1. Do Not Overtrade. Maintain a margin of not less than 10 points on stocks quoted under $50 a share, not less than 20 points on stocks quoted from $50 to $100 a share, and 20% on stocks selling above $100 a share.
2. Limit Losses. Place stops at technical danger points on all trades, and if the location of the danger point is uncertain use a 2-point or 2-point stop, or await a better opportunity.
3. Follow the Trend. Do not buck the trend, and do not hedge. Be either long or short, but not both at the same time.
4. Favor Active Issues. Do not tie up funds in obscure or inactive stocks, and avoid thin-market issues except in long-pull operations.
5. Buy during Weakness. Buy only after reactions confirming higher support.
6. Sell during Strength. Close out on unusual advances at first sign of hesitation; and sell short only after evidence of distribution with lower support followed by lower top.
7. Distribute Risk. Do not concentrate in one issue, but trade in equal lots of several different issues, aloof which are definitely attractive. Avoid spreading over too many different issues.
8. Protect Profits. Never let a 3-point profit run into a loss, and never accept a reaction of over 5 points unless the favorable trend of the stock has been definitely established.
9. Avoid Uncertainty. When the trend is in doubt, stay out. Avoid a trader's market when the ultimate trend is uncertain unless the trade can be protected by a small stop and justifies the risk.
10. Discount Fundamental Outlook. Never ignore fundamental conditions, and always favor the trade wherein fundamental and technical conditions cooperate. Avoid a trade wherein fundamental and technical conditions are opposed, except in cases of imminent liquidation, or overextended short interest.
Eight Rules from T. T. Hoyne
Thomas Hoyne's book on speculation was first published in 1922. The main thrust of his rules tells us to think for ourselves, which is by no means a bad idea.*
1. Speculation is an art. The first principle of every art is to have at the outset a clear conception of the end aimed at.
2. The second great general rule for successful speculation is, Never enter upon any speculation without clearly conceiving precisely the amount of profit that is sought and exactly the amount of loss that will be submitted to in the effort to secure that profit.
3. Every speculator must think for himself.
4. A person must at all times strive to maintain the correct point of view towards the market in which he is trading. This contemplates the effect of the market on himself and other speculators; and their effect upon it.
5. A speculator should first determine never to do anything at all with a haste that precludes forethought.
6. As the first aim of every speculator should be to hold himself free from all crowd influence, he should not, because of greed, at the very outset make his speculation so large in proportion to his available capital that a comparatively small fluctuation against him puts him into a group of speculators psychologically on the verge of fear and on the point of being swept into crowd action.
7. Never should you accept as authoritative any explanation from any other person for a past action of the market. Think out that action for yourself.
8. A speculator must think for himself, and must do his thinking rigidly in accordance with the method of reasoning he has laid down.
Nineteen Rules from Victor Sperandeo
These rules are taken from Victor Sperandeo's excellent book Trader Vic-Methods of a Wall Street Master. * His claim to fame is a successful trading career spanning more than 23 years. The rules are designed principally for short-term traders although many of them could be profitably adopted by people with a longer time horizon. Number 17 is unusual: "Never trade if your success depends on a good execution." This reminds us that if a trade has such a small potential, it should not be done at all. I particularly like number 19, "Know and follow the Rules." After all, what is the point of having rules if you don't use them?
Rule Number 1: Trade with a plan and stick to it.
Rule Number 2: Trade with the trend. "The trend is your friend!"
Rule Number 3: Use stop loss orders whenever practical.
Rule Number 4: When in doubt, get out!
Rule Number 5: Be patient. Never overtrade.
Rule Number 6: Let your profits run; cut your losses short.
Rule Number 7: Never let a profit run into a loss. (Or always take a free position if you can.)
Rule Number 8: Buy weakness and sell strength. Be just as willing to sell as you are to buy.
Rule Number 9: Be an investor in the early stages of bull markets. Be a speculator in the latter stages of bull markets and in bear markets.
Rule Number 10: Never average a loss-don't add to a losing position.
Rule Number 11: Never buy just because the price is low. Never sell just because the price is high.
Rule Number 12: Trade only in liquid markets.
Rule Number 13: Never initiate a position in a fast market.
Rule Number 14: Don't trade on the basis of "tips." In other words, "trade with the trend, not your friend." Also, no matter how strongly you feel about a stock or other market, don't offer unsolicited tips or advice.
Rule Number 15: Always analyze your mistakes.
Rule Number 16: Beware of "Takeunders."
Rule Number 17: Never trade if your success depends on a good execution.
Rule Number 18: Always keep your own records of trades.
Rule Number 19: Know and follow the Rules!
Bibliography
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Index
Table of Contents
Part I
Part II
Part III
Introduction
PART I KNOWING YOURSELF
1. There Is No Holy Grail
2. How to Be Objective
3. Independent Thinking
4. Pride Goes Before a Loss
5. Patience Is a Profitable Virtue
6. Staying the Course
PART II THE WALL STREET HERD
7. A New Look at Contrary Opinion
8. When to Go Contrary
9. How to Profit from Newsbreaks
10. Dealing with Brokers and Money Managers the Smart Way
PART III STAYING ONE STEP AHEAD
11. What Makes a Great Trader or Investor?
12. Nineteen Trading Rules for Greater Profits
13. Making a Plan and Sticking to It
14. Classic Trading Rules
Bibliography
Index
An alternative to using a single guide is to follow a number of different experts simultaneously. Th
The Cult of the Guru*
Investor's Intelligence, *
I mentioned in an earlier chapter that it pays to be skeptical when reading comments volunteered by
Baruch listed these rules in his autobiography Baruch: My Own Story. Starting as an office boy at th
high stress, the potential for personal problems is much greater than it ever was. It is impossible
S.A. Nelson wrote around the turn of the century. Some of his rules relate to concepts that are diff
Peter Wyckoff was a well-known Wall Street research analyst of the 1960s. In his book, he lists a nu
W. D. Gann wrote a great deal about the markets. These rules were taken from his book How to Make Pr
Frank Williams book, originally published in 1930, contains numerous rules. One important area he se
emotional make-up." He was no doubt influenced in making this statement by some of Wolf's rules, whi
Thomas Hoyne's book on speculation was first published in 1922. The main thrust of his rules tells u
These rules are taken from Victor Sperandeo's excellent book Trader Vic-Methods of a Wall Street Mas
Investment Psychology Explained Page 26
