How to Make Money in the Market — Trading Wisdom

1. Be about the business of growing your equity, which is all about exercising the Self-Discipline to: Grow and maintain relevant Market Wisdom, Plan Your Trades (master a set of low-risk, high-reward trading strategies and maintain a list of stocks to watch that are likely to support your strategies) and Trade Your Plan (wait for a favorable entry, work your position when appropriate, let your profits run, and cut your losses short), and Keep Good Records and Analyze the Results!

2. Keep Your Operations (Long or Short) In-Synch with the Broader Market Trend (as defined by the averages — major market indices and the 20 period moving averages on the chart of your primary trading time frame and on the chart of the next longer time frame).

3. Buy Low (i.e., A Bounce off Technical Support, and if Investing, at a Fundamental Value), Sell High (A Bounce off Technical Resistance, at a Fundamental Premium); and whenever possible, Earn Income While You Wait for your capital gain. When looking for longer-term investments (core trades), it's best to focus on a few Diversified Investments issued by Large, Mature Businesses with High Shareholder Yields (Dividends + Buybacks).

4. Never allow the market to take more than 1R (One Risk Unit — maximum dollar amount you are willing to lose on any trade) and use trailing stops to Allow the trend to reward you with as many Rs as it will yield.

5. Monitor and Trade Relative Strength Leaders — those issues that are leading the market averages up or down. Also Monitor Relative Strength Laggards because when the trend reverses, these issues often become the new leaders. And when day-trading Monitor TICK, which oscillate up and down as waves of buying and selling hit the market. Given a favorable setup, enter your position as this indicator bouncing off intraday extremes, thus allowing the next wave's momentum to carry your new position into profit territory.

6. Patiently wait for the market to offer up a favorable (low-risk/high-reward) setup, then enter with only a portion (e.g., 1/5^th) of the buying power (position size) allocated to this trade; and then patiently wait to see which exit (profit or stop-loss) will be hit first. Note that a favorable setup is much more likely to allow you to let your profits run and much less likely to require you to cut your losses short; but no matter how good the entry, it is your exit and your ability to work the trade that ultimately yields success.

7. Once in, use the balance of the buying power allocation to optimize the position basis by Scaling In and Out over time and at favorable prices (support and resistance) and by pyramiding — after a nice advance, tighten your stop and increase size; but never exceed the position size planned for the trade and never violate your 1R planned stop-loss.

Stan Benson