Trade Like an O'Neil Disciple: How We Made 18,000% in the Stock Market

8.4. THE SECOND COMMANDMENT

The ability to come back from periods of difficulty with courage and persistence is embodied in O'Neil's Second Commandment: "Never operate from a position of fear." If you are fearful in the markets, either as a result of taking a recent loss or some other mistake, or even as a result of being nervous about the level of risk you are taking, then you are putting yourself in the position of making an unclear and hence incorrect decision. Either adjust your position to eliminate the fear, or come to the realization that if you are chronically fearful in the markets, then you have no business investing in them.

Figure 8.2. Cymer, Inc. (CYMI), daily chart, 1997. O'Neil takes a licking, but keeps on ticking!Chart courtesy of eSignal, Copyright 2010

This principle of always operating from a position of strength was also manifested in O'Neil's approach to business. As a firm, we were probably unique in that since we were so intimately tied to the stock market, we used it as a forecasting tool for our own business. When the market topped, and a potential bear market began, we knew that the market was beginning to discount an economic slowdown. When this would occur, O'Neil would often order a 10 percent cut in each firm department's expenses, allowing the firm to get out ahead of a business downturn and actively place itself in a position of strength, prepared ...