Advice to novice traders:
Two basic rules about winning in trading as well as in life: (1) If you don’t bet, you can’t win. (2) If you lose all your chips, you can’t bet.”
“a) Cut losses b) Ride winners c) Keep bets small d) follow the rules without question e) Know when to break the rules”
“Don’t ever average losers. Decrease your trading volume when you are trading poorly; increase your volume when you are trading well. Never trade in situations where you don’t have control.
“The most important rule is to play great defense, not great offense.
“Don’t focus on making money; focus on protecting what you have.”
Longevity is the key to success.” As the number of system user’s increases, and the markets shift from trending to directionless price action, these systems become unprofitable, and undercapitalized and inexperienced traders will get shaken out.
Consider trend following to be a subset of charting.
Charting is a little like surfing. You don’t have to know a lot about the physics of tides, resonance, and fluid dynamics in order to catch a good wave. You just have to be able to sense when it’s happening and then have the drive to act at the right time.”
“The best trades are the ones in which you have all three things going for you: fundamentals, technicals, and market tone. First, the fundamentals should suggest that there is an imbalance of supply and demand, which could result in a major move. Second, the chart must show that the market is moving in the direction that hte fundamentals suggest. Third, when news comes out, the market should act in a way that reflects the right psychological tone. For example, a bull market should shrug off bearish news. If you can restrict your activity to only those types of trades, you have to make money, in any market, under any circumstances.”
“The more a price pattern is observed by speculators, the more prone you are to have false signals. The more a market is the product of nonspeculative activity, the greater the significance of technical breakouts.”
On asking which is better, technical analysis or fundamental analysis, he answered, “That is like asking a doctor whether he would prefer treating a patient with diagnostics or with a chart monitoring his condition. You need both. But, if anything, the fundamentals are more important now. In the 1970s, it was a lot easier to make money using technical anaylsis alone. There were far fewer false breakouts. Nowadays, everybody is a chartist, and there are a huge number of technical trading systems. I think that change has made it much harder for the technical trader.”
Advice to novice traders: “First, I would say that risk management is the most important thing to be well understood. Undertrade, undertrade, undertrade is my second piece of advice. Whatever you think your position ought to be, cut it at least half.” “They personalize the market. A common mistake is to think of the market as a personal nemesis. The market, of course, is totally impersonal; it doesn’t care whether you make money or not. Whenever a trader says, “I wish,” or “I hope,” he is engaging in a destructive way of thinking because it takes attention away from the diagnostic process.”