10 trading commandments by Lewis Borsellino to avoid big investment mistakes

Lewis J. Borsellino is the founder of www.TeachTrade.Com, an educational website for stock and futures traders. Borsellino has traded at the Chicago Mercantile Exchange since 1981. He appears regularly on CNN-FN, Reuters Financial Television, Bloomberg TV and WebFN.With a career that has spanned an unprecedented eighteen years, his long-term success puts him into the trading legends like Paul Tudor Jones, Victor Niederhoffer, and bond trader Tom Baldwin.

Borsellino wrote ‘ten commandments’ of trading in his book, "The Day Trader - From the Pit to the PC" which can help young investors to avoid major mistakes while trading. Let's take a look at these commandments.

Borsellino says investors should have the intention to first and foremost make a well-executed trade."If money alone is your motivation you will severely limit your chance of success. Why? Because focusing on money will raise all kinds of emotional issues, from fear to greed. It will make you afraid of losses to the point that you will abandon your discipline. It will tempt you to trade too often, too large and with too much risk. Whereas if you focus on making solid, well executed trades - even if the result is a losing trade that you exit quickly - you will reinforce your discipline and increase your trading potential," he wrote in his book, "The Day Trader - From the Pit to the PC."

Borsellino says the ability of investors to master their mind, body and your emotions is the key to trading."The disciplined trader - regardless of profit or loss - comes back to trade another day. A great intellect, the ability to take on risk, or even a sense that you’re somehow ‘lucky’ mean nothing without discipline. For a trader, discipline means the ability to devise a trading plan, execute according to that plan, and to never deviate from that plan," he says.

Borsellino says trading is not for everyone. He says if investors can handle risk with discipline, then perhaps they can find a vocation or avocation as a trader. Hence investors need to know themselves very well."If risk makes you ill, on the one hand, or if taking a risk brings out the recklessness in you, then trading is probably not for you," he says.

Borsellino says no matter how much success investors enjoy they’ll never outsmart the market."If you think you can, you’re in for a very humbling experience. The market rules, always, and for everyone. You need to silence your ego in order to listen to the market, to follow what your technical analysis is indicating - and not what your intellect (and your ego) think should happen," he says.He says to trade effectively, investors need to put their egos aside but at the same time, they shouldn't be so emotionally fragile that unprofitable trades shatter their confidence.

Borsellino says naive investors often panic because they lose their discipline and allow whatever is a small loss to turn into a much bigger one."They keep hanging on, hoping, wishing and praying for things to turn around. The reality is on the screen. When the market hits your stop-loss level (the price at which you’ll cut your losses at a predetermined level), get out," he says.

Borsellino says when the market goes against investors and if it hits their predetermined stop, they should exit the trade."Exit when the loss is a small one. Then reevaluate your strategy and execute a new trade. Keeping your losses small will keep you in the game. Profits take care of themselves, as long as you execute according to your plan," he says.

Borsellino says investors should trade when their analysis, their system and their strategy say that they have a buy or sell to execute."If the market doesn’t have a clear direction, then wait on the sidelines until it does. Keep your mind on the market, but keep your money out of it," he says.

Borsellino says losing trades are the best teachers for investors."When you have a losing trade, it’s because of some flaw in your analysis or your judgment. Or perhaps the market simply didn’t do what you thought it would. When you have a losing trade, something is out of sync with the market. Examine what went wrong - objectively - then adjust your thinking, if necessary, and enter the trade again," he says.

Borsellino says if investors are making losing trades continuously then they should take a break."This is not the time to take on more risk, but rather to become extremely disciplined. Sit on the sidelines for a while. Watch the market. Clear your head. Re-evaluate your strategy, and then put on another trade. Losses can shake your confidence and tempt you to become emotional (fear/greed) But if you take a break, you can gather your wits and regain your composure more quickly than if you become very emotional and angry at yourself and the market," he says.

Borsellino says investors can break a rule and get away with it once in a while. But one day, the rules will break them."If you continually violate these ‘commandments’ of trading, you will eventually pay for it with your profits. That’s the unbreakable rule. If you have trouble with any of them, come back and read this one. Then read it again," he says.
(Disclaimer: This article is based on Lewis Borsellino's book "The Day Trader - From the Pit to the PC")