The successful investor is not invested in the market all the time—there are many times when you should be completely in cash. If you are unsure of the direction of the market, wait.
Trading is a battle. When you pick up your weapon and put your life on the line, would you rather be drunk or sober? You have to prepare yourself, choose your fight, go in when you are ready, and quit after you’ve done what you’ve planned. A man who is cool and sober calmly picks his fights. He enters and leaves when he chooses and not when some bully throws him a challenge. A disciplined player chooses his own game out of hundreds available. He doesn’t have to chase every rabbit like a dog with its tongue hanging out—he lays an ambush for his game and lets it come to him.
It takes four strong mental characteristics to be a superior market trader:
• Observation: the ability to observe the facts without prejudice;
• Memory: the ability to remember key events correctly, objectively;
• Mathematics: an easy facility with numbers, at home with digits;
• Experience: to retain and learn from your experiences.
The trader must react quickly to the unexpected, which is never predictable. If it is a windfall, grab it. If it is bad news, hit the road, and don’t look back or hesitate—sell out the position.Beware after a long trend up when volume gets heavy, and stocks churn. This is a clue, a red-alert warning that the end of the move is near. This is also a possible indication of stocks going from strong hands to weak hands, from the professional to the public, from accumulation to distribution. The public often views this heavy volume as the mark of a vibrant, healthy market going through a normal correction, not a top or a bottom.
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