At a recent seminar, I was asked by a sharp young investor how much trading rules had changed since I began trading way back in 1905. He didn’t actually say 1905, but the tone and cadence of the question gave him away. By pure chance, I had just picked up William Eng’s 1990 book, Trading Rules, off my bookshelf and had flipped through the pages again as I ate my lunch. The young man asking me the question was not unlike a young athlete because after all, depending upon the sport, one statistically hits one’s prime in one’s 20s or 30s. I answered with a knowing wink that serious investors are much more akin to an exceptional bottle of wine – such as a Domaine de la Romance, Conti Grand Cru – something that just keeps improving with age. He stared back at me with a puzzled look as only a young beer-drinker can with no appreciation for what he was missing.
Most all dedicated investors get better with age. It doesn’t take biceps to trade better. It doesn’t even take extraordinary amounts of gray cells. But it does take experience and intuition which is cumulative. For every purportedly sensational youthful portfolio manager you present, I can offer up two grizzly veterans my age who’ll kick their derrieres.
But I digress. Back to Eng’s trading rules. As he says, “an expert market mind is only acquired through careful analysis of many successes and failures.” The other part of the equation deals with the reality that the market’s primary fuel is human emotions which have not changed in centuries. Without getting into commentary on each of Eng’s fifty rules, I thought I’d simply list a dozen that illustrate, for my young questioner, that trading is timeless, experience matters and serious dedicated investors do significantly improve with age. It’s simply a victory of fine wine over beer.
Here are my favorite trading rules from William Eng:
- Don’t overtrade.
- Never let your profit turn into a loss.
- Trade with the trend.
- Never average your losses.
- Don’t watch or trade too many markets at once.
- Take windfall profits when you get them.
- Preserve your capital.
- Never buy a stock because it has a big decline from its previous high. Never sell a stock because it is high-priced.
- The human side of every person is the greatest enemy to successful trading.
- Don’t be too curious about the reasons behind the moves.
- It is harder to get out of a trade than to get into one.
- Control what you can; manage what you cannot.
- Take big profits and small losses.
- Pyramid correctly.
- Don’t formulate new opinions during market hours.
Trade well; trade with discipline!
-- Gatis Roze
