Dennis Gartman's Trading Rules List
Some food for thought for the weekend. Trading rules
from great traders are always worth reading. If you spend some time to
understand the concept behind each trading rule this will improve your
trading skills and take you to the next level. Also check this video
where Dennis Gartman talks about the concept of keeping it simple.
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
“low.” Nor can we know what price is “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…
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.
11. Respect “outside reversals” after extended bull
or bear runs. Reversal days on the charts signal the final exhaustion of
the bullish or bearish forces that drove the market previously. Respect
them, and respect even more “weekly” and “monthly,” reversals.
12. Keep your technical systems simple. Complicated systems breed confusion; simplicity breeds elegance.
13. Respect and embrace the very normal 50-62%
retracements that take prices back to major trends. If a trade is
missed, wait patiently for the market to retrace. Far more often than
not, retracements happen… just as we are about to give up hope that they
shall not.
14. 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.
15. Establish initial positions on strength in bull
markets and on weakness in bear markets. The first “addition” should
also be added on strength as the market shows the trend to be working.
Henceforth, subsequent additions are to be added on retracements.
16. Bear markets are more violent than are bull markets and so also are their retracements.
17. 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.
18. 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.
19. 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.
20. 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. Peter Steidlmayer taught us this twenty five years ago and it holds truer now than then.
21. There is never one cockroach! This is the “winning” new rule submitted by our friend, Tom Powell.
22. All rules are meant to be broken: The trick is knowing when… and how infrequently this rule may be invoked!