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Donchian's 20 Trading Guides

  
  Education
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richard-donchian
Richard Donchian is best known for developing the Donchian Channel Indicator. This is a simple trend following tool that detects and alerts you to breakouts by plotting the highest high and the lowest low over the last period time interval which the user specifies.
Through his many years of trading and writing weekly newsletters (Commodity Trend Timing), Richard Donchian shares with us some very valuable trend trading wisdom.

  1. Beware of acting immediately on a widespread public opinion. Even if correct, it will usually delay the move.
  2. From a period of dullness and inactivity, watch for and prepare to follow a move in the direction in which volume increases.
  3. Limit losses and ride profits, irrespective of all other rules.
  4. Light commitments are advisable when market position is not certain. Clearly defined moves are signaled frequently enough to make life interesting and concentration on these moves will prevent unprofitable whip-sawing. (more…)

12 Trading Expectations

  
  Education
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  1. No trader wins on every trade. The best traders in the world only have a 50%-80% success rate. 
  2. Trying to get rich quick requires so much risk, that the probabilities of ending up poor is far greater than your chances of becoming rich. 
  3. Consistent 15% – 20% annual returns are what world class traders and portfolio managers make.
  4. Some of the best traders’ best years were 50% – 100% annual returns, in specific market conditions, that were conducive to their strategy.
  5. Market conditions will have a huge impact on your returns each year, regardless of how you trade.
  6. The higher returns you aim for, the more risk will be required, and the larger draw down you will have getting those returns. 
  7. If you risk 5% t0 10% of your trading capital on every trade, your risk of ruin is 100% in the long term.
  8. If you think that the above percentages are just too small, then it is very likely that your trading account is too small to make those percentages meaningful.
  9. To trade for a living, you likely need a multiple six figure account, and a minimum of one years worth of living expenses to avoid the unrealistic expectations of small returns and the accompanying stress.
  10. Trading is a profession like any other, and requires the same level of discipline and dedication to be successful.
  11. All your profits comes from other trader’s losses. You must beat other traders to be profitable.
  12. Trading is the hardest easy money you will ever make.

BELIEFS

  
  Education
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What you believe, consciously or unconsciously, propels your trading in its many directions.  It might be so simple a matter as whether you believe a market is going up or down or nowhere.  Traders have biases that distort their perceptions and effect their actions, and they need to guard against these with various protections and bias detectors.

Other beliefs are more veiled and ubiquitous.  For example, you may consciously intend to make money, but you have a counter impulse that thwarts you due to unconscious beliefs that go against that intention.  Perhaps you unconsciously believe that money is the root of all evil, or that rich people are corrupt, or that there isn’t enough to go around and so you shouldn’t be greedy, or that you should be laying up your treasure in heaven, and not on this earth.  Perhaps on some level you believe you shouldn’t make more money than your parents.

When you want something, you have to really want it and not be ambivalent about it.  It has to be your desire, and not some alien value set by your parents or society.  The flower loves the sun, and stretches to receive its rays.  The plant loves water and digs its roots deep seeking the object of its desire.  If you want to make money trading, you really have to admire money and have good purposes for its use.  If you want to be a master trader, you have to be comfortable with that role, and not see trading as wasteful gambling, or an unworthy profession.

Perhaps you believe that you don’t deserve to make money trading, or that you have to work hard for your rewards.  Maybe you believe that only the big boys win, that the market is stacked against the ordinary trader.  Maybe you believe that it’s impossible to make money in the futures markets or, worse, any market.  Maybe you believe it’s possible to make money trading, but it’s not probable that you can keep your winnings.  All such ideas run in opposition to easy and effective trading.

Just as insidiously you may doubt that your system really works, or that it won’t work this time.  Some traders get superstitious: for example, they believe that they always, or tend to, lose money on Fridays, and so, of course, they do.  When any of their superstitious factors occur, somehow they manage to lose.

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