20 Trading Rules Every Trader Should Follow

The cop in me loves rules. One of the first things I remember

seeing when I walked into my assigned police station the day after

I graduated from the academy was a flier on a bulletin board near

the door. It was titled, "10 Mistakes that Have Killed Experienced

Police Officers." I still have a copy taped to the inside of my

locker and read those rules while putting on my uniform twice a month

as a Reserve



Rules give us order and something solid we can grab on to when

confusion reigns.



I've seen a lot of lists of trading rules, but the ones below come

about as close as I've ever seen to being a complete set.



Follow these and you'll avoid 99% of the problems that blow-up

traders' accounts. Print this email out and post it next to your

computer.



Refer back to them anytime you hesitate or don't know what to make

of the markets. I guarantee one of these rules will apply to any

trading situation in which you find yourself.



And forward this email to your trader buddies - they will thank

you for it down the road.



I found these originally on Olivier Tischendorf's blog and he

mentions that most of them came from Dennis Gartman.



1. Never, under any circumstance add to a losing position....ever!

Nothing more need be said; to do otherwise will eventually and

absolutely lead to ruin!



2. Trade like a mercenary guerrilla. We must fight on the winning

side and be willing to change sides readily when one side has

gained the upper hand.



3. Capital comes in two varieties: Mental and that which is in your

pocket or account. Of the two types of capital, the mental is the

more important and expensive of the two. Holding to losing

positions costs measurable sums of actual capital, but it costs

immeasurable sums of mental capital.



4. 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." Nor can

we know what price is "high." Always remember that sugar once fell

from $1.25/lb to 2 cents/lb and seemed "cheap" many times along the

way.



5. In bull markets we can only be long or neutral, and in bear

markets we can only be short or neutral. That may seem

self-evident; it is not, and it is a lesson learned too late by far

too many.



6. "Markets can remain illogical longer than you or I can remain

solvent," according to our good friend, Dr. A. Gary Shilling.

Illogic often reigns and markets are enormously inefficient despite

what the academics believe.



7. Sell markets that show the greatest weakness, and buy those that

show the greatest strength. Metaphorically, when bearish, throw

your rocks into the wettest paper sack, for they break most

readily. In bull markets, we need to ride upon the strongest

winds... they shall carry us higher than shall lesser ones.



8. Try to trade the first day of a gap, for gaps usually indicate

violent new action. We have come to respect "gaps" in our nearly

thirty years of watching markets; when they happen (especially in

stocks) they are usually very important.



9. Trading runs in cycles: some good; most bad. Trade large and

aggressively when trading well; trade small and modestly when

trading poorly. 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.



10. To trade successfully, think like a fundamentalist; trade like

a technician. It is imperative that we understand the fundamentals

driving a trade, but also that we understand the market’s

technicals. When we do, then, and only then, can we or should we,

trade.



11. Respect "outside reversals" after extended bull or bear runs.

Reversal days on the charts signal the final exhaustion of the

bullish or bearish forces that drove the market previously. Respect

them, and respect even more "weekly" and "monthly," reversals.



12. Keep your technical systems simple. Complicated systems breed

confusion; simplicity breeds elegance.



13. Respect and embrace the very normal 50-62% retracements that

take prices back to major trends. If a trade is missed, wait

patiently for the market to retrace. Far more often than not,

retracements happen... just as we are about to give up hope that

they shall not.



14. An understanding of mass psychology is often more important

than an understanding of economics. Markets are driven by human

beings making human errors and also making super-human insights.



15. Establish initial positions on strength in bull markets and on

weakness in bear markets. The first "addition" should also be added

on strength as the market shows the trend to be working.

Henceforth, subsequent additions are to be added on retracements.



16. Bear markets are more violent than are bull markets and so also

are their retracements.



17. Be patient with winning trades; be enormously impatient with

losing trades. Remember it is quite possible to make large sums

trading/investing if we are "right" only 30% of the time, as long

as our losses are small and our profits are large.



18. The market is the sum total of the wisdom ... and the

ignorance...of all of those who deal in it; and we dare not argue

with the market’s wisdom. If we learn nothing more than this we’ve

learned much indeed.



19. Do more of that which is working and less of that which is not:

If a market is strong, buy more; if a market is weak, sell more.

New highs are to be bought; new lows sold. Not the other way around!



20. The hard trade is the right trade: If it is easy to sell,

don’t; and if it is easy to buy, don’t. Do the trade that is hard

to do and that which the crowd finds objectionable. Peter

Steidlmayer taught us this twenty five years ago and it holds truer

now than then.



All the best,



Tim



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Tim Bourquin

http://www.TraderInterviews.com

1-949-348-2590 ext. 15



P.S. I just made one of our most popular interviews a freebie.

It's with an S&P trader named Don Miller. It's an older one done

before we started doing weekly shows, but a goodie. Check it out:

http://www.traderinterviews.com/out/DonMiller

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