Fifteen rules and five steps for successful investing and trading – The Tao Of Wealth 1.05.

2023, 02:09

The Tao Of Wealth

Practical ways to create abundance

Fifteen rules and !ve steps for successful investing

and trading
Venkata Sreekanth Sampath February 22, 2013 Business, Investing and Finance

This post has ideas from the book Super Trader by Van K. Tharp.

We spend years getting a good education to become a professional, however, we treat investing and
trading as if anyone could do it. You cannot build a bridge without training, however it is easy to open a
trading account without any training. The result is usually disastrous.

To become a good investor/trader, you need to do the following:

1. You have to treat trading/investing like a business. You have to prepare for it the way you would
for a business.
2. You need to a business plan – a working document to guide your trading/investing.
3. You need to follow the rules you set for your investing/trading. Not following the rules  leads to
mistakes
4. You need to follow regular procedures to make sure you are following your rules and not making
any mistakes.
5. You need to have a system for investing/trading and you should have tested it.
6. You need to know how your system performs in di"erent kinds of markets.
7. You need to know what kind of market we are in and what results you will expect from your
system in such a market.
8. You need to have a plan for when you will exit an investment.
9. You need to exit your investment when your investing system says so and not procrastinate.
10. You need to have speci#c goals for your trading/investing.
11. You need to have a position sizing algorithm( which in some cases might be asset allocation).
12. You need to understand the importance of the above.
13. You need to understand that you create your own investment results through your thinking and
beliefs.
14. You need to accept responsibility for your investment results
15. You need to work regularly on yourself to make sure you follow the above points.

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You need to understand the !ve steps to consistent pro!ts:

1. Working on yourself:

Everything you do, say, think or feel is shaped by your beliefs. Your reality is shaped by your beliefs.
You do not trade the markets. You trade your beliefs about the market.
Examine your beliefs to see if they are useful. If they are not useful, #nd beliefs that are useful.
As a #rst step, transform at least #ve limiting beliefs of your life.

2. Developing a working business plan: The business plan includes working on yourself. It includes
the following:

Thorough inventory of yourself

Your assessment of the big picture: stock market, strongest and weakest areas among various asset
classes and investment options, strength of the dollar/your investment currency, in$ation or
de$ation
Business systems that need to be put in place
Strategies that #t the big picture and that work when conditions change.
A worst case contingency plan

3. Develop trading strategies that  work in di#erent conditions

Van Tharp does this as follows:

Since 1950, the average change over 13 weeks(absolute value) is 5.53%

Since 1950, the 13 week average true range(ATR) as a percentage of the close has averaged around
2.87%

The di"erent types of markets then can be classi#ed as shown below:

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Di"erent strategies work for these various types of markets.

However if you do not believe in this type of analysis you can also use asset allocation as a strategy or
something else  that will work for all types of markets.

4. Learn how to meet your trading objectives

The best way  for anyone wanting consistent pro!ts is to develop a strategy with a positive
expectancy and then develop a position sizing strategy that maximise the probability of
meeting one’s goals.

5. Taking steps to decrease your mistakes

Following your rules is correct. Not following your rules is a mistake. This basically means you should
be disciplined in your trading and continue to work on yourself.

Venkata Sreekanth Sampath February 22, 2013 Business, Investing and Finance

The Tao Of Wealth,

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