Rule
11: Trades that work in hot markets destroy accounts in cool ones.
Stocks trend only 15% to 20% of the time. Price ranges cause grief to
momentum traders the rest of the time.
Rule
12: The best trades show major convergence.
Watch for the bull’s eye. Look for a single point in price and time
that points repeatedly to a trade entry. The market is trying to tell
you something.
Rule
13: Don’t confuse execution with opportunity.
Save Donkey Kong for the weekend. Pretty colors and fast fingers don’t
make successful careers. Understanding price behavior and market mechanics
does. Learn what a good trade looks like before falling in love with
the software.
Rule
14: Control risk before seeking reward.
Wear your market chastity belt at all times. Attention to profit is
a sign of immaturity, while attention to loss is a sign of experience.
The markets have no intention of offering money to those who do not
earn it.
Rule
15: Big losses rarely come without warning.
You have no one to blame but yourself. The chart told you to leave,
the news told you to leave and your mother told you to leave. Learn
to visualize trouble and head for safety with only a few bars of information.
Rule
16: Bulls live above the 200-day moving average, bears live below.
Are you flying with the birds or swimming with the fishes? The 200-day
moving average divides the investing world in two. Bulls and greed live
above the 200-day, while bears and fear live below. Sellers eat up rallies
below this line and buyers come
to the rescue above it.
Rule
17: Enter in mild times, exit in wild times.
The big move hides beyond the extremes of price congestion. Don’t count
on the agitated crowd for your trading signals. It’s usually way too
late by the time they act.
Rule
18: Perfect patterns carry the greatest risk for failure.
Demand warts and bruises on your trade setups. Market mechanics work
to defeat the majority when everyone sees the same thing at the same
time. When perfection appears, look for the failure signal.
Rule
19: Trends rarely turn on a dime.
Reversals build slowly. Investors are as stubborn as mules and take
a lot of pain before they admit defeat.
Rule
20: See the exit door before the trade.
Assume the market will reverse the minute you get filled. You’re in
very big trouble when it’s a long way to the door. Never toss a coin
in the fountain and hope your dreams will come true.
