Trading Behavior Management

The 10 commands of trading

  1. Never trade alone, always trade with others.
  2. Avoid undesired behaviour that makes you rich.
  3. Never predict, always react.
  4. Always plan for three scenarios: up, down and sideways.
  5. Always know the probability of each scenario.
  6. Either be exposed to risk as short as possible or as long as possible. Never in between.
  7. Never trade in unpredictable securities.
  8. Always trade the expectation of the expectation ad infinitum.
  9. Avoid acting too rational or too stupid. Always trade in the zone between rational and stupid.
  10. Use as few technical indicators as possible.
  11. BONUS: Learn a valuable skill to increase your trading capital

  • $1: Never trade alone, always trade with others.

    Wittgenstein demonstrated that you cannot follow a private rule and you cannot follow rules privately. If you are on your own, you have no clear idea of what the rules are and you have no social environment that can correct you. So in order to have a trading strategy, you also must have a group…

  • $2: Avoid undesired behaviour that makes you rich.

    Due to the ABC-model as explained in command $1, the worst thing that can happen to you is acting either too rational or too stupid -as per command $9 – and making lots of money … in the short term. The reason why this is such a disaster is that this situation creates an addiction…

  • $3: Never predict, always react.

    There is no such thing as probability, said professor Bruno de Finetti, the founder of subjective Bayesian statistics. If you don’t know what Bayesian statistics is, suffice it to say that Bayesian statistics makes your brain work, makes AI work and is basically the best way to deal with uncertainty, errors and a lack of…

  • $4: Always plan for the scenarios: up, down and sideways.

    Given that we don’t want to predict but react instead – as per command$3 – we need to do scenario planning. With the market it is easy to know which scenarios to plan for, because the market can only go up, down or sideways. In fact the market will go up, down and sideways. So…

  • $5: Always know the probability of each scenario.

    While we cannot predict as per command $3, we can foresee the future. For this we use scenario planning as per command $4. Yet, we have to give each scenario a probability. For if a scenario were deemed to be impossible, we would not entertain that scenario. So if you ever think: this stock can…

  • $6: Either be exposed to risk as short as possible or as long as possible. Never in between.

    Amateurs, called retail by the professionals to not give the game away, tend to buy stocks at a high price only to see these stocks fall almost the second they bought the stocks. Then the stock tends to fall for longer than the amateur can deal with the pain and the stress of the financial…

  • $7: Never trade unpredictable securities.

    With command $3 we have already seen that you cannot predict the future. At best you can foresee the future. By calculating the probability of the up, down and sideways scenarios for individual securities that you trade, you can also calculate the gap between what you foresee and how reality unfolds. If this gap is…

  • $8: Always trade the expectation of the expectation ad infinitum.

    Our brain basically does two things: As you can see, what you experience as reality is made up in large part by your brain’s expectations of reality. This is also the case when you look at the market. You see what you expect to see, not what is really happening. Hence command $3: never predict,…

  • $9: Avoid acting too rational or too stupid. Always trade in the zone between rational and stupid.

    If you act rational, you also act predictable. If your actions can be predicted, then other parties, who have way more money than you, can predict your behavior and profit from it. So you will lose all you have.  If you are acting stupid, of course you are going to lose everything you have. So…

  • $10: Use as few technical indicators as possible.

    Technical analysis is astrology for men. Relying completely on technical analysis is being too rational and defies command $9. Completely ignoring technical analysis is acting too stupid if only for the fact that other people believe in technical analysis. The belief of others in technical analysis makes technical analysis a self-fulfilling prophecy. Take Fibonacci retracement…

  • $11: Learn a valuable skill to increase your trading capital

    You cannot have enough money. While consistently winning money will make sure that your trading capital grows, the more you can add to your trading capital the faster you become mega rich. While day trading takes about 1-2 hours a day, our long term buy & hold strategy using puts & calls hardly takes time…