The Wall Street Professional’s Rules of Engagement

The Shareholder Activist - The Wall Street Professional’s Rules of EngagementSustainability of the companies we co-own can only be enhanced and bolstered by rules of engagement which aspire to consummate professionalism. Trading is at the heart of many Wall Street firms. What follows are techniques guidelines, ideals, and suggestions which can inspire the savvy trader to excel and maintain their decorum in the stormy mad ride and “weather” of the trading world where split nanosecond decisions are made incessantly. There is never a dull moment in this universe. In the most perfect of all worlds, London Whales, Atlantic Dolphins, and Portuguese Men-of-War can all, hopefully, benefit from these rules of engagement.

Rule #1: Aspire to Professionalism

Trading securities and managing portfolios is a business. Trading is not a hobby, nor is it a pastime, a game, or a diversion. Trading is not for amateurs or part-timers. As such, trading requires a high level of commitment, professionalism, and integrity. When you approach the business of trading with the mindset to devote the amount of resources, mindshare, and energy required to be truly successful, and do not seek the short-cuts, you will find much more satisfaction. If you find yourself unable to sincerely invest that level of commitment that may be a strong indication that this is not a vocation where you will ever achieve fulfillment.

Rule #2: Every Position Must be Protected

Diligence is a path to prosperity, just as lack of attentiveness is a sign of a noncommittal mindset. Develop a personal strategy or style of providing investment guidance and trading that governs your decisions and helps you achieve consistency. Set thresholds and stay within your limits.

Rule #3: Think Green

Winning at trading and investment management is the result of diligence, discipline, and solid process; not luck and bravado. The trader and investment manager need to commit with perseverance and, above all, need to be patient to consistently produce a positive winning cash day (Green) as opposed to a negative losing cash day (Red). Do not fixate on quantity of the performance, but rather its quality and longevity. Green is the only color to worry about as your goal at the end of the trading day, no matter how faint the hue. Green days inspire confidence and a sound base for your career in trading. Slumps are inevitable, but proper money management helps minimize and control risk. It is better to lose small and be able to trade another day then lose big and blow yourself up. As you become green more consistently, start to set a production goal each day.

Rule #4: Always Look the Right Way

Do not fall into the trap of self-aggrandizing. Internally, practice humility to prevent surprises. Nurture multiple channels of information that will enable you to keep your ear to the Street and capture the flow and trend of the day, week, month, quarter. Never be blind to the market. Always go to work with your best specs/glasses. The market is reality, not what you think reality should be. 75% of all stocks in the S&P 500 trend with the index; this is a small piece of powerful information that can bolster your decision making

Rule #5: Learn Enough to be Dangerous

Risk is an inherent element of success in trading. Risks managed effectively produce rewards. Experiment with different risk strategies and learn from your mistakes. Risk management strategies must always be exercised; the unexpected can occur at any point in time. Before entering a trade one must measure the risk v reward scenario. The landscape can change in the blink of an eye, but with proper stops in place, it does not matter. Do not let the market push you around. Be as aggressive out of a trade as you are into a trade. 

Rule #6: Know When to Say When

Thresholds and tolerances must be set, and respected. Stop losses must be attached and put in place for every trade. You must protect the trade by paying a small insurance fee. The key is that the smart, professional trader must honor and respect the stop (the stop was placed for good reason). You never want to find yourself canceling your stop order just before you are stopped out. Take the loss and look to jockey back into the trade at another level. Once you start disregarding you processes, you lose discipline and open yourself up to failure and loss.

Rule #7: If You Are Deserving, Feel Deserving

Wealth comes to those who are smart, work hard, and who have common sense and courage, and who follow their instincts within a well-disciplined course of action. If you have invested in yourself the time, energy, and resources to, then you deserve to be wealthy. Wealth comes to those who install proper money management techniques in their trading and investment practice. Take the time to develop a personal style and know what style of trader/investor you are. Know what your strengths and weaknesses are as a trader. Know how to measure your performance and make adjustments. Look for setups that fit your style the best. One can be a below average trader and still make money with proper, disciplined money management techniques. Interweaving your skill sets can make you a better and more successful trader.

Rule #8: Never Trade Just for the Sake of Trading

Approach and contemplate each trade carefully. If you do not have the luxury of time, proceed more cautiously. Understand why you are making the trade. Never ignore your emotions. Do not trade based on emotions. Rather, gain the awareness to ascertain how your emotions are influencing your decisions. Traders, investment advisors, and clients are human beings and emotionality is part of being human. For instance, fear is an emotion that can be a safeguard; while exuberance can lead to making rash decisions. The bottom line is every trade should have a purpose, and not just to keep you in the game.

Rule #9: Patience is a Necessary Evil

Establish your processes, thresholds, and routines and have the faith in yourself to remain vigilant and not veer off course chasing a trend. Shelter yourself from anxiety in a cloak of confidence you develop through your patience and diligence. Make adjustments where necessary and allow for your strategies and tactics to develop. Expect moderate incremental success, as you hone your strategies. It is only through the mastery of yourself, especially your self-control, that more dramatic success is available. Understand that patience is incredibly hard to exercise. However, the market runs in waves, and one must avoid the trough and catch the crest.

Rule #10: Let Go That Ego

Ego belongs on the golf course, not in the market! There is no room for pride in the markets. When you are wrong, you are wrong. Even the best traders in the world are only right 50% of the time over the course of their careers. It is their money management skills and knowledge of their limits that sets them apart. If you want excitement, go to a casino. Trading should be boring; professional trading is nothing like casino gambling. For example: when playing Black Jack you have no control over the cards. In trading you have full control when you are going into the trade, and when you are getting out of the trade. When you are overly confident, you are more susceptible to catastrophe. In fact, often it is when you are absolutely convinced you are right and above reproach that you are exposed to peril. Risk is omnipresent.

Rule #11: Settle in for the Long Haul

Trading/investing is a marathon, not a sprint. At times, there can be room for quick scalp trades, but overall trading is not a hit-and-run activity. Establish realistic short-term and long-term goals that are integrated into your overall growth strategy. Meeting such goals builds confidence, helps you refine your trajectory where needed, and encourages you to make better decisions. It keeps the emotionality at bay and inspires confidence going into the next day. And, it allows you to build a solid base over time. Emotionality will only corrupt your trading and investing rhythms, and ultimately your spirit as your mind creates havoc upon itself.

Rule #12: Keep Your Head in the Game

Don’t panic. You never want to trade your profit and loss statement for the day. Don’t worry about how much money you are making or not making on a trade. If you are doing what you are supposed to be doing in terms of preparation, technical analysis, and money management your profit and loss statement will take care of itself.

Rule #13: Learn to Level-Set Appropriately With Clients

The essence of the interaction between a broker and a client is that of a business relationship. A type of friendship may develop with camaraderie and mutual respect. However, it is important to understand that the relationship is first and foremost a professional business relationship, in spite of its trappings or diversions. As such, the tone of that relationship is heavily influenced by the outcome of transactions. Clients want to make money first and foremost. One of the keys to fostering long-term client relationships is the ability to accurately, effectively, and consistently set expectations.  Be clear about your terms. Do not balk if a client inquires about your commission structure; clarity about fees is no less critical than clarity about all other money matters.

Rule #14: Act With Integrity

Nothing financial should ever be hidden, disguised, or held back. Clarity builds trust and reinforces the client-trader alliance. So when asked about your rates of compensation, even by a prospective client whose tone may seem challenging, be calm and confident in responding. Good clients will appreciate this.

Rule #15: Focus on Your Faults

Knowing the roots of a slump is far more important than basking in the glory of a success. The Wall Street Psychologist’s Gyroscope is based on consistent, honest self-analysis. Be your own greatest critic and take the time to assess your performance objectively. Within the great achievements, there is always room for improvement. Make sure to enjoy your progress and celebrate success. However, every milestone is another step on the road to self-improvement, so condition yourself to always aspire to enhance your repertoire and do not believe your own PR.

To contact Christopher Bayer directly, please email

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