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11 Laws of Trading to Win on Wall Street and Main Street

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11 Laws of Trading

I’ve just finished an advance copy of the best investment book I’ve read in recent years.

The Laws of Trading: A Trader’s Guide to Better Decision-Making for Everyone, written by professional trader Agustin Lebron, will be published by Wiley next month. It provides a step-by-step guide to help you profit not only in your investments but also in your daily life.

Lebron provides a clear and compelling step-by-step process of how to apply his 11 Laws of Trading so you can leverage your unique skills and knowledge and react in real-time with appropriate decisions to make profitable trades.

Here are Lebron’s 11 Laws of Trading:

  • Motivation – Know why you’re making the trade before you trade.
  • Adverse Selection – You’re never happy with the amount you traded.
  • Risk – Take only the risks you’re paid to take — hedge the others.
  • Liquidity – Put on a risk using the most liquid instrument for that risk.
  • Edge – Can’t explain your advantage in 5 minutes? Come up with a better one.
  • Models – The model expresses the edge.
  • Costs – If costs seem negligible relative to your edge, you’re wrong about at least one of them.
  • Possibility – Just because something has never happened doesn’t mean it can’t.
  • Alignment – Working to align everyone’s interests is time well-spent.
  • Technology – If you don’t master technology and data, you’re losing to someone who does.
  • Adaptation – If you’re not getting better, you’re getting worse.

Related: What Every Successful Investment Trader Should Know

Among the most interesting nuggets I pulled from the book:

  • Self-knowledge and motivation can be seen as the cornerstones of a long-term career in trading. Without them, you cannot hope to maintain the effort necessary to improve over time continually.
  • The fundamental nature of trading is adverse selection. As a result, you’ll always be dissatisfied with the trades you’ve done.
  • Adapting and improving requires a near-obsessive focus on improving edges and finding new ones.
  • Misaligned incentives are, over time, cancer that eats away at organizations and prevents the sort of nimbleness and adaptability necessary for survival.
  • Learning how to take advantage of the information dissolved in the sea of data is one of the most important ways one can successfully adapt and evolve.
  • The Robinhood app is an example of investors, especially young adults, trading on less information, not more. That’s counterintuitive to successful trading.
  • To be a successful trader, you must deeply understand what you’re doing, why you’re doing it, and, most importantly, how to get better.
  • Getter better every day is the name of the game, and the thing is to find the joy and meaning in that pursuit you’re not getting better, you’re getting worse.
  • Markets are good at integrating information. Over time, the profitability of all trades goes to zero.
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