Trading Rules… The key is to know when you will exit. ( Afternoon Newspaper)

[stockanalytics]

Trading Rules…

The key is to know when you will exit...

By Deepak Sahijwala

Trend traders don’t expect to be right every time. In fact, on
individual
trades they admit when they are wrong, take their losses, and move on.
However, they do expect to make money over the long run. In 1960,
Donchian
reduced this philosophy to what he called his “weekly trading rule.”
The
rule was brutally utilitarian: “When the prices move above the high of
two
previous calendar weeks (the optimum number of weeks varies by
commodity),
cover your short positions and buy. When the price breaks below the
low of
the two previous calendar weeks, liquidate your long position and sell
short.”

The Turtles’ core axioms were the same ones practiced by the great
speculators from one hundred years earlier: Simply put, they are …

*“Do not let emotions fluctuate with the ups and down of your capital.

* “Be consistent and even- tempered.”

* “Judge yourself not by the outcome, but by your process.”

* “Know what you are going to do when the market does what it is
going to do.”

* “Every now and then the impossible can and will happen.”

* “Know each day what your plan and your contingencies are for the
next day.”

* “What can I win and what can I lose? What are probabilities of
either happening?”

The Turtles learned two breakout variants or “systems.”

*System One (S1)* used a four- week price breakout for entry and a
two- week
price breakout in the opposite direction of the entry breakout for an
exit.
If a market made a new four- week high, the Turtles would buy. They
would
exit if and when it made a two- week low. A two week low was a ten day
breakout - counting trading days only.
If the Turtles skipped a System One four- week breakout and the market
kept
trending, they could and would stay out and get back in at the System
when
an opposite signal was generated.

*System Two:* The eleven- week breakout. This fail safe System
breakout was
how the Turtles kept from missing big trends that were filtered out.
System Two was the Turtles’ longer term trading system. It used an
eleven-week breakout (fifty- five days) for an entry signal and a four-
week
breakout (twenty days) in the opposite direction for an exit.

Their philosophy was: Stop worrying only about how you enter a trade.
The
key is to know at all times when you will exit.

Courtesy Afternoon Newspaper (Jan 1, 2010)