1. There is no single strategy which will succeed all the time: Markets are not static, they are not in equilibrium. They move to find equilibrium (and may reach it for a fleeting point in time) but they will fluctuate.
  2. Timing is more important than pricing: Frequently you will hear “buy low, sell high”, inferring price is the variable to watch. Price is just one variable- market timing is more critical than the price. A poorly timed trade will lose you money, regardless of whether you understand the overall trend.
  3. Understand the table that you are sitting at: Trading currencies, or equities is different to trading flowers in a market stall. The participants on the other side of the trade have different skill levels, better (or worse) knowledge. They may have more sophisticated tools or strategies.
  4. Every seller needs a buyer, every buyer needs a seller: this is important when reading financial advice. The more an asset is shilled, the more likely it is that your purchase of the underlying asset is closing another trader’s position.
  5. Good advice doesn’t come for free, or in a bestselling book: This one should be self-explanatory- if you cannot understand why, you have no business being in the market.
  6. Limiting risk is more important than capturing gains: eating losses erodes your capital. It is much easier to lose than to win, in general, given the overall configuration in markets.
  7. There are diminishing returns on capital: The more capital that is being invested, the harder it is to source real yield. Fees become harder to overcome, taking and exiting positions take more time.
  8. Markets and profitability is not a moral crusade: Markets move irrespective of morality (generally speaking). Taking a moral stand on a position imposes a personal bias, which can lead to losses.
  9. Very few things are impossible: Every time I hear an individual voice that something is an “impossibility”, it is worry. The possibility for most outcomes is always there, however remote. In fact, the more impossible something seems, the more likely the market is to shock and/or surprise participants.
  10. Fundamentals are important, but markets mostly trade on expectations: Every now and again, fundamentals show through when the market breaks, but most of the time market prices respond to expectations about the future prospects of the asset.
  11. Access to information is critical: Information on current affairs, market news and access to information as it breaks provides an asymmetric advantage over other traders.
  12. There is no such thing as an easy profit (long term): All pursuits in life, be it market trading, investing, building a business, or building a house require hard work and graft. If you want to become an overnight millionaire, gamble on the lottery. Successful investment requires time, energy, and research.
  13. Risk and Reward will not wait for you: You do not get an option to opt out of risk in life, it is everywhere. Similarly, reward will not wait.  If an opportunity presents itself, it needs to be seized as soon as possible.
  14. Don’t enter or exit positions based on emotion: These types of actions almost always lead to losses.
  15. Don’t take punts on investments you do not understand: Risk becomes very difficult to spot in these scenarios.

 

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