This post documents the current trading philosophy I am following when I perform my trades. Of course, this might change in the future as I experiment new trading methods and philosophy or if the market changes. For now, this works well for me.
Below is my favorite quote which forms the basis of my trading.
Insiders might sell their shares for any number of reasons, but they buy them for only one: they think the price will risePeter Lynch
- Follow what the insiders are buying
- AKA buying only stocks with insiders also buying them
- There is no other rule that supersedes this one.
- Insiders are seeing things the market does not and are in a position to capture hidden value the market is unaware of.
- I have relied on this rule because, in general, I find most of them have an edge over the market.
- Markets are efficient
- I do not pay much attention to technical analysis since I believe the market is efficient based on information available on the open market.
- Although, I do believe that in the short term, the market can act as a self-fulfilling prophecy for the price. The patterns, however, are only for very short term and chasing them has resulted in more losses than wins for me.
- The only highs and lows I look at now are the weekly highs and lows. In my current phase of trading, technical analysis is only used as a confirmation, not as a criterion.
- Never chase after the market
- Only place limit orders and no market orders.
- It is always better to let the trade come to you or just look for another one if there isn’t one.
- There are many stocks/options available on the market.
- No leverage or margin
- As a trader or investor, I do not like using leverage/margin. When your current trades do not go well, it makes you feel anxious and panicky.
- My trades would be covered by cash or cash set aside for shorting cash secured puts. As long as the cash can be deposited when needed, the cash doesn’t necessarily have to be in the same broker.
- The cash used could be from a money market fund or other low risk investment that can be withdrawn at any time.