The below rules were originally published in the October 1989 issue of Futures as part of a profile on well-known market guru Dennis Gartman. They are included here in support of the regular “30 Years of Futures” installment in the print issue, which celebrates more than three decades of serving futures traders.
1. The first and most important rule is this: In a bull market, you can only be long, bull spread or out. Conversely, in a bear market, you can only be short, bear spread or out.
2. Buy that which is showing the most strength; sell that which is already showing weakness. The rule of survival is not to “buy low” sell high” but to “buy high and sell higher.” Use this rule especially when spreading currencies.
3. Do not enter a trade until it has been thought out, including contingency plans and where to add to the trade.
4. Add to trades on minor corrections to support or resistance levels against the major trend. Use the 33% or 50% correction level of the previous movement as a first point at which to add.
5. Be patient. If a trade is missed, wait until a correction occurs before putting on the trade.
6. Be patient. Once a trade is put on, allow it time to develop; give it time to create the profits expected.
7. Be patient. The old adage that “you never go broke taking a profit” is the most worthless piece of advice ever given. Taking small profits is the surest way to ultimate loss. The real money in speculation is made from the one, two or three large trades that develop each year. It takes time for these to develop.
8. Be impatient. As always, small losses and quick losses are the best losses. Too much time and mental capital is used up when sitting with a losing trade.
9. Never, ever under any condition add to a losing trade. Never, ever “average” into a position. If buying, each new buy prices must be higher than the previous buy price; vice versa for selling.
10. Do more of that which is working; do less of that which isn’t. Don’t merely “let your profits run.” Each day, look at the various positions you are holding and try to add to the trade that has the most profit while subtracting from that trade that is either unprofitable or is showing the smallest profit.
11. Don’t trade until the technicals and fundamentals agree.
12. When you experience sharp breaks in equity, take time off. Close all trades and refrain from trading for several days.
13. When trading well, trade somewhat larger. You must make your proverbial “hay” when the sun does indeed shine.
14. When adding to a trade, add only a fourth to a half as much as currently held. That moves the average price of your holdings less than half of the distance moved, thus allowing you to sit through 50% corrections without touching your average price.
15. Think like a guerrilla warrior and fight on the side of the market that is winning. If no side is winning, you don’t need to fight.
About the Author
Dennis Gartman is the editor and publisher of The Gartman Letter. He is also an outside director of the Kansas City Board of Trade and a member of the investment community of North Carolina State University. He has been the secretary treasurer of the Suffolk Industrial Development Authority since 1998.