Never Simple Trading Rules

Every once in a while we find ourselves at a standstill with our trading- stuck in a rut. You're not doing anything wrong, but you're not improving, either. You're results aren't bad, but they're not as profitable as you would like. If you want to see winning results, you need to learn from those who win. Consistently!

I make big losses when I violated one of these rules.

Rule 1 – Never, ever, ever add to a losing position. Remember how the Long Term Capital Management and its legion of Nobel laureates who broke this rule repeatedly and went into forced liquidation. And in my case, I was badly bitten once by Proton and Transmile.

Rule 2 – The objective is not to buy low and sell high, but to buy high and to sell higher. We can never know what price is ‘low’.

Rule 3 - Markets can remain illogical longer than you or I can remain solvent – is a brilliant statement from our good friend Gary Shilling.

Rule 4 – Try to trade the first day of any gap on the chart. I have full respect for ‘gap’. When it happens, it is almost always materially important.

Rule 5 – Trading runs in cycles – some good most bad – in good times, even errors are profitable, in bad times, even the most well researched trades go awry. This is the nature of trading – accept it and move on.

Rule 6 – Think like a fundamentalist, trade like a technician – it is imperative that we understand the fundamentals driving a trade. When we do then, and only then, should we trade.

Rule 7 – Respect the Box. Markets often retraced 50-62% of a previous move, with prices falling into the Box. Know that and use it.

Rule 8 – Be patient with winning trades, be enormously impatient with losing trades. Remember it is quite possible to make large sums trading, if we are right only 30% of the time.

Rule 9 – The market is the sum of total wisdom. I dare not to argue with the market’s wisdom.

Rule 10 – All rules are meant to be broken! The trick is knowing when you can..and how often.