Sunday Morning Run

I just got back from my run. I decided to go without my running watch, the fancy one that I have been wearing for more than 15 years that shows me time, heart rate, gps of the route, etc. I gave it up. I decided that I will no longer wear a watch while running. It felt great.

About a mile into my run I was about to cross paths with a heavy set woman running the other way. I held out my left hand for a high-five and I said, “We’re moving the body and they’re not.” She slapped on my hand as we passed each other and then she said, “Damn right!”

I said the same thing to three other runners this morning and received similar responses. It was a good morning, and I hope that I made those runners’ Sunday just a little brighter.

My Trading Constitution

My inventory is my cash. In theory and in practice I am in the business of buying raw materials, i.e. – commodities, that I desire to sell for profit. Sometimes the process works in reverse, in which I sell a commodity with the desire to buy it back at cost; the difference is my profit. There are certain laws of this business that are recognized as indisputable, and I have to accept these laws very much like I accept the sun rising and setting every day.  I never pretend or hope that these laws will be changed, modified or retracted by market forces.  I have to accept them as-is in order to be in this business.

Irrefutable laws of market physics:
1) You have an inherent, unfair advantage as a small trader.
2) You are a human who possesses human emotions and your trading decisions can and will be affected by your emotions if you allow them.
3) Whipsaws are a matter of course and are a cost of doing business.
4) No one bats 1.000. Ted Williams, Joe DiMaggio, etc., they all struck out at times.
5) Stop-loss orders can and will get hit; they are there to protect your inventory.

In order to treat my trading like a business I have certain rules in place so that I can enhance my profits while keeping my costs low.

Trading rules that you must obey:
1) A hard stop-loss must be set simultaneously when you enter the trade.
2) A stop may only be moved in the direction of a profitable trade and under no circumstances may it be moved to a bigger loss.
3) Design your own systems and rules for entry and exit; that is the only way you can be comfortable with a system and have faith in it working for you.
4) You have to take every entry your system signal generates; it is your only hope of getting a large enough sample size to know the true validity of a system.
5) Trade only one commodity (pick one) and trade your system with that commodity until you can add a second contract or a second commodity; the larger your inventory of cash, the more aggressive you can become.
6) As owner of this business, review your progress of managing the business every weekend and ask yourself three things:
a) Are you sticking with your rules?, i.e. – how is the trader performing?
b) Are your winners paying for your losers and more?, i.e. – how is the system performing?
c) What adjustments need to be made, if any, to either the trader or the system?