Trading Rule #8: Beware of “Newton’s Law” Rules

Newton’s Law of Trading Rules:  Every lousy trading rule has an equal and opposite trading rule.

Subconsciously, as I write my “The Rules” series, I think I’m trying to write “rules” that don’t have an easy contra-rule to them – trading rules that really work*.   In the end, this probably simply means that I put thought and effort into my” rules,” instead of just spouting off cliche talking points.

Josh Brown, last week, wrote a great post skewering just these kinds of cliches, which we hear repeated ad-infinitum in the financial press:

“Always seek out differing opinions and challenge your beliefs. Except when you know you’re right, then that other bullshit just becomes a distraction. Good luck with that.

It is very important to be flexible and open-minded. But invest with set rules and an iron discipline. Good luck with that.

Technical analysis and charts only tell you about what has already happened in the past. It’s much better to use the information from the future that we have when making decisions.  Good luck with that.

Never run with the herd. It’s much better to be all alone on open ground, running in the wrong direction and wholly conspicuous to predators. Good luck with that.

Take your losses quickly. But don’t get scared out of a good position. Good luck with that.

Amateurs trade in the morning, pros trade in the afternoon, junkies trade overnight and lots of guys on TV just trade on paper.  Good luck with that.

Be tactical and stay informed! But don’t try to time the market. Good luck with that.”

Click over to Josh’s blog to read the whole post.

Josh’s point, I believe, is that trading and investing is hard.  You can’t just implement a laundry list of cliche talking points and expect to succeed.   What’s interesting is that as I coach high school soccer, I realize that there really are a lot of cliches that we  try to implement in order to win:  Train harder than the other team in practice. Work harder than the other team during the game.  Be smart on the field.  Give it 100%.  Play as a team.   Treat this game like any other game.

In the investing world, however, cliches will often be full of hot air.


Kid Dynamite: The Rules

Reformed Broker:  Good Luck With That


* perhaps they “work” because they are obvious and you already took them for granted anyway.  I’m not claiming to be re-inventing the wheel here.  I mean, is “have a plan” really rocket science?

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