1. The first and most important rule is – in bull markets, one is supposed to be long. This
may sound obvious, but how many of us have sold the first rally in every bull market,
saying that the market has moved too far, too fast. I have before, and I suspect I’ll do it
again at some point in the future. Thus, we’ve not enjoyed the profits that should have
accrued to us for our initial bullish outlook, but have actually lost money while being
short. In a bull market, one can only be long or on the sidelines. Remember, not
having a position is a position.
2. Buy that which is showing strength – sell that which is showing weakness. The public
continues to buy when prices have fallen. The professional buys because prices have
rallied. This difference may not sound logical, but buying strength works. The rule of
survival is not to “buy low, sell high”, but to “buy higher and sell higher”. Furthermore,
when comparing various stocks within a group, buy only the strongest and sell the
3. When putting on a trade, enter it as if it has the potential to be the biggest trade of
the year. Don’t enter a trade until it has been well thought out, a campaign has been
devised for adding to the trade, and contingency plans set for exiting the trade.
4. On minor corrections against the major trend, add to trades. In bull markets, add to
the trade on minor corrections back into support levels. In bear markets, add on
corrections into resistance. Use the 33-50% corrections level of the previous
movement or the proper moving average as a first point in which to add.
5. Be patient. If a trade is missed, wait for a correction to occur before putting the trade
6. Be patient. Once a trade is put on, allow it time to develop and give it time to create
the profits you expected.
TOP 16 TRADING RULES OF RICHARD RHODES
7. Be patient. The old adage that “you never go broke taking a profit” is maybe the most
worthless piece of advice ever given. Taking small profits is the surest way to ultimate
loss I can think of, for small profits are never allowed to develop into enormous
profits. The real money in trading is made from the one, two or three large trades that
develop each year. You must develop the ability to patiently stay with winning trades
to allow them to develop into that sort of trade.
8. Be patient. Once a trade is put on, give it time to work; give it time to insulate itself
from random noise; give it time for others to see the merit of what you saw earlier
9. Be impatient. As always, small loses and quick losses are the best losses. It is not the
loss of money that is important. Rather, it is the mental capital that is used up when
you sit with a losing trade that is important.
10. Never, ever under any condition, add to a losing trade, or “average” into a position. If
you are buying, then each new buy price must be higher than the previous buy price.
If you are selling, then each new selling price must be lower. This rule is to be
adhered to without question.
11. Do more of what is working for you, and less of what’s not. 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. This is the basis of the old adage, “let your profits run.”
12. When sharp losses in equity are experienced, take time off. Close all trades and stop
trading for several days. The mind can play games with itself following sharp, quick
losses. The urge “to get the money back” is extreme, and should not be given in to.
13. When adding to a trade, add only 1/4 to 1/2 as much as currently held. That is, if you
are holding 400 shares of a stock, at the next point at which to add, add no more than
100 or 200 shares. 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.
14. Think like a guerrilla warrior. We wish to fight on the side of the market that is
winning, not wasting our time and capital on futile efforts to gain fame by buying the
lows or selling the highs of some market movement. Our duty is to earn profits by
fighting alongside the winning forces. If neither side is winning, then we don’t need to
fight at all.
15. Markets form their tops in violence; markets form their lows in quiet conditions.
16. The final 10% of the time of a bull run will usually encompass 50% or more of the
price movement. Thus, the first 50% of the price movement will take 90% of the time
and will require the most backing and filling and will be far more difficult to trade than
the last 50%.