Trading Rules

[Phaedrus]

I stumbled across this set of really good trading rules. (ie ones that I agree with!)

http://spahiu.wordpress.com/

Page through about 4 pages of junk at the start.

[duncan macgregor]

Thanks for that PHAEDRUS. I did a print out to remind me from time to time ex stuff. macdunk

[kittydashwood]

I could really see relevance in rule four on mental capital. After the last two weeks of playing for brokerage I can see how a few losses can make one feel gun shy and miss winning entries becuase of the negative state of mind.

discl.
Stopped out of VLO ADM this morning for a small loss.

[Phaedrus]

It is interesting to see that his number one rule is about averaging down. I sling off at this practice quite regularly and every time I do, people pop up to argue in favour of it! You can actually observe proponents being wiped out doing this. I featured a classical case in the thread "A Magnificent Obsession?" (NZX) It's like watching a train wreck in slow motion. Tragic.

Never, ever, under any circumstance, should one add to a losing position … not EVER!

I'll drink to that!

[whiteheron]

Thanks P

Yes, we must remind ourselves from time to time about time tested rules as it is easy to stray away from them

I used to think that averaging down was a smart move, but after being badly burned several times finally came to my senses
Why add to a losing position when there are winning positions there for the taking ?
Why not jump off the loser and on to a winner for the small cost of making the change ?

New investors take note !!

Cheers

[KJ]

P
Thanks for this-I think it is a great article and a timely reminder for me on a couple of points.

[Steve]

Thanks for sharing your 'stumble' with us, P.

[Phaedrus]

I'm trying to say that I agree with this guy. 100%.

Stripped of all tautology, his No. 1 rule reads :-

NEVER ADD TO A LOSING POSITION.

Simple. Clear. Unequivocal.

[duncan macgregor]

HIAWATHA, That is a very good rule. It assumes that you are already in such a share, and ought to be more concerned with your stop loss exit proceedures, than buying more adding to the problem.
Buying into a downtrend when you think it has bottomed is a different proposition all together. my rules for that are.
1, The company must be running in profit.
2, The reason for the downtrend is over.
3, The sector its in is coming back into favour
The people that make money are the people with simple common sense rules that they stick to, then read the market with an open mind. A zombie like buy, or sell approach, can get you into a rising dog, or flick you out of a winner. The one golden rule that i stick to is if in doubt get out. macdunk

[KJ]

H-I understand where you are coming from.

For example-IMO-say buying FBU yesterday at 925 after earlier reaching 955 is not adding to a losing position because it is in an uptrend.

However buying DPC yesterday at 206 is adding to a losing position and should not be done as it is in a downtrend.