20 Golden Rules for Traders

Want to trade successfully? Just choose the good positions and avoid the bad ones. Poor trade selection takes a heavy toll as it bleeds your confidence and wallet. You face many crossroads during each market day. Without a system of discipline for your decision-making, impulse and emotion will undermine skills as you chase the wrong stocks at the worst times. 

Many short-term players view trading as a form of gambling. Without planning or discipline, they throw money at the market. The occasional big score reinforces this easy money attitude but sets them up for ultimate failure. Without defensive rules, insiders easily feed off these losers and send them off to other hobbies. 

Technical Analysis teaches traders to execute positions based on numbers, time and volume.This discipline forces traders to distance themselves from reckless gambling behavior. Through detached execution and solid risk management, short-term trading finally "works". 

Markets echo similar patterns over and over again. The science of trend allows you to build systematic rules to play these repeating formations and avoid the chase:

1. Forget the news, remember the chart. You're not smart enough to know how news will affect price. The chart already knows the news is coming. 

2. Buy the first pullback from a new high. Sell the first pullback from a new low. There's always a crowd that missed the first boat. 

3. Buy at support, sell at resistance. Everyone sees the same thing and they're all just waiting to jump in the pool. 

4. Short rallies not selloffs. When markets drop, shorts finally turn a profit and get ready to cover. 

5. Don't buy up into a major moving average or sell down into one. See #3. 

6. Don't chase momentum if you can't find the exit. Assume the market will reverse the minute you get in. If it's a long way to the door, you're in big trouble. 

7. Exhaustion gaps get filled. Breakaway and continuation gaps don't. The old traders' wisdom is a lie. Trade in the direction of gap support whenever you can. 

8. Trends test the point of last support/resistance. Enter here even if it hurts. 

9. Trade with the TICK not against it. Don't be a hero. Go with the money flow. 

10. If you have to look, it isn't there. Forget your college degree and trust your instincts. 

11. Sell the second high, buy the second low. After sharp pullsbacks, the first test of any high or low always runs into resistance. Look for the break on the third or fourth try. 

12. The trend is your friend in the last hour. As volume cranks up at 2:30pm don't expect anyone to change the channel. 

13. Avoid the open. They see YOU coming suck3r.

14. 1-2-3-Drop-Up. Look for downtrends to reverse after a top, two lower highs and a double bottom. 

15. Bulls live above the 200 day, bears live below. Sellers eat up rallies below this key moving average line and buyers to come to the rescue above it. 

16. Price has memory. What did price do the last time it hit a certain level? Chances are it will do it again. 

17. Big volume kills moves. Climax blow-offs take both buyers and sellers out of the market and lead to sideways action. 

18. Trends never turn on a dime. Reversals build slowly. The first sharp dip always finds buyers and the first sharp rise always finds sellers. 

19. Bottoms take longer to form than tops. Greed acts more quickly than fear and causes stocks to drop from their own weight. 

20. Beat the crowd in and out the door. You have to take their money before they take yours, period. 

All written materials-© 1999 Brooke Publishers, Inc

 some i can comment on...

1. Forget the news, remember the chart. You're not smart enough to know how news will affect price. The chart already knows the news is coming.more correctly, no knows how news WILL affect trading. therefore, it's better to look at charts since everyone else does. and if everyone has the same sentiment(s) you'll get a better feel. 

2. Buy the first pullback from a new high. Sell the first pullback from a new low. There's always a crowd that missed the first boat.

this means don't push your luck. one cycle for buying and selling should be enough.

3. Buy at support, sell at resistance. Everyone sees the same thing and they're all just waiting to jump in the pool. 

a support line is an alignment of several actual lows in a price chart over time. the consistency of alignment tells you how 'strong' this support is. since it's a line, you can project it to future periods. same thing for resistance (an alignment of actual highs).

4. Short rallies not selloffs. When markets drop, shorts finally turn a profit and get ready to cover. 

i don't follow this. in a rally, you take a long position but make sure you get out early (no telling how long this rally will last). don't short it! you're not sure if it will go down before the t+4 period ends!

5. Don't buy up into a major moving average or sell down into one. 

a moving average gives a significant lag in indication. 'centering' the MA will help but the lag can never be eliminated . the longer the interval of averaging, the bigger the lag. better to superimpose two MAs for the same stock: one very long and one very short. an impending convergence/divergence will give you a LEAD indicator.

6. Don't chase momentum if you can't find the exit. Assume the market will reverse the minute you get in. If it's a long way to the door, you're in big trouble. 

BUZZZ! not familiar with momentum/oscillation charts.

7. Exhaustion gaps get filled. Breakaway and continuation gaps don't. The old traders' wisdom is a lie. Trade in the direction of gap support whenever you can. 

can't commetn on this either.

8. Trends test the point of last support/resistance. Enter here even if it hurts. 

a 'trend' is a long-term direction (denoted by a line whether straight or curved), regardless of deviations due to cyclicity (every few years) or seasonality (changes within a year). its limits, long-term support and long-term resistance, will definitely be a good guide when to buy or sell.

9. Trade with the TICK not against it. Don't be a hero. Go with the money flow. 

uhhhh.. what are TICKs?

10. If you have to look, it isn't there. Forget your college degree and trust your instincts. 

bummer... if this is true then why do they prefer ivy leaguers in the US and top-4 schools here. maybe what he's saying is a funadamental analysis may not come quick enough when trying to decide a trade within the day.

11. Sell the second high, buy the second low. After sharp pullsbacks, the first test of any high or low always runs into resistance. Look for the break on the third or fourth try. 

inulit lang nya.

12. The trend is your friend in the last hour. As volume cranks up at 2:30pm don't expect anyone to change the channel. 

refer to #8

13. Avoid the open. They see YOU coming suck3r.

they'll see you only if you post your transaction long before the bell sounds off. post only when you're ready and make sure it gets done quick.

14. 1-2-3-Drop-Up. Look for downtrends to reverse after a top, two lower highs and a double bottom. 

not sure. i think he's referring to a head-and-shoulder or even a multiple-shouldered head.

15. Bulls live above the 200 day, bears live below. Sellers eat up rallies below this key moving average line and buyers to come to the rescue above it. 

this is wall street standard. in the phils, there's nothing to forecast beyond 30 days.

16. Price has memory. What did price do the last time it hit a certain level? Chances are it will do it again. 

not always. it's the minds of people who move the prices. and often, people have short memories.

17. Big volume kills moves. Climax blow-offs take both buyers and sellers out of the market and lead to sideways action. 

not familiar with this jargon.

18. Trends never turn on a dime. Reversals build slowly. The first sharp dip always finds buyers and the first sharp rise always finds sellers. 

again, a trend is a long-term thing and does not reverse easily. don't confuse it with cycles or seasonal

changes.

19. Bottoms take longer to form than tops. Greed acts more quickly than fear and causes stocks to drop from their own weight. 

this is correct. that's why it's better to sell when it's still fallling and to buy only when its going up strong.

20. Beat the crowd in and out the door. You have to take their money before they take yours, period. 

no-brainer.

in my humble opinion. sensya lang medyo nd rin ako magaling mag explain.remember though these r the golden rule nang mga traders.

1. Forget the news, remember the chart. You're not smart enough to know how news will affect price. The chart already knows the news is coming. <-- yup ignore the news. market makers (mm) like to fool around on emotionally driven investors. emotionally driven stocks r very short term n nature. one way to have a very objective technical analysis is to refrain or exclude oneself to noise (news). the less you know the company the better for you to be objective. sa technical analysis all we need r the numbers. what the company does, whos the ceo, what product it sells r not important. a good technician doesnt marry his stock, in fact it threat the stock as a pos (piece of s) so that it wont have anyhesitation to dump if his scenario doesnt met. good example TEL et al (MPC,DGTL,JGS) re news of takeover. for educational purposes only re News/Emotions thinggy: http://www.philstocks.net/ubb/Forum2/HTML/000304.html

2. Buy the first pullback from a new high. Sell the first pullback from a new low. There's always a crowd that missed the first boat. <--usually this is emotionally driven, and as explained in #1, such scenario r very short term in nature. good example (after the fact) Erap's resignation, most stock opened 40-50% higher from their pp's (previous prices). greed is the primary driver on any ist attempt "breakout" (making new high) and fear naman sa "breakdown" (making new low). there's this thing we called false breakouts or breakdowns, whereas nd na sya mag attempt ulit sa high/low.

3. Buy at support, sell at resistance. Everyone sees the same thing and they're all just waiting to jump in the pool. <--not everyone sees the same thing. there's this thing we called bounce (thus the idea buying on support), like sa #2 yung sinasabi na pullback. (btw yung term correction/pullback applies sa isang stock na tumaas o bumaba). same applies sa "sell at resistance", may pullback rin.

4. Short rallies not selloffs. When markets drop, shorts finally turn a profit and get ready to cover. <---

apllicable to #1 sa pullback. sa isang pullback its usually short coverings.

5. Don't buy up into a major moving average or sell down into one. See #3. <--200 day MA is the usual major moving average. usually eto ang ginagamit nang mga instituional investors/ fund manager na basehan kung meron major reversal sa market.

mamalengke pa ako... 2 b cont.

hay labada natapos na rin

6. Don't chase momentum if you can't find the exit. Assume the market will reverse the minute you get in. If it's a long way to the door, you're in big trouble. <--advising investors to set loss stops.

7. Exhaustion gaps get filled. Breakaway and continuation gaps don't. The old traders' wisdom is a lie. Trade in the direction of gap support whenever you can. <-- see enron & worldcom charts.

8. Trends test the point of last support/resistance. Enter here even if it hurts. <-- buy the trend not the price.

9. Trade with the TICK not against it. Don't be a hero. Go with the money flow. <-- ride the trend.

10. If you have to look, it isn't there. Forget your college degree and trust your instincts. <-- no comment, baka may magalit na fund manager but reality bites na most "well-educated" fundman think they can unsmart the market. ego has no place in the street.

11. Sell the second high, buy the second low. After sharp pullsbacks, the first test of any high or low always runs into resistance. Look for the break on the third or fourth try. <-- i don't buy this one. he must be talking about penny stocks.

12. The trend is your friend in the last hour. As volume cranks up at 2:30pm don't expect anyone to change the channel. <-- depends on the market. the theory that most buy specialist eat their lunch around 1pm and back an hr later is pure bs.

13. Avoid the open. They see YOU coming suck3r. <-- 30 minute rule applies. spreads on the pre market r volatile.

14. 1-2-3-Drop-Up. Look for downtrends to reverse after a top, two lower highs and a double bottom. <-- dunno if it tries to preach us about elliot waves. 5 waves up, 3 waves corrective. the pattern though look slike a breakout from a triangle.

15. Bulls live above the 200 day, bears live below. Sellers eat up rallies below this key moving average line and buyers to come to the rescue above it. <-- well explained already.

16. Price has memory. What did price do the last time it hit a certain level? Chances are it will do it again. <-- hala pagagalitan ka nyan nang mga funnymentalist

17. Big volume kills moves. Climax blow-offs take both buyers and sellers out of the market and lead to sideways action. <-- same climax blow-offs sa open prices if may news yung stock, kaya the 30 min rule inaapply. kala nyo tao lang ang horny, market rin

18. Trends never turn on a dime. Reversals build slowly. The first sharp dip always finds buyers and the first sharp rise always finds sellers. <-- short covering on the first sharp dip as well, sama na yung bottom seekers. sa first sharp rise, short positioning naman and profit takers.

19. Bottoms take longer to form than tops. Greed acts more quickly than fear and causes stocks to drop from their own weight. <-- takes time to "base build". which take longer, to build a house or to set it on fire?

20. Beat the crowd in and out the door. You have to take their money before they take yours, period. <-- beat yourself first. tuldok.

:P

emotions i like

i'm basically a chartist. i look for trends, cycles and seasonalities. first i chart the composite index itself, then the index stocks. support and resistance lines are estimated on a daily, monthly and annula basis.

since people look at the composite index for indications of highs and lows in the market, i simply reverse the equation for estimating it and compute the probable closing prices of the 30 index stocks for a given closing of the composite index. this baby of mine works beautifully whenever the big players are trying to sell the market down. once, when the index fell more than 100 points, i guided our brokers when to bottom pick the index stocks. our house netted 3.6 million from house profits and

commissions that day. 

galing ah tamad ako e hehe sa akin ayala stocks & p6 for the overall trend. then individual stocks na for punting.

gamit ko customized oscillators augmented with wedge theory on 15min up to weekly charts. before nung may meta pa ako, customized na on balance volume.

i dont use money flow & 200MA.