Friday, May 16, 2008

The End of an Oily Week

These are strange times in the market. The DJ Transport index is breaking out from a double top, oil is at $126.50 (one hundred and twenty six dollars and fifty cents!) a barrel as we type (with Goldman Sachs predicting that it could soon ascend to over $140 a barrel), consumer confidence is at a 28 year low, and yet every index is trading only slightly in the red, creeping towards green. We were expecting a big drop today, especially on option expiration Friday, but one of our catalysts was the release of earnings by HPQ and that has been postponed until nest Tuesday.

Circumstances like these remind us - and should emphasize to one and all - the importance of the 11 Commandments. Come back this weekend for our "Psychology of the Upcoming Week's Earnings and Economic Data". Until then we leave you with, and encourage you to follow the Commandments.

The Eleven Commandments of Trading

1. Never trade more than 10% of your total capital/account value in any one position.
2. Cash is King, but always keep a minimum of 20% liquid.
3. Cut losses to 15% maximum whenever possible. If your psyche is shaken, step away and don't trade for 1 week.
4. Take and enjoy profits of 30% or more.
5. Never fall in love with a stock and never force trades or over trade; remember commandment #2.
6. Never accept excuses from management, period.
7. Use technical and fundamental data & psychology/sentiment from the conference call to select trades.
8. There are two sides to the market, long & short; take advantage of that leverage.
9. Understand the significance of the macro geo-political economic environment.
10. Unforeseen events/shocks will happen, inverting the market upside down (remember commandments #1 & #2)
11. All of the above are void without reading the Psychology of the Call.

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