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Sunday, November 25, 2012


Every year on the Friday after thanksgiving Mr. Dennis Gartman, publisher of www.thegartmanletter.com offers his 20 rules of trading.
 
Here they are..
 
THE TWENTY RULES OF TRADING: 2012
 
1. NEVER, EVER, EVER ADD TO A LOSING
POSITION: EVER!: Adding to a losing position will
eventually lead to ruin. Count on it. All great market
humiliations are first preceded by one man or one group
of men doing otherwise and we give you the Nobel
Laureates of Long Term Capital Management; Nick
Leeson, Jon Corzine and now Kweku Adaboli.
 
2. TRADE LIKE A MERCENARY FIGHTER: As
traders/investors we are to fight on the winning side of
the trade, not on the side of the trade we may believe to
be economically correct. We are pragmatists first,
foremost and always.
 
3. MENTAL CAPITAL TRUMPS REAL CAPITAL: Capital comes in two types... mental and
real... and holding losing positions diminishes both the
finite and measurable real capital and the infinite and
immeasurable mental capital.
 
4. WE ARE NOT IN THE BUSINESS OF
BUYING LOW AND SELLING HIGH: We are in
the business of buying high and selling higher, or of
selling low and buying lower. Strength begets strength;
weakness more weakness.
 
5. IN BULL MARKETS ONE MUST TRY ONLY
TO BE LONG OR NEUTRAL: The corollary,
obviously, is that in bear markets one must try only to be
short or neutral. There are exceptions, but they are rare.
 
6. “MARKETS CAN REMAIN ILLOGICAL FAR
LONGER THAN YOU OR I CAN REMAIN
SOLVENT:” So said Lord Keynes many years ago
and he was… and is… right, for illogic does often reign,
despite what the academics would have us believe.
 
7. BUY THAT WHICH SHOWS THE
GREATEST STRENGTH; SELL THAT WHICH
SHOWS THE GREATEST WEAKNESS:
Metaphorically, the wettest paper sacks break most
easily and the strongest winds carry ships the farthest,
fastest.
 
8. THINK LIKE A FUNDAMENTALIST; TRADE
LIKE A TECHNICIAN: Be bullish when the
technicals and the fundamentals, as you understand
them, run in tandem. Be bearish when they do not.
 
9. TRADING RUNS IN CYCLES; SOME
GOOD, MOST BAD: In the “Good Times” even one’s
errors are profitable; in the inevitable “Bad Times” even
the most well researched trade shall goes awry. This is
the nature of trading; accept it and move on.
 
10. KEEP YOUR SYSTEMS SIMPLE:
Complication breeds confusion; simplicity breeds
elegance and profitability.
 
11. UNDERSTANDING MASS PSYCHOLOGY
IS ALMOST ALWAYS MORE IMPORTANT
THAN UNDERSTANDING ECONOMICS: Or
more simply put, “When they’re cryin’ you should be
buyin’ and when they’re yellin’ you should be sellin’!”
 
12. REMEMBER, THERE IS NEVER JUST
ONE COCKROACH: The lesson of bad news is that
more shall follow… usually hard upon and always with
worsening impact.
 
13. BE PATIENT WITH WINNING TRADES;
BE ENORMOUSLY IMPATIENT WITH
LOSERS: The older we get the more small losses we
take… and willingly so.
 
15. DO MORE OF THAT WHICH IS WORKING
AND LESS OF THAT WHICH IS NOT: This
works well in life as well as trading. If there is a “secret” to
trading… and to life… this is it!
 
16: CLEAN UP AFTER YOURSELF: Need we
really say more? Errors only get worse.
 
17. SOMEONE’S ALWAYS GOT A BIGGER
JUNK YARD DOG: No matter how much “work” we
do on a trade, someone knows more and is more
prepared than are we… and has more capital!
 
18: PAY ATTENTION: The market sends signals
more often than not missed and/or disregarded… so pay
attention!
 
19: WHEN THE FACTS CHANGE, CHANGE!
Lord Keynes… again… once said that “When the facts
change, I change; what do you do, Sir?” When the
technicals or the fundamentals of a position change,
change your position, or at least reduced your exposure
and perhaps exit entirely.
 
20. ALL RULES ARE MEANT TO BE
BROKEN: But they are to be broken only rarely and
true genius comes with knowing when, where and why!

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