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DENNIS GARTMAN’S NOT-SO-SIMPLE RULES OF TRADING

  
  Education
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1. Never, Ever, Ever, Under Any Circumstance, Add to
a Losing Position… not ever, not never! Adding to losing positions is
trading’s carcinogen; it is trading’s driving while intoxicated. It will lead to
ruin. Count on it!

2. Trade Like a Wizened Mercenary Soldier: We
must fight on the winning side, not on the side we may believe to be correct
economically.

3. Mental Capital Trumps Real Capital: Capital
comes in two types, mental and real, and the former is far more valuable than
the latter. Holding losing positions costs measurable real capital, but it costs
immeasurable mental capital.

4. This Is Not a Business of Buying Low and Selling
High; it is, however, a business of buying high and selling higher.
Strength tends to beget strength, and weakness, weakness.

5. In Bull Markets One Can Only Be Long or
Neutral, and in bear markets, one can only be short or neutral. This may
seem self-evident; few understand it however, and fewer still embrace it.

6. “Markets Can Remain Illogical Far Longer Than You
or I Can Remain Solvent.” These are Keynes’ words, and illogic does often
reign, despite what the academics would have us believe. (more…)

Why Most Investors and Nearly All Traders Lose Money

  
  Education
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I strongly suggest that you do not confuse being an Investors with being a Trader. I’ve been pointing out for many years that the Stock Market is greatly influenced by day-traders, flash-traders, program-trading firms, in for quick trades of a few hours, a couple of days at most, and back out again. That’s not Investing and certainly not Investing Wisely.

The problem for Investors is that they have for decades, for the most part, considered themselves to be Buy and Hold Investors, (married to the stocks and mutual funds) through both good times and bad. When they finally get discouraged, (and they do!)they get out, usually due to large losses, and they tend to stay out for very long periods. An excellent current example is / are those who have been on the sidelines since the big bear market plunge of October 2007 through early last year, not enticed back in for even part of the new bull market of last year plus.

They (Mutual Fund Investors) tend to listen to Wall Street saying they need to have a long-term perspective when their stocks and mutual funds are plunging 25% – 50% and more, and so hold on. When they do decide to ‘reposition’ their portfolio they tend to listen to mutual fund managers, and brokerage firm sales persons and spokesmen on TV shows and in magazines, advising them to buy a stock that should be 30% higher 24 months from now, without considering that it might first be 30% lower three or more months from now.

Historically (way back when) Buy and Hold strategies and long-term outlooks work well in secular bull markets, when there is /was much less downside risk, when bear markets are more spaced out, less severe, and short-lived. In secular bull markets the long term trend is up, and when bear markets end the market ‘comes back’ to its previous high in the next cyclical bull market and continues on to still higher highs, continuing to be interrupted by only occasional mild bear markets.

Those days are gone and possible gone forever.

It’s the cyclical bull markets that are temporary, not exceeding previous highs before the next cyclical bear market takes the market back down again. In both secular and cyclical bear markets Buy and Hold is probably the worst imaginable investment strategy. Not only does it not produce gains, but even the most determined Buy and Hold investors are likely to give up with the worst of timing, after their losses have become larger than they can handle either financially or emotionally. (more…)

DENNIS GARTMAN’S -Trading Rules

  
  Education
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1. Never, under any circumstance add to a losing position! Ever! Nothing more need be said; to do otherwise will eventually and absolutely lead to ruin!
2. Trade like a mercenary guerrilla. We must fight on the winning side and be willing to change sides readily when one side has gained the upper hand.
3. Capital comes in two varieties: Mental and that which is in your pocket or account. 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 too low. Nor can we know what price is too high.  Always remember that sugar once fell from $1.25/lb to 2 cent/lb and seemed cheap many times along the way.
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, 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 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, throw your rocks into the wettest paper sack, for they break most readily. In bull markets, we need to ride upon the strongest winds as they shall carry us higher than shall lesser ones.
8. Try to trade the first day of a gap, for gaps usually indicate violent new action. We have come to respect gaps in our nearly thirty years of watching markets; 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 also that we understand the market’s technicals. When we do, then, and only then, can we or should we, trade. (more…)

Three Ways to Know You Shouldn’t Trade

  
  Education
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  The question of whether someone really should not be a trader is one that’s not often brought up in discussions between market participants. It’s almost as if the baseline assumption is that the sole criteria is that you want to trade. While I’m a believer in the view that just about anyone can learn, there are limits to that. Ignoring the obviously physical and mental disabilities, here are the ones I think are most important.

Lack of Impulse Control
If you cannot keep yourself from acting on impulse – meaning making snap decisions without a plan – then you’re likely not going to do well in trading. Successful trading means applying a consistent edge. That, in turn, requires a plan that is being followed, not making random trades when the mood hits.

There is probably some confusion here when the subject of gut instinct comes into play. Here’s the deal, though. If you’ve only just started trading, you have no gut instict. That comes from long experience. If you’re a rookie making gut trades, for your own good you should stop now. Any success you’ve had to this point is almost certainly a function of luck, not skill.

A Troubled Emotional State
We all go through periods when we’re in a mixed up emotional state. It could be relationship issues, family difficulties, the death of a loved one, stress at work, or any number of other things that put you off your game. These are not good times to trade. Granted, trading can be an escape from the emotional strains in some cases, but that’s only if the trader can consistently execute their normal work and strategy without it being impacted by what’s going on in the rest of their life.

Trading has a way of really exposing emotional problems, even among the most stable of individuals. If you’ve already got some mental strains going on, trading is likely to either make it worse, or to see you feed on that emtion in destructive ways – like trading angry. It is best to stay clear of the markets when these sorts of things happen if there’s any chance of spill-over or distraction.

Looking for a Quick Buck
Trading is not a get rich quick program. Any systems or broker ads that lead you believe otherwise are being deceptive. As any trader who’s been around more than a year will tell you, trading is a marathon, not a sprint. If you come into the market looking to make a fast killing you are almost certainly going to blow your trading account up because you’ll end up taking much too much risk. Basically, you’ll be a gambler rather than a trader. (more…)

Diary of a Professional Commodity Trader -Book Review

  
  Education
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Brandt uses high/low/close bar charts as his primary trading (not, he stresses, forecasting) tools. He is for the most part a longer-term discretionary pattern trader who enters on breakouts that meet his stringent requirements. Since he knows that only 30 to 35% of his trades will be profitable over an extended period of time and up to 80% will be unprofitable over a shorter time frame, he is exceedingly cautious about leverage. For instance, his trading assets committed to margin requirements rarely exceed 15%.

In the first two parts of the book Brandt offers the reader a thorough course in identifying and categorizing trading signals, placing initial protective stops and subsequent trailing stops, pyramiding, and taking profits. The course addresses traders at all skill levels. For instance, he describes his own trading plan as simple, but some of its elements require a degree of judgment and sophistication that can only come with extensive practice. One example: “time phasing is a hurdle all traders must clear in order to be consistently successful.” (p. 88)

The third part of the book is Brandt’s five-month trading diary, and it’s a fascinating read. Not only does it describe individual trades but it shows how good traders evolve. Take month four, where the author is in a drawdown period. He writes that he has always known that there were flaws in his trading plan but that “good times provide cover for the deficiencies of a trading plan.” During tough times “markets have a way of exploiting flaws in a trading plan. … The challenge is to find the fundamental flaws, not just to make changes that would have optimized trading during the drawdown phase. … Almost always the changes [the author has made to his own plan] have dealt with trade and risk management, not with trade identification.” (p. 189) (more…)

List of Things I Do When I Plan a Trade

  
  Education
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planfirst1. My better trades come when I have found a place to quietly think about the trade idea, before I take the trade. I lay down for a few minutes and let my mind roam. This settles me down at an otherwise tense moment. It also allows me to clearly consider what I like or don’t like about the trade.

2. It’s important to me to ignore outside influences when I am planning a trade. I’d rather pay attention to my own reasons for the trade, instead of someone else’s views of the currency pair that have nothing to do with the indicators and other things that I look at when wanting to buy or sell. (more…)

18 -Wisdom One Liners for Traders

  
  Education
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1. You will be tested mentally and emotionally this is not for the weak minded.

 2. Master Traders are detached emotionally from profit or loss. 

3. Boredom is the enemy of the master opportunist.

4. Haste is the enemy of great entry points.

5. Doubt is often followed by a lost opportunity.

6. The Trend will give you direction on your path.

 7. Having an exit strategy prevents unnecessary pain.

8. The laws of probability give strength to your fingers.

 9. Going against momentum brings forth the fools reward. 

10. Better the bad trade that is unrewarding. 

11. Habit is built on the principles of probability.


12. Know your exit point in the worst case scenario first.
13. The master trader is an escape artist.
14. When one knows the present they master the futures.

15. Set realistic goals and let the good times role.


16. A loss can be turned into a win when one is swift.
17. A master in day trading trades in an egoless state.

 18. Times of great probability are like diamonds falling from the sky.

How full is your cup?

  
  Education
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I stumbled across an interesting article recently, about ‘Market Timing’.  We can all relate to spending hours on trying to pick the trough or top of a market cycle, or congratulate ourselves on getting in at the bottom and riding a sp to its peak.

This article goes on to explain that Market Timing is perhaps not that important, it all comes down to the individual’s mind-set around wealth. 

“You have probably seen this phenomenon: there are successful investors that can make money regardless of the market conditions. They make good money during good times, and they make even better money during bad times.

To these successful investors, there is one thing that is constant: they make money regardless of changes in the market. Market Timing seems to have very little effect on them.

You have probably also seen the opposite phenomenon: there are investors that would lose money even when the market was doing great. These investors lose money during good times, and lose even more money during bad times.

To these unsuccessful investors, there is one thing that is constant: they lose money regardless of changes in the market. Market Timing also seems to have very little effect on them. “

Hmm, now there’s something to think about.  Imagine having the good fortune to enter the market at ANY time and still make money. 

The author goes on to get you to think of money as water and it seems that some people have a fixed sized cup to hold money – whenever they get near the cups maximum threshold one of life’s challenges comes along to ensure their cup never overflows.

So what we NEED to do, is to consciously make an effort to increase the size of our cup (the invisible mental capacity for wealth), and then we won’t really need to worry about Market Timing at all!

Sounds like a plan to me – I’ll order a beer stein.

18 Trading Wisdom for Traders

  
  Education
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1. You will be tested mentally and emotionally this is not for the weak minded.

 2. Master Traders are detached emotionally from profit or loss.

3. Boredom is the enemy of the master opportunist.

 4. Haste is the enemy of great entry points.

5. Doubt is often followed by a lost opportunity.

6. The Trend will give you direction on your path.

 7. Having an exit strategy prevents unnecessary pain.

8. The laws of probability give strength to your fingers.

 9. Going against momentum brings forth the fools reward.

 10. Better the bad trade that is unrewarding.

 11. Habit is built on the principles of probability.

12. Know your exit point in the worst case scenario first.

13. The master trader is an escape artist.

14. When one knows the present they master the futures.

 15. Set realistic goals and let the good times role.

16. A loss can be turned into a win when one is swift.

17. A master in day trading trades in an egoless state.

 18. Times of great probability are like diamonds falling from the sky.

Trading Wisdom Not Heard Often

  
  Education
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  • Buy from the scared, sell to the greedy.
  • Buy their pain, not their gain.
  • Successful traders are quick to change their minds and have little pride of opinion.
  • I made my money because I always got out too soon. (Bernard Baruch)
  • Don’t try to buy at the bottom and sell at the top. It can’t be done except by liars. (Bernard Baruch)
  • Throughout all my years of investing I’ve found that the big money was never made in the buying or the selling. The big money was made in the waiting. (Jesse Livermore)
  • The faster a stock has climbed, the quicker it will fall.
  • The more certain the crowd is, the surer it is to be wrong. (Menschel)
  • Bear markets begin in good times. Bull markets begin in bad times
  • Never confuse genius with a bull market.
  • Always sell what shows you a loss and keep what shows you a profit
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