Trading Rules

1. Trend recognition simply by eyeballing basic price charts. Look for classical chart patterns. Draw trendlines. Pay no attention to technical indicators. Be honest in interpreting what you see. If its not entirely clear at first glance what the trend is, then there probably isn't one and you should avoid that market.

2. Trend following. Trade trending markets only. Rise above the noise (short term volatility) by keeping positions small.

3. Precise and prompt entry upon seeing trade signals. Take all signals but be mindful of correlation risks.

4. Fuzzy exits - wait for original pattern to be invalidated before exiting. Do not bail out at the first sign of trouble. Give your trades a chance to perform.
5a. Avoid incessant pyramiding. This is the surest way to turn winners into losers. Better to ride a small position and capture a big trend than to run a big position and keep getting stopped out along the way. (The 2+1 rule = Do 2 "units" on entry. When trade works, wait until new price level is insulated from original entry point, then add 1 "unit". After that, STOP. No more).
5b.Never add to losing positions. This is how inexperienced traders implode. Constant practice of 5a also helps develop habit of strict adherence to 5b. If the original trade is not working, chances are that it was wrong to begin with so why add to it?

6. Trade many (uncorrelated) markets. In addition to the benefits of diversification, this will increase your chances of latching onto a developing trend. Do not develop a preference for any one market over another. Treat them equal. Avoid cognitive biases.

7. Trade purely on chart patterns. Recognise that you will never have full knowledge of fundamentals and trading decisions based on partial facts is no better than useless. Logic and reasoning can also lead to inertia in the face of difficult markets.

8. Reduce risk by at least half on the day of an adverse overall portfolio P&L spike (added on 12Apr08). This acts as a kind of safety release to protect against fuzzy exits blowing us up. [For more on this, use the Search Blog box for "P&L Spikes"]