Tuesday, August 26, 2014

The Four Cardinal Principles of Trading

I recently came across "The Four Cardinal Principles of Trading" by Bruce Babcock. This is a series of short Q&A's with traders from the mid 1990's. According to Babcock, the four principles are:
  • Trade with the trend;
  • Cut losses;
  • Let profits run;
  • Risk control.
Interviewees included Jack Schwager and Peter Brandt.

To most traders, these principles are nothing new. What was interesting to me was the variety in the different interpretations of each of those principles in their own trading system or method. As an example, some people relied on just price action, whereas others used indicators. This was all on top of the different timeframes or intended holding period.

Again, this just proves that, working around some basic concepts, there are thousands of ways you can trade and make money in the markets. The trick is to find the way that works for you, which has a positive expectancy, covers those four principles, and which you are fully comfortable with. This will then allow you to develop and use the correct mindset to follow your method.

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