I do believe that Barry is one of the smartest contemporary author and investor from New York. His blog page http://www.ritholtz.com/blog/ taught me a lot how being better and more disciplined trader. I love his style and his different approaches to different things in this business. In 2010, Barry was named one of the "15 Most Important Economic Journalists" in the US. All in all he is not only a great author, but he has placed plenty of brilliant statements about his rules. Some of the rules are common with other great traders, some are unique but we should consider all of them. Personally I do.
- Cut your losers short and let your winners run.
We are human beings with many many bad instincts. We love to hold the losing positions for long time to avoid the pain of a loss. Barry calls this phenomenon loss aversion.
- Avoid predictions and forecasts.
That is really great point. The most complex system is ever invented by mankind is the macro economy with thousands of uncertainty. In my view nobody knows what holds the future. On the other I hate forecast too because if you proclaim your idea about EURUSD will go down and after a while all data (without an “s”) is plural (the singular is datum.). Either remove the “s” or, if you are using a possessive, add an apostrophe.">datas show you are wrong the cross is going up. You will still fight for your right and insist for your preconception. You have a commitment to your previous message and we don't really like to confess that we are wrong and made a wrong decision. We love to insist to our stupid preconceptions.
- Understand crowd behaviour.
Humans often herd. People like what others like, especially when we are uncertain about the market or about ourselves. Barry says that is the real wise if you are buying when others are fearful and selling when others are greedy.
- Think like a contrarian
Be most of the cases non conventional because the mass really seldom has right. If you want to make money in the market think unlikely and use always different approaches.
- Admit when you are wrong
Namely means leave the position when you start losing money on that. It's that simple. Believe me, most of the traders don't understand that. Barry recommends, once you say publicly "X is going up" it gives your brain a shot of stupid juice when it comes to concluding that you might be wrong.
- Understand the cycles of the financial world.
Nothing good or bad goes on forever. You have to accept the markets have correction periods in the strongest, stormy trends too. So don't be scary about the pullbacks use them as another opportunities to build better position structure.
- Reduce investing friction.
Paying high fees, costs and commissions is one of the simplest investing errors to correct. Youcan find EURUSD spread for 2point and for 0,8points, obviously choose the cheaper one. If you fix this that is the first step for being profitable.
- There is no free launch.
There is no substitute for hard work and rational decision making. We have to work hard, sometimes on weekends too. Think about when you out there and partying around someone at the same time is working hard and getting smarter and just winning. You can't climb on the ladder of success with your hands in the pocket.