Gartman's Rules of Trading
Dennis E. WangInternational Futures Group
Branch Office Manager
2000 Schafer St, Suite E
Bismarck, ND 58501
1-800-546-4887 (1-800-Limit-Up)
www.intfuturesgroup.com
Hello Everyone,
Every year, Dennis Gartman of The Gartman Letter revises and publishes his 20 "Not-So-Simple" Rules of Trading. In my opinion, these are rules that we as traders should read EVERY day. Thought I'd share them:
Gartman's 20 "Not-So-Simple" Rules of Trading (11-26-2004)
1.) Never, ever, ever add to a losing position: To do so will eventually and absolutely lead to ruin. Remember Long Term Capital Management and its legion of Nobel laureats who broke this rule repeatedly and went into forced liquidation. Learn this lesson.....well and early!
2.) Trade like a mercenary soldier: We must fight on the winning side and be willing to change sides immediately when one has gained the upper hand.
3.) Capital comes in two varieties: Mental capital and that which is in your account. Of the two, mental capital is the more important. Having losing positions costs measurable sums of 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 sell higher: We can never know what price is "low." Nor can we know what price is high. Always remember that Nortel fell from $85/share to $2 and seemed "cheap" all times along the way.
5.) In bull markets we can only be long or neutral: Furthur, 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, is a brilliant statement from out good friend, Dr. A. Gary Shilling. Illogic often reigns and markets are inefficient despite what the academics try to tell us.
7.) Sell that which shows the greatest weakness, and buy that which shows the greatest strength: Metaphorically, when bearish, throw rocks into the wettest paper sack, for they break most readily. In bull markets, ride the strongest winds.
8.) Try to trade the first day of any gap on the chart: We respect "gaps." When they happen, they are almost always materially important.
9.) 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.
10.) Think like a fundamentalist; trade like a technician: It is imperative that we understand the fundamentals driving a trade, and that we understand the market's technicals also. When we do, then, and only then, should we trade.
11.) Respect "outside reversals" after extended bull or bear runs: Reversals signal the final exhaustion of the bulls or bears. Respect them.
12.) Simplify and simplify again: Complex systems breed confusion; simplicity breeds elegance.
13.) Respect "The Box:" Markets often retrace 50-62% of a previous move, with prices falling into "The Box." Know that and use it.
14.) Understanding psychology is usually more important than understanding economics: Markets are driven by human beings making human errors... and also making super-human insights.
15.) Be patient with winnings 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.
16.) The market is the sum total of the wisdom....and the ignorance....of all of those who deal with it: We dare not argue with the market's wisdom.
17.) 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 normally to be bought; new lows are to be sold.
18.) 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 Steidelmeyer taught us this twenty five years ago and it holds truer now than then.
19.) There is never one cockroach: This was last year's "new rule." Bad news begets bad news which begets even worse news.
20.) All rules are meant to be broken: The trick is knowing when you can....and how often.
And there were two winners of this year's contest for the best new rule: From the always insightful Brad Rotter who said, "Trends, like horses, are easier to ride in the direction they are already heading;" and from Paul Saks of Haywood Securities, "Buy in the quiet; sell in the riot." The latter is particularly apropos given the "riot-ousness" of the gold market at present.
YOU MUST ALWAYS BE AWARE THAT THERE IS SIGNIFICANT RISK INVOLVED IN TRADING FUTURES AND/OR OPTIONS ON FUTURES AND ARE NOT SUITABLE FOR ALL INVESTORS.
posted by Super Trader @ 9:04 AM
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