AAA-Golden Rules of Trading

8/3/2019 AAA-Golden Rules of Trading

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Golden Rules of Trading.txt

GOLDEN RULES OF TRADING (http://www.alberdon.demon.co.uk/)

A) Trading runs in cycles; some good; most bad. Trade large and aggressively whentrading well, trade small and modestly when trading poorly. In good times, evenerrors are profitable; in bad times even the most well researched trades go awry.This is the nature of trading, accept it.

B) Be patient with winning trades; be enormously impatient with losing trades.

C) Understand that the market is the sum total of the knowledge and wisdom of all ofthose that deal in it; we dare not argue with the market's wisdom. If we learnnothing more than that, we have learned very much indead.

D) Resist the urge to trade against the consensus too early. The consensus may bewrong at major turning points, but it is right and can remain right for long periodsof time in the midst of a great move. Patience, rather than impatience, is farbetter when considering any trade

E) When you have a successful trade, fight the natural tendency to give some of itback.

F) Take windfall profits (profits that have no sound reasons for occurring).

G) Always use stop orders,(Limit losses) always...always...always.

H) Don't sell when price nears a major MA when the price action has been all abovethe MA, same goes for not buying when price nears MA in a down-trend. This ruleshould be applied when the MA is angled either upward or downward (trending market).Nearing the MA presents an oppotunity to enter the market. (essentially: wait toenter for a pull-back)

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1) The most important rule is this: In a bull market, one can only be bullish, or onthe sidelines. The correlative rule is that in a bear market the opposite applies.

2) Buy that which is showing strength, sell that which is showing weakness.Metaphorically, when bearish we need to throw our rocks into the wettest papersacks, for they break most readily. In bull markets, we need to ride upon thestrongest winds...they shall carry us higher than lesser ones.

3) After a period of unprofitable trading, take a break. Stop, cease and desist!Give yourself some time to let the mental damage done by poor trading abate.

4) Avoid trading on emotion. Trade when and only when a trade has been well planned,including exit points as well as profits. (I believe that profit targets aresometimes not applicable in long bull or bear runs)

5) Add to trades on minor corrections against the major trend. 50-62% retracementsare very common in bull runs, whilst retracements in bear markets are much swifter,usually smaller, and of shorter duration. Use those corrections to add to positions.After sharp break-outs to either the upside or the downside, wait for a smallcorrection to add.

6) Be patient. If a trade is missed, wait for a correction to put trade on. Themarket will trade tomorrow.

7) Be Patient. Once a trade is put on, give it time to work; give it time toinsulate itself from random noise; give it time for others to see the merit of whatyou saw earlier than they.

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Golden Rules of Trading.txt8) Be patient. There is no old trading adage that has done more harm than "you nevergo broke taking a profit". Taking small profits is one sure way to ultimate loss.Money in speculation is made from a few large trades each year that are sat withpatiently, understood and exited professionally.

9) Be very impatient. It goes without saying that small and quick losses are thebest losses. Not only for obvious reasons, but to free up capital for otherprofitable trades.

10) Never, ever, under any circumstances, no matter what, add to a losing trade. Itmakes no sense to do so, for the market is telling you that you are wrong, Whenbuying, buy at progressively higher prices for in so doing the market adds to yourequity. In selling, sell at progressively lower prices.

11) Think like a fundamentalist; trade like a technician. Trade when the tecnicalsand fundamentals, as you understand them, run in tandem.

12) Outside reversals at new contract highs or lows are are powerful technicalsignals that should be respected and generally acted upon. Reversal days on thecharts signal the final exhaustion of the bullish or bearish forces that drove themarket previously. Respect them. We may not wish to reverse out position, but wemust at minimum learn to avoid trading in the old trend's direction. And even more

important shall be the respect paid to weekly and the even more rare, monthlyreversals. Pay heed!

13) First positions should be established on strength in bull markets or weakness inbear markets. The second addition must also be added on strength as the market showsthe trend to be working. The third and subsequent additions are to be added onretracements.

14) The rule is not to buy low and sell high, but to buy high...sell higher. one cannever be certain how far to the upside nor the downside prices can run, but you canbe certain that prices will run much farther than anyone might imagine once a trendhas begun.

15) When trading well, trade larger. It is amazing how clearly one can thinksometimes,

and how clearly the markets reveal themselves at such times, Take advantage of them,and be humble!

16) When adding to a trade, add only 1/4 to 1/2 again as much as currently beingheld. In so doing, even if one adds at the worst possible price, even a 50%correction will leave the entire trade profitable, giving you the ability to weathercorrections and to hold your position for the long term trend.

17) Think like a mercenary guerilla warrior. Fight on the winning side rather thanupon the side you hope might win. Discern which side of any trade has the most meritand then deploy your forces and capital accordingly.

18) The last 10% of a bull run in time often encompasses 50% or more of the entireprice movement.Most of the action in any market move takes place near the end ofthat move. If you miss the first two thirds of the entire duration of any bull orbear market, you've missed only a small portion of the price move.

19) More often than not, extreme volatility at the end of a long bull run marks thehighs. More often than not, extremely low volatitliy at the end of a long bear runmarks the lows.

20) Bear markets are more violent than bull markets and usually retrace less.

21) It is normal for markets to correct very sharply for one or two days after thefirst leg of a bull run. Those corrections are often the best buying opportunities,for the market has already proven its willingness to rise. The correction is often

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Golden Rules of Trading.txtmarked with doubt on the part of most market participants.

22) Being a contrarian doesn't mean that one must fade every rally or every break.Contrary opinion is really only useful at very major yurning points.

23) Information from the floor as to who is buying and who is selling is useless.The floor does not care what you do; neither should you care what the floor isdoing. Rumours circulate more quickly and are filled with more useless informationthan from perhaps any other source known to speculators in aggregate.

24) A central bank that must support its currency through intervention should betested and re-tested and re-tested again, for eventually taht support wlii fall andprices will move to the proper economic levels dictated by the market.

25) When you reach for your pocket calculator in a state of euphoria to add up howmuch money the next price change will make for you, lighten up the position; or moreeuphemistically 'When you're yellin', you should be sellin' and when you're ctyin'you should be buyin'!

26) Pay attention to spreads, for they tell you what is going on within the marketitself. Widening carring charges are evidence of lack of demand and are usuallyassociated with falling prices. Inverted markets, or markets heading for an

inversion, mean that demand is growing and are supportive of higher prices.

27) A market that will not go up, or that goes up quickly and then falls on bullishnews (especially after a sustained rally) is very likely finished rising. Thereverse is obviously true for bear markets.

28) Always buy the first day of a gap higher or sell the first day of a gap lower.Gaps on charts indicate violent new buying (or selling). Respect it, and add to theposition if the gap is still open three days later.

29) Avoid complex technical systems. The great traders keep things simple and areadaptable.

30) Know when it is proper to break the rules, all of which are breakable except foradding to a losing position. This rule must never be broken.

31) Most of the time a solid understanding of mass psychology is far more importantthan good economics.

32) The most dangerous words in trading are: It's gone too far too fast. Moremistakes are made by taking profits too quickly, or even worse, by covering one'sprofitable position and then taking the opposite side of the market because it'sgone too far too fast. Nothing is sadder in the realm of trading than seeing aconfirmed bull on a bullish market reduce his or her position and then reverse thatposition, only to see the market continue higher shortly thereafter. Something thathas gone is proving its merit on the upside; something that has fallen too quicklyis proving its merit on the downside.

33) Look to spread markets that historically run in tandem and which fundamentalanalysis indicates might begin to run in contravention. When long-term historicalrelationships are broken, the price movements can be explosive! Watch fordivergences in related markets-is one market making a new high and another notfollowing?

34) Margin calls are the market's way of telling you that your analysis is wrong.Never meet a margin call...liquidate your position instead.

35) Markets move to the obscene number. It is always amazing how prices move tolevels no-one imagined, and in the process are drawn to numbers that are large,round, and which become siren songs for the trading public. 100 Yen/Dollar, or 1000Lira/Dollar, or 40,000 Nikkei, or $50 Silver....All are examples of what we refer to

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Golden Rules of Trading.txtas obscene numbers. The market each time toward those figures, may have reached themprecisely or failed to reach them by the barest of margins. The numbers became amagnet that drew the market upward or downward. Panic, or its oppisite, euphoria,often accompany the drive toward the obscene number. Plan accordingly.

36) Markets can remain illogical far longer than you can remain solvent. Theacademics tell us that markets are rational; most of the time however they are not,and meander about in illogical, short-term trends, intent upon doing damage to yourcapital and to your mental well-being.

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i) Maximize Your Profits, Not the Number of Trades.

ii) Be Patient Enough to Wait for Good Trades.

iii) Immediately Close Your Position When the Initial Conditions Are Disrupted.

iv) Make a Decision About the Stop Level Before Entering a Position.

v) Return to a Trend if Your Previous Assumptions Turn Out to Be Wrong and the Trendis Progressing.

vi) Focus on Big Market Moves. Don't Try to Catch Small, Noisy Fluctuations.

vii) Focus on Price Patterns and Formations Rather than the Price Levels orSupport-Resistance Levels. (Except a confluence of support or resistance)

viii) Make Your Own Trading Plan.___________________________________________FIB THOUGHTS----- Many traders can't figure out where to start a Fib grid. Here's atrick to help you place it where it'll do the most good. The absolute high or low ina price wave isn't the best starting point for a grid most of the time. Swing oneend of the grid over this second high (or low), instead of the first. This willcapture a specific Elliott Wave that conforms to the trend you're trying to trade.

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AAA-Golden Rules of Trading