Friday, December 18, 2009

Some trading rules from Dennis Gartman

I’ve never taken it upon myself to collect trading rules, but somewhere along the line I saved thirteen trading rules from Dennis Gartman. As we look forward to the holiday season and yet another new year and, of course, the seemingly mandatory resolutions that we break almost as soon as we make, here are five.

Learn to trade like a mercenary guerilla. “We must . . . learn to fight/invest on the winning side, and we must be willing to change sides immediately when one side has gained the upper hand.”

Don’t hold on to losing positions. “Holding on to losing positions costs real capital as one’s account balance is depleted, but it can exhaust one’s mental capital even more seriously as one holds to the losing trade, becoming more and more fearful with each passing minute, day and week, avoiding potentially profitable trades while one nurtures the losing position.”

Trading runs in cycles; some are good, some are bad, and there is nothing we can do about that other than accept it and act accordingly. “Thus, when things are going well, trade often, trade large, and try to maximize the good fortune that is being bestowed upon you. However, when trading poorly, trade infrequently, trade very small, and continue to get steadily smaller until the winds have changed and the trading ‘gods’ have chosen to smile upon you once again.”

Keep your technical systems simple. “The greatest traders/investors we’ve had the honor to know over the years continue to employ the simplest trading schemes. They draw simple trend lines, they see and act on simple technical signals, they react swiftly, and they attribute it to their knowledge gained over the years that complexity is the home of the young and untested.”

And, finally, what Gartman considers the most important rule of all:

Do more of that which is working and do less of that which is not. “This is a simple rule in writing; this is a difficult rule to act upon. However, it synthesizes all the modest wisdom we’ve accumulated over thirty years of watching and trading in markets. Adding to a winning trade while cutting back on losing trades is the one true rule that holds—and it holds in life as well as in trading/investing.”

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