The Best Trading Advice
I’ve Ever Received
January 15, 2021
I’ve worked at eOption for over a decade, and come into contact daily with many top traders. So I decided to pose the question, “What’s the Best Trading Advice You’ve Ever Received,” to see if I could impart wisdom to other learning to trade the markets. Here’s that these traders offered that hopefully you’ll be able to glean a few gems from!
Pearls of Wisdom from Traders:
If can give you one piece of advice in my 50+ years of trading, it's to learn to manage your risk. Don't let small losses turn into large losses. Sometimes you need to take a small hit so you don't suffer enormous damage- it can be the hardest thing ever to take a loss. So many people think they'll wait for it to go back up so they can "break even," but often the position keeps going lower and you can be in the red for years.
If you're going to trade, it's important to have incredible discipline. I get up early every day, check my favorite websites and podcasts, and come up with my trading action plan for the day. There's nothing worse than a missed opportunity.
If you are a long-term buy and hold person, it’s fine to get into a position with no specific plan for when to get out. But, if you are a serious trader, you should never put on a new position without a specific plan on where to get out. Set your stop loss and take profit orders the second after you put the position on. Otherwise, you don’t really have a plan and are simply hoping.
When I started working in the pits, my mentor told me to not spend all of my money on just one trade. The U.S. stock market is open 5 days a week, and there's brand new opportunities every day, every moment. You want to make sure you have enough money to take advantage of new trading opportunities. That lesson has stayed with me for the 30+ years I've been trading.
I had a large position in a stock, and it went down significantly. I panicked, wanting to sell like everyone else. But I decided to take a deep breath and watched and studied it. I ended up averaging down and buying more when I thought it couldn't go any lower (when one part of me wanted to dump it and be done). It's since rallied. Now, It's up over 800%. Lesson - don't panic, keep your calm and be careful about following the herd. Also, don't risk more than you can afford to lose.
I've been trading stock and options for over 40 years, and I still learn something new from the market each day. I'm a constant, consistent student of the market and read about it at least 2 hours a day (sometimes up to 6 hours) at least 5 days a week. I really enjoy it, I never sit back or get complacent, and I continue to get surprised by the market all the time.
Everyone can make money when the market is up (and continues to go up, like the market we're in now). The trick is to make money, or even hold onto your money, when the market moves in the other direction. A great trader will make a profit and use market
direction to their advantage no matter if it's going up, down, or sideways. It involves discipline and constantly staying on top of your positions and your strategies.
It's important to read and stay on top of your craft. I read this interesting article on the extreme reading habits of billionaire entrepreneurs that inspired me:
- Warren Buffett spends 5-6 hours a day reading 5 newspapers and 500 pages of corporate reports;
- Bill Gates reads 50 books a year;
- Elon Musk grew up reading 2 books a day, according to his brother;
- Mark Cuban reads for more 3 hours a day; and
- Mark Zuckerberg aimed to read at least 1 book every 2 weeks
There's a lesson in here - some of the most successful people read all the time!
I bought and hold and closed my eyes for years. I collected my dividends. Now, I've changed my strategy and done a complete 180-degree turn. If you're a buy and hold investor, it's ok to hold onto for the long term. However, you'll still want to constantly manage your positions and stay on top of them consistently - it's even a good idea to set alerts and reminders when they hit certain price points and carefully read those monthly statements when they arrive.
No one cares as much as you do! Fifteen years ago when I was a young professional, I paid someone to manage my money. He bought me all small cap stocks, and they then proceeded to go straight down. I thought, I could have done that! I didn't need to pay someone to lose my money. Luckily, just one of the positions skyrocketed and made up for all of the other losses. But the lesson is - take responsibility for your own actions and especially your own financial livelihood.
Set your rules and stick to them! It's easy to let your emotions get the best of you with the market and set rules will keep your feelings in check. It's good to have rules and continually tweak them as you learn. One of the most successfully traders I've met had rules that she set for herself - if her position was up 25%, she'd sell. If it was down 7% from where she bought it at, she'd sell. She was constantly making her money work for her and always managing her positions.
Lessons learned: do your own research, don’t trade blindly, ignore the hype no matter the source and Always, Always have a Plan B. Accept that not all ideas will be winners and set a budget for those losses.
You don’t have to wait for a stock to hit rock bottom before you invest. Buy a stock on strength, when you think there will be an upward move. Sometimes, I buy stock at what appears to be a high price, but then it goes even higher.
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This information provided for general informational purposes only and should not be considered recommendations or advice by eOption.
Options trading involves risk and is not suitable for all investors. Options trading privileges are subject to eOption review and approval. Please review the Characteristics and Risks of Standardized Options brochure and the Supplement before you begin trading options.
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