2013 was great year for stocks and a crazy year for bonds.
But the amount of money you made depends on how you traded.
Dennis Gartman, editor and publisher of the Gartman Letter, has 19 rules of trading from 2013. But these hold true in general.
Here they are verbatim:
- NEVER, EVER, EVER ADD TO A LOSING POSITION: EVER!: Adding to a losing position eventually leads to ruin, remembering Enron, Long Term Capital Management, Nick Leeson and myriad others.
- TRADE LIKE A MERCENARY SOLDIER: 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.
- MENTAL CAPITAL TRUMPS REAL CAPITAL: Capital comes in two forms… mental and real… and defending losing positions diminishes one’s finite and measurable real capital and one’s infinite and immeasurable mental capital accordingly and alway.
- 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.
- IN BULL MARKETS ONE MUST TRY ALWAYS TO BE LONG OR NEUTRAL: The corollary, obviously, is that in bear markets one must try always to be short or neutral. There are exceptions, but they are very, very rare.
- “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.
- BUY THAT WHICH SHOWS THE GREATEST STRENGTH; SELL THAT WHICH SHOWS THE GREATEST WEAKNESS: Metaphorically, the wettest paper sacks break most easily and the strongest winds carry ships the farthest,fastest.
- THINK LIKE A FUNDAMENTALIST; TRADE LIKE A TECHNICIAN: Be bullish… or bearish… only when the technicals and the fundamentals, as you understand them, run in tandem.
- TRADING RUNS IN CYCLES; SOME GOOD, MOST BAD: 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.
- KEEP YOUR SYSTEMS SIMPLE: Complication breeds confusion; simplicity breeds elegance and profitability.
- UNDERSTANDING MASS PSYCHOLOGY IS ALMOST ALWAYS MORE IMPORTANT THAN UNDERSTANDING ECONOMICS: Or more simply put, “When they’re cryin’ you should be buyin’ and when they’re yellin’ you should be sellin’!”
- 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.
- BE PATIENT WITH WINNING TRADES; BE ENORMOUSLY IMPATIENT WITH LOSERS: Need we really say more?
- 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.
- CLEAN UP AFTER YOURSELF: Need we really say more? Errors only get worse.
- 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!
- PAY ATTENTION: The market sends signals more often than not missed and/or disregarded… so pay attention!
- 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.
- 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!