Connect with us


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


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.
Continue Reading