By Shah Gilani
By The push to make trading Wall Street’s biggest money-making business, while narrowing spreads to reduce risk (especially for active professional traders), and simultaneously gaming the inside track by managing and trading against order flow, is the New Reality.
And for retail investors, that’s what creates the “New Normal” - stock market returns that are much lower than the oft-quoted long-term averages of 10% or more. To avoid getting whipsawed in the New Normal markets, investors need to copy the insiders who play the game they created with these seven New Golden Rules of investing:
1. Shorten hold periods for all investments, other than those “held to maturity.”
2. Invest like a trader: Take profits regularly, and cut losses sooner.
3. Don’t be afraid to step in front of standing orders by lowering your offer price a penny, or raising your bid price a penny, to get your orders executed.
4. Trade and invest where you can find the deepest quotes, meaning where volume is more substantial on the bid and offer side of quotes. More is always better. If your brokerage facility doesn’t offer market quotes that are transparent, switch to one that does.
5. Whichever brokerage facility you use, find out what their execution policy is. They must have a “best practices” policy regarding execution. Make sure to get it in writing.
6. Ask what your brokerage’s policy is regarding stop-loss orders. It is critical to know how they will handle the next “flash crash,” when it comes. And believe us … it is coming.
7. Complain about bad executions. It sounds cliché, but the squeaky wheel gets the grease. The pros squawk all the time, and sometimes they get better fills.
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