#1. Never, Ever, Ever, Under any circumstance, Add to a losing position....Ever! Adding to losing positions will lead to ruin. You can count on it. Ask the Nobel Laureates of Long Term Capital!
#2. Trade like a Mercenary Soldier: We must fight on the winning side, not on the side we may believe to be right economically.
#3. Mental Capital Trumps Real Capital: Capital comes in two types; mental and real, and holding losing positions costs measurable real capital, but immeasurable mental capital.
#4. We are not in the business of buying low and selling high; we are, however, a busines of buying high and selling higher. Stregth begets strength, and weakness, weakness.
#5. In Bull markets one can only be long or neutral, and in bear markets, one can only be short or neutral. This may seem self evident, but very few understand it, and fewer still embrace it.
#6. "Markets can remain illogical far longer than you or I can remain solvent". These are Lord Keynes's words and illogic does often reign, despite what the academics would have us believe.
#7. Buy markets that show the greatest strength, sell markets that show the greatest weakness: Metaphorically, when bearish we need to throw rocks into the wettest paper sacks, for they break most easily. When bullish we need to sail the strongest winds, for they carry the farthest.
#8. Think like a fundamentalist, trade like a technician: The fundamentals may drive a market and need to be understood, but if the chart is not bullish. why be bullish? Be bullish when the techincals and the fundamentals, as you understand them, run in tandem.
#9. Trading runs in cycles, some good, mostly bad: Trade large and aggressively when trading well; trade small and even smaller when trading poorly. In "good" times, even errors turn into profits; "bad times" the most well researched trade will go awry. This is the nature of the trading; accept and move on.
#10. Keep your technical systems simple/; Complicated systems breed confusion, simplicity breeds elegance. The great traders we've known have the simplest methods of trading. There is a correlation here!
#11. In trading/ investing, An understanding of mass psychology is often more important than an understanding of economics: Simply put, "when they are cryin, you should be buying! and when they are yellin, you should be sellin! This is the psychology at work and its most elegant.
#12. Bear market corrections are more violent and far swiftwe than the bull market corrections: Why they are is still a mystery to us, but they are; we accept as fact and move on.
#13. There is never one cockroach: The lesson of bad news on most stocks is that more shall follow...usually hard upon and always with detrimental effect on price, until such time as panic prevails and the weakest hands finally exit their positions.
#14. Be patient with winning trades, Be enormouosly impatient with losing trades. The older we get, the more small losses we take each year, and our profits grow accordingly.
#15. Do more of what is working and less of that which is not: This works in life as well as trading. Do the things that have been proven of merit. Add to winning trades; cut or eliminate losing ones. If there is a "secret" to trading and of life, this is it.
#16. All rules are meant to be broken....but only very, very, infrequently. Genius comes in knowing how truely infrequently one can do so and still prosper.