GARTMAN'S 20 "NOT-SO-SIMPLE" RULES OF TRADING
Provided by Dennis Gartman, Editor/Publisher of The Gartman Letter
1. Never, ever under any circumstance add to a losing position....
not ever, never!. No more need be said; to do otherwise is illogical and
will absolutely lead to ruin... Count on it and count on it again!
2. Trade like a mercenary guerrilla. We must fight on the
winning side and be willing to change sides immediately when one side has
gained the upper hand.
3. Capital comes in two varieties: Mental and Actual. 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." We can, however, have a modest, reasonable
chance at knowing what the trend is and acting upon that trend.
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, however.
6. "Markets can remain illogical longer than we 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 we
need to throw our rocks into the wettest paper sacks, for they break most
readily. In bull markets, we need to ride upon the strongest winds... they
shall carry us higher than lesser ones.
8. Try to trade the first day of a gap (either higher or lower),
for gaps usually indicate violent new action. We have come to
respect "gaps" in our twenty five years of watching markets; however in
the world of twenty four hour trading, they are becoming less and less
important, especially in forex dealing. None the less, 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 that we understand the market's
technicals also. 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. Even more
respect must be paid to "weekly" and "monthly," reversals. Pay heed!
12. Keep your technical systems simple. Complicated
systems breed confusion; simplicity breeds elegance.
13. Respect, expect and embrace the very normal 50-62%
retracements that take prices back to major trends. If a trade is
missed, wait patiently for the retracement.
14. In trading/investing, an understanding of mass psychology is
often more important than an understanding of economics.. at least
much, if not most, of the time.
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.
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 that we have
learned very 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 more often then not to be bought; new lows are to be
sold.
20. ALL RULES ARE MEANT TO BE BROKEN:
The trick is knowing when... and how infrequently this rule may be
invoked.!
|
