Successful investment was really a matter of odds, and if you could compute the odds, you could find and test methods that could beat the market.
What makes this business so fabulous is that, while you may not know what will happen tomorrow, you can have a very good idea what will happen over the long run... ... ... The insurance business provides a perfect analogy. Take one sixty-year-old guy and you have absolutely no idea what the odds are that he will be alive one year later. However, if you take 100,000 sixty-year-olds, you can get an excellent estimate of how many of them will be alive one year later. We do the same thing; we let the law of large numbers work for us. In a sense, we are trading actuaries.
If you nver bet your lifestyle, from a trading standpoint, nothing bad will ever happen to you. Second, if you know what the worst possible outcomes is, it give you tremendous freedom. The trust is that, while you can't quantify reward, you can quantify risk
Never risk more than 1 percent of total equity on any trade... ... ... keeping your risk small and constant is absolutely critical.
Always follow the trends... ... ... you can lose money even on a good bet. If the odds on a bet 50/50 and the pay off is $2 versus a $1 risk, that is a good bet even if you lose. The important point is that if you do enough of those trades or bets, eventually you have to come out ahead.
Diversity: trade more markets worldwide and don't just use a single best system.
Track volatility: when the volatility of a market becomes so great that it adversely skews the expected return/risk ratio, we will stop trading that market
In trading, you can define three categories of players: the trade, the floor, and the speculator... ... ... The trade has the best product knowledge and the best ways of getting out of positions... ... ... The floor has the advantage of speed... ... ... While the speculator doesn't have the product knowledge or the speed, he does have the advantage of not having to play. The speculator can choose to only bet when the odds are in his favor. That is an important positional advantage.
When you are on a motorcycle, never argue with a car. You will lose. The same leson applies to trading: If you aregue with the market, you will lose.
1) If you don't bet, you can't win. 2) If you lose all your chips, you can't bet.