Stock Trader's New Year's Resolutions

Stock trading is a never-ending learning process. I have been doing it full-time for almost 7 years now, and I am still learning new tricks. Here are the latest which I intend on focusing in the new year:

1. Trade less

I have yet to see any hard evidence that more trading = more profits. There is a mismatch between the cycles of daytraders and the stocks they trade. Daytraders operate in a, well, daytrading cycle: pre-market, open, first hour, lunch break, 2 pm., close, after hours. Stocks don't know clocks or calendars. Their daily charts have different cycles. So paying attention to what a stock actually does as opposed to what daytraders are doing at, say, 2pm, is more important. Stocks need time and space to complete their moves, most of which are out of daytraders' narrow parameters.

2. Tune out the noise

Have you ever looked at a chart going up diagonally from the lower left hand to the upper right hand corner and wondered: why didn't I just buy and hold? Simple. The past chart is devoid of any noise in the form of gloomy news, dire predictions, and wild speculations that accompany current trading. It simply reflects what a stock actually did.

By contrast, the present is rife with noise that creates doubt and fear in your mind: (How high can it go? What if I am wrong? What if it drops? What if Israel bombs Iran?). So you succumb to the pressure of running with the crowd and buy and sell excessively (see point 1).

95% of financial news is noise. Opinion. Do you know of anybody who got rich watching CNBC? 24/7 news outfits are in the business of selling ads while holding your attention. They need sensationalism and fear to keep you glued to the screen. If there is nothing scary going on, they manufacture the news or recycle the old stuff, jerking you around.

3. Control emotions with stops

Properly calculated and placed stops prevent you from making emotional decisions based on current panics and scares (There is something wrong with this market - I'd better get out before it's too late!). Truth is, most news-induced moves in the market do not last longer than three days because our short attention spans drift to other things afterwards (see point 2): interest rates, unemployment, new home sales, oil inventories..., so more often than not a stock in a scare stops short of your stop, recovers, and goes on to produce more gains - without you in it.