2. Trade Like A Mercenary Guerrilla: You must fight on the winning side and be willing to change sides readily when one side has gained the upper hand. There is nothing wrong with switching from bullish to bearish and vice-versa, there is everything wrong with being obstinate and stubborn.
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. Risk Management is vital, but at least equal is self-management; learn to walk-away, ‘you can always fight another day’. 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 Sell Higher: We can never know what price is the 'low', nor can we know what price is the 'high'. Do not be afraid to buy what you worry may be a top, it may soon be a long way from being the top. This is a check on worrying about looking stupid, in truth ‘no one else really cares’, remember that!
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. Fighting trends saps a lot of mental energy, see 3 above. [Note: There should be an exception to this rule for dedicated contrarians, they are anticipating the ends of trends.]
6. Markets Can Remain Illogical Far Longer Than You Or I Can Remain Solvent: Courtesy of the inimitable John Maynard Keynes. - We like to believe the market is full of people making rational logical decisions, think again most of them are reacting to emotional impulses. See our ‘Chimp Paradox article’ for further elaboration.
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Read the article Here
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7. Sell Markets That Show The Greatest Weakness, 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... they shall carry us higher than shall lesser ones. (Such good advice, but so rarely heeded.)
8. 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.
9. 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 technical’s. When we do, then, and only then, can we or should we, trade. (Personally, I don’t fully subscribe fully to this one, but then who am I to question it.)
10. Keep Your Systems Simple. KYSS: Complicated systems breed confusion; simplicity breeds elegance. In other words, ‘Less is often more’, and ‘Simplicity is beauty’
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To find out more about participating in the exceptional Alpha R Cubed 'Behavioural Performance Coaching Programme', used by leading Hedge Funds and Investment Banks, email info@alpharcubed.com.
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11. An Understanding Of Mass Psychology Is Often More Important Than An Understanding Of Economics. Markets are driven by human beings making human errors and also making super-human insights. Refer again to the ‘Chimp Paradox' article, markets are not being moved by thousands of Dr Spocks, but rather by the impulsive whims of herding mammals and battling tribes.
12. Bear Markets Are More Violent Than Are Bull Markets And So Also Are Their Retracements: In a bear market everyone flees for the exit at the same time, liquidity is not guaranteed in these times.
13. Be Patient With Winning 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. (Advice as old as the markets themselves. - Heed it)
14. The Market Is The Sum Total Of The Wisdom And The Ignorance Of All Of Those Who Deal In It; And We Dare Not Argue With The Market's Wisdom. If we learn nothing more than this we've learned much indeed. In other words, ‘the market is always right’, it is never wrong, but you are, often.
15. 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 to be bought; new lows sold. A variation on points 4 and 7 with an added twist, just shows how important this is.
16. 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. If you are buying, and everyone else is long and buying, then soon who will be left to buy, there is probably not much upside left: This takes skill to get right.
17. 'There Is Never One Cockroach!’ This is a late addition to Gartman’s timeless rules. – I love this phrase, write it down somewhere visible and keep reminding yourself about this.
Good luck. Trading is never easy, only very few make it through boot camp. If they have its likely they have adhered too many of these rules. There is one other rule however, which every great trader somehow manages to achieve: I don’t recommend trying it until you are way past bootcamp. It is this one: 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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Steven Goldstein is a leading Performance and Executive Coach working with Traders, Banks and Hedge funds: He is Managing Director of at Alpha R Cubed, which works with banks and investment firms to improve their human capital within financial risk businesses. To know more about Alpha R Cubed, visit their website www.alpharcubed.com or email Steven at steven.goldstein@alpharcubed.com.
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