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Amos Hostetter :Invaluable Trading Principles

  1. Try to find a long term trend and ride it up. Stay with the trend and don’t be tempted to grab a quick profit. Patience is one of the most important traits of a trend follower.
  2. Be careful not to be shaken out by market fluctuations. Instead try to sit tight as long as there are no warnings showing up. Prices that come back so that your initial gain halves are not necessarily a reason to sell.
  3. Big wins can only be achieved with major trends. Find them and don’t hesitate to buy at high prices when you may think it is too late. A market is never too high to buy or too low to sell.
  4. Necessary is of course a stop loss near the entry point. A stop is the easiest way to put your capital at work on a trend, because otherwise you are too often and too long stuck in a trading market which goes nowhere or worse in a falling market.
  5. Absolutely forbidden is averaging down or fighting the market trend.
  6. To think that a market is cheaper now after prices came down and therefore must offer a better chance than it did when prices were higher, will put you in the wrong stocks at the wrong times.
  7. Never try to sell at the top. The trend may continue. Sell after a reaction if there is no rally.
  8. On the other hand don’t expect the market to end in a blaze of glory. Look out for warnings.
  9. Tape reading can tell you only that something is wrong. Don’t try to analyze the flow of transactions as the tape shows them in too much detail.
  10. Don’t look for breaks. Look out for warnings.
  11. Pyramid stocks only if the initial investment shows a gain.
  12. Look out for normal market behavior. If a market doesn’t act right, don’t touch it.
  13. If in a bear market a complete demoralization develops suddenly it may be a sign for a starting bull market.
  14. Observation of the market gives the best tips of all. Follow your experience to exploit them, while sticking to facts only.

Laws of Speculation

1. Never Overtrade. To take an interest larger than the capital justifies is to invite disaster. With such an interest a fluctuation in the market unnerves the operator, and his judgment becomes worthless.

2. Never “Double Up”; that is, never completely and at once reverse a position. Being “long,” for instance, do not “sell out” and go as much “short.” This may occasionally succeed, but is very hazardous, for should the market begin again to advance, the mind reverts to its original opinion and the speculator “covers up” and “goes long” again. Should this last change be wrong, complete demoralization ensues. The change in the original position should have been made moderately, cautiously, thus keeping the judgment clear and preserving the balance of the mind.

3. “Run Quickly,” or not at all; that is to say, act promptly at the first approach of danger, but failing to do this until others see the danger, hold on or close out part of the “interest.”

4. Another rule is, when doubtful, reduce the amount of the interest; for either the mind is not satisfied with the position taken, or the interest is too large for safety. One man told another that he could not sleep on account of his position in the market: his friend judiciously and laconically replied: “Sell down to a sleeping point.”