by Martin Chapman

Created on: June 09, 2008   Last Updated: October 31, 2010

To be a successful trader you need to watch the losses not the profits. Warren Buffett compares his successful investments to a baseball player keeping his swing in the zone and maintaining a good average hit ratio. Similarly Andre Agassi in his biography "Open"  refers to the importance of trying to control what you can and the need to keep your unforced errors to a minimum.

It is vital that you, as a trader, stay in a positive frame of mind. You are who you are. You are human and your moods, health and inspiration will fluctuate. You need to feel good about yourself to do battle against your opponent - the Stock Market or Mr. Market as Ben Graham has called him. Mr. Market aggregates all the computations of company values and all the greed and fear surrounding the future valuation of these companies. Like yourself, Mr. Market has good days and bad days and although he is very smart, he is not always right. It is always worth remembering that good advice is hard to find at the tops and bottoms of stockmarket cycles.

Traders will often feel out of sorts and think that everything is going against them. Some traders advise you to keep trading in small amounts during these less positive phases, so that you are fit to act when you have to swing that bat or racquet. 

THE TREND IS YOUR FRIEND

It's important to have a view as to whether the markets are rising or falling. It will be a lot easier to earn your money in a rising market, where "everybody is a genius"! Why stand in the way of a charging stampede? If the market is rising, then hold little cash! If the market is falling, then hold more cash, not just for relative outperformance, but because of the need to maintain the feel-good factor and to be able to exploit opportunities to pick up bargains in panicky markets.

KNOW WHAT A STOCK IS WORTH

Remembering that the trend is your friend is important. However, you need to know more than the trend of individual stock prices. You need to know what each stock is worth. For each stock you hold, you should calculate its fundamental value.

You can do a basic calculation by discounting the future value of dividends over the next 10 years and adding to this the Net Asset Value Per Share ("NAPS") at the end of this period. This period covers two business cycles. A 10 year government bond yield can be used for discounting. You arrive at the Year10 NAPS by adding 10 years Earnings Per Share ("EPS")and deducting the

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