themselves, just seeing thing as theyare. This is not an easy task for everybody because nothing ismore difficult than looking at oneself in a mirror with totalobjectivity. However this is a fundamental step in order to succeedin trading. We shall later see why.Finally this book is aimed at those who love trading, which is firsta passion before being a means of living. It is aimed at those whofeel by instinct that they can succeed in this field, but still fail toextricate themselves. They keep changing softwares, markets, andmethods...but they are continuously losing...and they have goodexcuses. When one loses on the financial markets, no excuse isvalid. This is the first fundamental principle in order to improve. Noexcuse is valid because the only one to blame for a tradingoperation is the trader himself/herself and never the broker, nor afinancial newspaper, or a mediocre adviser, or a terrible ill luck or abad connection to Internet.When you make a bad trade and deeply admit that you are theonly one to blame, you do not only have the courage to close theposition in question but your are also and, above all, able to makeanother choice with less guilty conscience than if you persist inburying your head in the sand.Once, I suggested in a forum on Internet to offer a freepersonalized analysis of the portfolios of the 20 first messages. Iwas surprised to find that 19 portfolios out of 20 were sharing a bigpoint: more than 70% of the portfolio was invested on a negativeposition…for more than 2 months in average!! They did not leaveon time and they were just waiting there, hoping that the stocks inquestion would rise again. When I advised them to close thosepositions, their answer was astonishingly identical:“But...I have lost a lot on these positions....I can not venture toleave now...I have no more to lose...what If I take the loss and then
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