Friday, August 15, 2008

Duke’s Trading Rules

Duke’s Trading Rules
“Common Sense Trading”

· Use Good Money Management – This will determine your success! The old saying, “You got to know when to hold them and when to fold them” applies here.

· Know Fundamentals – You need to know some basic fundamentals about the company before you purchase the stock. Especially, be aware of what sector the stock is in.
Any News Is Old News – By the time any news about a stock gets to those of us away from the trading floor, it has already been acted upon. Don’t trade news about a stock unless you’re in the trading pits or daytrading with timely current information.

· Market Advice – By in large, stock market advice is worthless! The “experts” on CNBC are wrong 80% of the time, by a recent study. It’s Your Money…Make Your Own Decisions!

· Plan Your Trade…Trade Your Plan – No trading or money management plans…DON’T TRADE!

· Buy Quality Stocks – Quality stocks have consistent earnings and reasonable P/E ratios. Only buy quality stocks, but I usually buy or sell the index stocks (QQQQ or DIA). The Market Internals and Market Sectors help, but I always trade the direction of “The Market Bias”.

· Let The Market Tell You What To Do – No one knows the direction of the market, but the market internals, sectors and especially the bias indicator will give you advance notice.

· The Trend Is Your Friend – Trade with the market and stock’s trend… PERIOD! PERIOD! PERIOD!!!!!!

· Use Market Internals and Sectors – Market Internals and Sectors provide a HUGE CLUE as to what is ahead for the market! When the market internals and sector agree with the individual stock indicators it is suggesting a profitable direction. It is wise to pay attention!

· Use the Market Bias to enter or stay with a position – the Market Bias will give a pretty clear view of the general market direction. I always enter the market when the Market Bias changes and stay with this position, with a stop under the market, until the Bias changes.

· Trade Liquid Stocks – Liquid Stocks are those that have trading volume so they can be entered or exited very close to the expected price. That is why I trade the index stocks.

· Buy When Oversold – When the stock has already made an upside move and gets “overbought”, it is not smart to enter this stock until it corrects or consolidates at a lower level. Sometimes there are signals to enter a stock at an overbought or oversold condition. This stock is a definite PASS when you want to buy it when it is overbought or sell it when it is oversold.

· Using Historical Data – Data that has happen in the past, whether it is 1 minute or 6 months, it is historical data. All market indicators are based upon historical data. Just remember that it only suggests a higher probability of a certain possible direction… nothing more.

· Know When to Buy or Sell – Develop your trading plan that meets your style of trading. A good trading plan will help tell you when to buy or sell.

· Adding To A Position – The bottom line is NEVER, and I mean NEVER, add to a position, as there are many other stocks that offer a better risk/reward ratio. Averaging up or down is not a smart move. Either stay with the position or be out of it. Adding your resources to a “losing position” only limits your returns. Your capital can ALWAYS be put to better a use in other stocks.

· Indicators Just Add Probability - Trading is all about the probabilities of the stock moving in a direction that we can predict. When several indicators agree on a stock, the probability of it trading in the planned direction has increased considerably, but there are no guarantees that the stock will perform as expected.

· Understand Buy and Hold Strategies - Buy and HOLD is OK if the stock is trending as it was expected, but Buy and FORGET, is just plain STUPID! Manage your stock holdings for profitable performance and risk… That’s how consistent money is made in the market!

· Short Positions Are Even Better – We have been taught that Long positions are the only way to invest, but shorting a stock makes more money quicker. Learn to short the market. Because of the “uptick” rule, it makes sense to use the ETF (Exchange Traded Funds), such as DIA, QQQQ, SMH or SPY for short positions.

· When In Doubt… Get Out – If the indicators are giving mixed signals and the stock is not reacting the way it was expected, the safe position is on the sideline.

· Market Timing - Entering a stock at the correct time is the biggest factor, after money management and a trading plan that will determine your success. Use Market Internals, Market Sectors, Market Bias and the Stock’s Indicators to help in this process.

· Keep An Open Mind - Market conditions can change rapidly and you must too! Be ready to change your mind or you will be left in the dust.

· Use Stops! - Money Management is the difference between a very successful trader and one that is broke. If you don’t use stops, you do not have a money management plan and your trading capital investment will be lost.

· Let Profits Run, But Protect It! – When in a Long position and the market indicators change, place a stop under the low of the day and leave it to protect your profits or minimize your loss. When Short, place the stop above the high of the day.

· Trade a Basket of Stocks - No one can predict where the price of a stock will go, so you must have several stocks in your portfolio that have agreed with your entry criteria position and stay with these until there is a reason to exit them.

· Round Lot Orders – Use “Round Lot Orders” so the traders don’t think you’re a rookie.

· When To Trade - If you can’t focus on what you are doing when you’re trading… DON’T TRADE!

· What The Majority Knows – Bottom Line is VERY LITTLE. In most cases “the majority is usually wrong”.

· Use Good Money Management - Develop a sound money management and trading plan! This is my MOST IMPORTANT rule and is my first rule and last trading rule. Trading has many “risks”, so manage these risks. Let profits run…but cut your loses quickly, before it materially damages your trading account or gets to your mind. There will always be another opportunity to purchase stocks that have a much better risk/reward ratio. If you run out of money or get “hard headed” with a position, you will miss many profitable opportunities!
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1 comment:

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