Lewis Borsellino’s 10 Commandments of Trading

I’ve been reading The Best: TradingMarkets.com Conversations With Top Traders by Kevin Marder and Marc Dupee. It was recommended by Gil Morales and Chris Kacher in their book Trade Like an O’Neil Disciple. Basically it’s a collection of interviews with traders, which so far has been very interesting. Following the interview with Lewis Borsellino is the list of his 10 Commandments of Trading. I thought they were interesting and thought it would make an interesting post to discuss how I measure up with respect to each Commandment.

“1. Trade for success, not money.”

I feel like I do pretty well here. I won’t say that money isn’t a part of the equation, but I honestly just want enough to maintain the lifestyle I currently have and free up some time. I would love to replace my current income with investing income and possibly travel a bit more, but I am not looking for Boston Red Sox Money. I generally look at the market as a very large multiplayer video game that I’m trying to beat.

“2. Discipline.”

It’s amazing how much we change over time. I didn’t used to be very disciplined at all, but now that is probably one of my greatest strengths. I have no problem sticking to a system or cutting losses at a predetermined point. I also have recently gained the discipline to do my homework on the market every single day.

“3. Know yourself”

This commandment is meant to be taken with respect to risk tolerance. I believe I know myself quite well. I know that I am, at  heart, a gambler. I want to bet the farm on every trade and if something goes against me, my first instinct is to double down and hope for a return. This is why I have to pay so much attention to the Second Commandment.

“4. Lose your ego.”

This is an issue that I’ve never had a problem with. If anything, I’ve always leaned the opposite way. I lack the conviction to stick with a trade and have never believed myself to be smarter than the market. All the books say things like “Never argue with the tape.” I’ve never had a problem with that.

“5. Hoping, Wishing, Praying.”

I do have some issues here. I root for my favorite stocks and I will check my phone every ten minutes while the market is open. I believe I am improving in this area as I am gaining experience. The more experience I acquire, the more comfortable I will be in my ability to handle this Commandment.

“6. Let you profits run, cut your losses quickly.”

Cutting losses is not an issue for me. O’Neil’s 7-8% loss rule has been pretty well drilled into my head. I also know to let my profits run, but as my profits in $PCLN continue to grow, that is getting harder and harder to do. Once again, here, I think that as I acquire more experience, I will be better equipped to handle this.

“7. Know when to trade, when to wait.”

I’m pretty good at handling this on the large scale. When the market is in a correction, I know to wait for a follow-through day before I start buying. That has never been a problem. As I gain experience, I am also gaining insight. I think where this affects me the most, right now, is in waiting for the big stocks to break out and not being tied up in little ones when that happens. That is something I am really working on.

“8. Lower your losers like you love your winners.”

What Borsellino mean here is that you have to spend as much time analyzing your losing trades as you do your winners. This is another one that I have an excellent handle on. I hang all of my trades, good and bad, on the wall in front of my desk at work. This gives me the chance to analyze my mistakes on a daily basis. My mistakes haunt me. Therefore, it will be harder to make them again.

“9. Three losing trades?”

I had heard this rule before in reference to Blackjack, but never with respect to trading. It makes a lot of sense and I hope I am able to remember it when I hit a rough period. I am definately the kind of person this Command is written for. I will throw good money after bad time and time again.

“10. The unbreakable rule.”

Borsellino explains this Commandment as “If you continually violate any of these Commandments of Trading, you will eventually pay for it with your profits.” I thought this was a good way to reinforce the first nine Commandments.

All of these Commandments are well know truths that i have been studying for years. They are all cemented into my trading mentality. The only concern I have is how I am going to react emotionally when things don’t go my way. I guess we will all find out together when that happens.