Thread by @marketplunger1

Last week I read "The Perfect Speculator" by Brad Koteshwar.

It's a quick read and cuts to the heart of what it takes to become a great trader in markets. Great for LT investors too

A thread on the 20 Rules of Speculation to become a consistently profitable trader.

🧵🧵

Rule 1: "First, do no harm."

In other words, focus on risk management and NOT LOSING MONEY.

Greenblatt says it best when he says, "I bet the biggest not on the stocks that offer the highest return. But the ones that offer the lowest chance of loss."

Respect risk. Always.

Rule 2: "Check off your checklist before buying a stock."

Whatever your checklist looks like, make sure every new buy meets that criteria.

Like a pilot before takeoff, a checklist ensures proper bets centered around YOUR trading strategy.

I like @BrianFeroldi scoresheet.

Rule 3: "If you can't make money on test-buys, you can't make money on large funds."

If you're getting stopped out on starter positions, don't add size on your incremental trades.

The market is telling you something. I like @markminervini's thoughts on this (follow him).

Rule 4: "Always use a stop-loss in place to protect the account from oneself."

This goes back to Rule 1. A stop-loss prevents any one stock from completely wiping out your trading account.

If you use a stop you already know how much you're losing before you enter the trade.

Rule 5: "The trend is your friend and move your stops along the trending move."

Look to protect profits as the trade moves in your favor. This will do two things:

1. Protect principal
2. Increase profitable/breakeven trade percentage

Giving you leverage to pyramid add.

Rule 6: "You must start by making gains on your position from Day One and within four weeks, the stock must have made at least a 20% or more move from buy price."

This is a hard rule to follow, but it ensures your money stays in the winning stocks while cutting the losers fast.

Rule 7: "Do not buy a second stock and do not make a pyramid buy on the first stock unless the first buy has made a gain."

Again, this is all about managing risk. If the stock isn't working, DON'T add.

Let the market confirm that you're right before adding risk.

Rule 8: "Pyramid only when odds are working in your favor and make sure the pyramid buy will never result in a loss on the overall trade."

In other words, if you pyramid buy, make sure the cost basis doesn't create a potential loss if it hits your stop-loss point.

Rule 9: "If many leading stocks are hitting their stops, the market may be showing signs of danger."

Let the market tell you how much risk to allocate. If you aren't making money on the leading breakouts, DON'T add new trades.

Let profitable trades finance new trades.

Rule 10: "Do not look to make any gains in bad markets."

Buying breakouts during a downtrending market results in loads of whipsaw and failed breakouts.

This can create a death by 1,000 cuts. Even if you're only risking 1% per trade, a handful of consecutive losers can hurt.

Rule 11: "If the best stocks aren not moving up in price, the market has no chance of offering good odds of wins."

Goes back to Rule 9. Let the Leading Stocks tell you where the market is going.

As @markminervini says, it's the leading stocks that will show you trends.

Rule 12: "Stocks that are within 15-20% of their ATHs should be he ones to watch."

Classic CANSLIM advice here. Just buy breakouts from prior ATHs and you've got a decent strategy.

Think it was @MebFaber that had data to confirm this thesis.

Rule 13: "Do not watch your computer during market hours for real time data."

Know your time frames. If you're a swing trader, there's no need to monitor screens 24/7.

Know your stops and check it end of day or end of week.

Rule 14: "Do not listen to any human beings about the market's general conditions. Let the leading stocks dictate your actions."

Here's a simple way to do this: TURN OFF CNBC.

That's it.

Rule 15: "Stocks will do what they want to do."

Stocks don't know nor do they care that you own them. They will do what they want.

You can't control price action. All you can control is risk management and portfolio construction.

Know what you can control.

Rule 16: "Decision making should be simple. Life is already pretty complicated."

K.I.S.S. The most robust (and profitable) trading strategies are usually the simplest.

Remember, simple =/ easy.

Oftentimes the simpler the system, the harder it is to implement it.

Rule 17: "The market's sole job is to confuse us and fool us. Always look for confirming signs. Be in a hurry to sell a loss and reluctant to sell a profit."

Trim your flowers and cut your weeds.

The market's job is to confuse you and run-up trading activity.

Rule 18: "Breakaways are solid bets."

This is your typical "Gap and Go" breakout where a stock gaps-up on an earnings beat and never "fills" that gap.

If you're interested in this strategy I recommend @LeifSoreide's account.

Rule 19: "Breakout day volume should explode."

Volume is a great indicator that you're betting on a potential leading stock.

Remember, the bigger the volume the more likely institutions are accumulating their position.

You should see BIG volume on the breakout day to buy.

Rule 20: "Keep a written journal of each and every trade. Learn from your mistakes."

This is why I love posting my trades on Twitter. It's a great way to show responsibility and accountability for my style.

Whether a private blog or a piece of paper, document your work!

/ Wrapping Up

If you've made it this far, thank you! I hope you learned a lot from Brad's book. I know I did.

Here's the link if you want to buy it. I make no commission on the deal.
amazon.com/Perfect-Specul…