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Gartman's rules of trading

Find out what Dennis Gartman says "separates the pros from the amateurs" when it comes to investing. The publisher of the widely-read Gartman Letter outlines his rules for putting your hard earned dollars to work in volatile times. Watch the video to find out more.

Gartman's Rules of Trading

1. NEVER, EVER, EVER ADD TO A LOSING POSITION: EVER! Adding to a losing position will eventually lead to ruin. Count on it. All great market humiliations are first preceded by one man or one group of men doing otherwise and we give you the Nobel Laureates of Long Term Capital Management; Nick Leeson, Jon Corzine and now Kweku Adaboli.

2. TRADE LIKE A MERCENARY FIGHTER: 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.

3. MENTAL CAPITAL TRUMPS REAL CAPITAL: Capital comes in two types... mental and real... and holding losing positions diminishes both the finite and measurable real capital and the infinite and immeasurable mental capital.

4. 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.

5. IN BULL MARKETS ONE MUST TRY ONLY TO BE LONG OR NEUTRAL: The corollary, obviously, is that in bear markets one must try only to be short or neutral. There are exceptions, but they are rare.

6. "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.

7. 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.

8. THINK LIKE A FUNDAMENTALIST; TRADE LIKE A TECHNICIAN: Be bullish when the technicals and the fundamentals, as you understand them, run in tandem. Be bearish when they do not.

9. 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 go awry. This is the nature of trading; accept it and move on.

10. KEEP YOUR SYSTEMS SIMPLE: Complication breeds confusion; simplicity breeds elegance and profitability.

11. 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'!"

12. 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.

13. BE PATIENT WITH WINNING TRADES; BE ENORMOUSLY IMPATIENT WITH LOSERS: The older we get the more small losses we take… and willingly so.

14. 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!

15: CLEAN UP AFTER YOURSELF: Need we really say more? Errors only get worse.

16. 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!

17: PAY ATTENTION: The market sends signals more often than not missed and/or disregarded… so pay attention!

18: 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.

19. 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!

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