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Dennis Gartman has become a bit of a joke. While TV appearances and social media were not good for his career, there was a period where I read his letter every day and it was informative. Every year at Thanksgiving week, he'd post his trading rules, they're actually great:
1. NEVER, EVER, EVER ADD TO A LOSING
POSITION: EVER!: Adding to a losing position will
almost always lead to ruin. All great market humiliations
are first preceded by one man or one group of men doing
otherwise: The Nobel Laureates of LTCM; Nick Leeson & Jon Corzine.
POSITION: EVER!: Adding to a losing position will
almost always lead to ruin. All great market humiliations
are first preceded by one man or one group of men doing
otherwise: The Nobel Laureates of LTCM; Nick Leeson & Jon Corzine.
2. TRADE LIKE A MERCENARY FIGHTER: As traders/investors we are to fight on the winning side of the trade, not on the side of the trade we may believe to be economically correct. We are pragmatists first, foremost and always.
3. MENTAL CAPITAL TRUMPS REAL CAPITAL: Capital comes in two types: mental and real... and holding losing positions diminishes one’s finite and measurable real capital and one’s infinite and immeasurable mental capital.
4. WE ARE NOT IN THE BUSINESS OF BUYING LOW AND SELLING HIGH: We are in the business of buying high and selling higher, or of selling low and buying lower. Strength begets strength; weakness more weakness. Never forget that.
5. IN BULL MARKETS ONE MUST TRY ONLY TO BE LONG OR NEUTRAL: The corollary, obviously, is that in bear markets one must try only to be short or neutral. There are exceptions, but they are rare.
6. “MARKETS CAN REMAIN ILLOGICAL FAR LONGER THAN YOU OR I CAN REMAIN SOLVENT:” So said Lord Keynes many years ago and he was... and is... right, for illogic does often reign, despite what the academics would have us believe.
7. BUY THAT WHICH SHOWS THE GREATEST STRENGTH; SELL THAT WHICH SHOWS THE GREATEST WEAKNESS: Metaphorically, the wettest paper sack breaks most easily and the strongest winds carry ships the farthest, fastest.
8. THINK LIKE A FUNDAMENTALIST; TRADE LIKE A TECHNICIAN: Be bullish when the technicals and the fundamentals, as you understand them, run in tandem. Be bearish when they do not.
9. TRADING RUNS IN CYCLES: In the “Good Times” even one’s errors are profitable; in the inevitable “Bad Times” even the most well researched trade shall goes awry. This is the nature of trading; accept it and move on.
10. KEEP ALL TRADING SYSTEMS SIMPLE: Complication breeds confusion; simplicity breeds elegance and profitability.
11. UNDERSTANDING MASS PSYCHOLOGY IS ALMOST ALWAYS MORE IMPORTANT THAN UNDERSTANDING ECONOMICS
12. REMEMBER, THERE IS NEVER JUST ONE COCKROACH: The lesson of bad news is that more shall follow... usually hard upon and always with worsening impact.
13. BE PATIENT WITH WINNING TRADES; BE ENORMOUSLY IMPATIENT WITH LOSERS: The older we get the more small losses we take... and willingly so.
14. DO MORE OF THAT WHICH IS WORKING AND LESS OF THAT WHICH IS NOT: This works well in life as well as trading. If there is a “secret” to trading... and to life... this is it!
15: CLEAN UP AFTER YOURSELF: Need we really say more? Errors only get worse.
16. SOMEONE’S ALWAYS GOT A BIGGER JUNK YARD DOG: No matter how much “work” we do on a trade, someone knows more and is more prepared than are we... and has more capital!
17: WHEN THE FACTS CHANGE, CHANGE! Lord Keynes... again... once said that “When the facts change, I change; What do you do, Sir?” When the technicals or the fundamentals of a position change, change your position, or at least reduced your exposure and perhaps exit entirely.
18. 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!
