A trader's New Year's Resolutions

To me, New Year's represents not only a time for wild celebration (which seems to occur less and less the older I get), but also as a time for a “State of my Life” review of the previous year. Part of that review involves examining the efficacy of my stock trades and trading strategies and how both can be improved.

Without further ado, here's my list of New Year's resolutions that I believe can be of benefit to any trader.

This year I vow:

1. To stick to my trading plan. People generally lose money in the market not because they don't have a trading plan, but because they don't stick to the rules. For example, the famous Turtle trading experiment conducted by market wizard Richard Dennis showed that those students who were diligent in following his trading rules were much more successful than those students who didn't. (See my May 13th blog, "The Legend of the Turtles," for further info.)

2. To write down my profit and loss points before entering a trade. Doing so will go a long way in helping me sleep at night.

3. To not put all of my eggs in one basket. This means not placing all of my money in a single stock or mutual fund, or with only one money manager. (I call this the Madoff rule.)

4. To do my own due diligence and not trade solely on a “hot tip” given by a friend, a CNBC talking head, my broker, or anyone else. Remember that some else's opinion is just that—their opinion, and that includes me.

5. To keep on top of my trades. This means that if I initiate a trade with a time horizon of only a few days, I will check that position on an intra-day basis. If I can't commit to doing that, I won't enter such a trade in the first place.

6. To adopt a Zen-like attitude. The best traders are not emotionally invested in their trades making them much more likely to stick to their rules. Out of greed, fear, and hope, note which of these emotions most affects your trading. You can do this by adopting the next rule.

7. To diligently keep a trading journal. I always start out the New Year by keeping one but abandon it around April when laziness sets in. However, the times that I have kept one have always been beneficial, alerting me to detrimental trading patterns and strategy weaknesses. I also learned that greed and fear were not my emotional enemies but that, surprisingly, hope was. Hope has blinded me to technical breakdowns in a stock's chart by lulling me into thinking that my great stock can't go down any further. I keep holding on, ignoring their continued downward slide. Sure, some of them did come back, but it took years. Hope is the one emotion that still gets the better of me but the occasions when it does are becoming much more rare--at least I'm learning!

8. To keep up with the latest market news and trends. As with any other discipline, the more you know the better you'll be as a trader.

9. To gingerly trade in bear markets. I'm in the middle of doing research which is showing that in the long run trading in bull markets is more profitable and less risky than trading in both bull and bear markets. Trade timing (i.e., knowing when to enter and exit positions) seems to be the key factor to success in bear markets; in bull markets, trade timing is less of an issue as the overall trend generally lasts longer and the market is less volatile.

10. To suspend trading (except for closing out trades) when I'm feeling under the weather or after suffering a string of losses. I've found from previous experience that illness impairs judgement and a string of losses undermines confidence. Time off helps me regain my trading mojo.

11. To remember that not every trade will be a winner. In these instances it's useful to recite the Trader's Serenity Prayer: “God, grant me the serenity to accept the market as it is because I do not have the power to change it, the courage to adjust my trading strategies as indicated by the diligent notes I've been keeping in my trading journal, and the emotional detachment (read: wisdom) to faithfully execute my trading plan.”

12. To have the discipline to stick to these resolutions!

Here's to a healthy, happy, and prosperous New Year!