1.

OVERTRADING

6. NOT DIVERSIFYING

The financial media promotes overtrading.

Because if youre not trading youre not
trying, right? Wrong.

Whats the point of diversification? To reduce your portfolios maximum

loss below that of each individual investments.

They create exciting stories about where

markets will move and why. For many investors,
the desire to play outweighs the desire to win.
They rather medicate their boredom by making
trades and hopping on the latest hot trend.
The best traders are much less active than youve been led to believe.
They aim to profit by riding long-term trends that play out over months
and years, not minutes and hours. Trading on such short time frames gets
you nowhere.

THE BEST TRADERS:

On average, trade each market only 1-3 times per year
Do not make predictions, but follow trends
Do not let short-term volatility shake them out of their positions
Do not feel the need to trade every day, every week or month; only
when they see opportunity

2. GOING AGAINST THE TREND

We all need a trend to make money. If we buy at price A,
then we must sell at a higher price B in order to profit.
Betting against trends is not only unnatural, but inherently
unprofitable. Surfers do not try to ride waves out to
sea. Those that do, wipe out and look ridiculous.
Traders do not profit by holding long positions in
downtrends or short positions in uptrends.
In trading, the only thing that matters is
price. Our job is to measure it and align
with each markets trend. How we do this
doesnt matter.

People prefer picking winners and betting it all. The possibility of making
a lot of money in a short amount of time attracts many people to this
strategy. Think: the lottery.
In most years, a diversified portfolio rarely beats the absolute
performance of the best performing market(s) or stock(s). Consistent
underperformance in the short-term can be too much to bare for some
investors. So, rather than striving for steadier long-term results by
building a portfolio of
different markets and
strategies, they
REAL
STOCKS
choose to move all
ESTATE
REAL
STOCKS
of their money from
ESTATE
one market to the
COMMODITIES
CURRENCIES
next attempting to
BONDS
catch a big winner.
CASH
CASH
BONDS
This strategy
inherently places
more emphasis on
market-timing
old school
new school
instead of
diversification.
LONG ONLY
LONG AND SHORT

BENEFITS OF DIVERSIFICATION:
Rather than trade one market and experience all of the swings in that
instrument, diversifying helps create a smoother ride.
By having a large number of markets in the portfolio, you can ride the
ones on the move and avoid the choppy ones
Risking a small amount on each position, you do not have to win on
every trade. You can still win even with 30-40% winners.

7. FOCUSING TOO MUCH ON

WINNING PERCENTAGE
Winning percentage matters, but so does the size
of your winners.

3. LETTING LOSSES RUN

You must have an exit point for every investment you hold. Without one,
whether you admit it or not, all of your money is at risk.
Ya gotta know when to let it go. This goes for everything in life. If a
certain food doesnt agree with your stomach, stop eating it. If an
exercise gives you pain, stop doing it. If youre dating
a person who makes you miserable, break
up with them and move on.
When you let losses run, you waste
resources - namely, time and money.
But you also miss out on other
opportunities. Exiting losing
investments frees up your capacity
to be deployed to new and
possibly better opportunities in
other markets or stocks.

The combination of your winning percentage

and average winner size tells you if you have a
good strategy.
No one can accurately pick winners above a
70-80% rate for an entire career. Not happening.
Has never happened. Will never happen. But it
doesn't need to happen.
The best traders can produce win rates of only 30-40% and still produce
huge profits. How? They make up for their low winning percentage by
letting their winners run. They do not cap their profit potential. If they
did, then theyd have to be much more accurate in order to maintain their
large profits

8. PAYING TOO MUCH ATTENTION

TO NEWS AND EXPERTS
Convincing media outlets can force you to jump o-your plan, often at
the wrong times.

4. CUTTING WINNERS EARLY

As the old saying goes: If it aint broke, dont fix it.
Investors are too eager to book gains,
especially those that come quickly.
Our lizard brain likes being right and
feeling smart. When one of our
investments shows a profit, our
lizard brain wants us to quickly ring
the register. This behavior comes at a
cost though. Like pulling our flowers before
they bloom, cutting winners inhibits us from generating huge gains.
If you want big profits, you must hold your winners and let them grow.
Investments do not always grow into big winners, but you allow them that
chance. One or two big winners can make your year or even your career.

TV and online personalities pitch their ideas every single day. Their job
is to get you to tune in. Their strategy is selling certainty - making you
believe they know what's coming next. Investors without a plan of their
own become susceptible to falling hard for convincing stock picks
- jumping from one idea to the next.
Media only focuses on 1) what markets
to trade and 2) when to enter. They
never talk about position sizing or exit
methodology to protect your capital
if/when the market goes against you.
Investors must not concerned with pie
in the sky ideas. They first must have a
plan of their own and then be able to
tune out other people's opinions. When
you have a plan, you already have all you need to be successful.

You may be tempted to pull a George Costanza and go out on a high

note, but George was one of the biggest losers in TV history. Selling your
winners keeps your profits small and, thus, from major investing success.

PROFIT-LIMITING TACTICS INCLUDE:

Selling a position soon after it becomes profitable
Selling profit targets
Selling volatility targets
Selling price targets

5. IGNORING YOUR RISK

TOLERANCE
If you know how much pain you can take, you
increase your odds of survival and winning
Knowing your pain threshold allows you to grow at
your desired speed. If you want to grow fast, you must
take on more risk, but with more risk comes higher
volatility and larger drawdowns. If youre OK with this,
great! If and when your performance becomes
volatile, you wont abandon
your plan.
As an investor, you want to stay away from your pain threshold or
uncle point the point at which you lose all faith in your plan. If your
plan delivers too much volatility (especially on the downside) then you
risk losing your discipline.

ADVANTAGES OF RISK AWARENESS:

Lower stress
Lower risk of aborting your plan
More capable of setting and managing performance expectations

1. Portfolio Construction
Knowing what markets or stocks to invest in.

2. Risk Management
Knowing how much capital to risk on each
investment.

3. Entry / Exit Tactics

Knowing when to seize opportunity and take
chips off the table

4. Performance Goals & Volatility Tolerance

Knowing how much pain you can take to earn
the returns you want.

5. Committing to Your Plan

...no matter what.