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Sample chapter extract from

William Eng


Published under the Editorial Direction of Daryl Guppy.

Daryl Guppy This extract copyright 2000.

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I never tire of exploring other people’s trading rules. Nestled somewhere in their experience is often a nugget that helps me to improve my trading skills. It may be just a new perspective on an old rule, a reminder of why I use my current rules, a trigger for examining trading habits or a spark of recognition of the causes of failure. The moment we think we have nothing more to learn the market extracts a financial penalty. While the market future is never an exact replica of the past there are enough common threads to make any group of trading rules relevant to survival.    

Trading is not just a set of construction rules and this is one of the appeals and challenges of trading the market. Despite the growth of charting and financial analysis software the market still defies most traders. Mechanical trading systems based on complex mathematical rules and advanced algorithms succeed for a short time and then they lose touch with an ever-evolving market.

Skilled traders survive in all market conditions because they adapt and modify their trading techniques to suit individual markets. They learn from their own experience and the experiences of others. Reading about the experience of others gives us a chance to be better traders.

In a changing market it would seem a few rules are common to all trading situations. "The trend is your friend" and "Don’t average down" are all rules which have achieved the status of easily dismissed platitudes because they are so often repeated and so often ignored.

These platitudes come from market folklore and often reflect actions appropriate to market conditions in the period just prior to the present. In the first years of the new century many analysts draw on rules created in the 1950’s to reach conclusions about the valuation of Internet business. As successful traders we need to look behind the summary slogans of trading rules to decide which are still appropriate, which can be modified, and which discarded entirely.

As if a changing market is not difficult enough, we also add ourselves as individuals to the equation. Our capacity for risk, our reaction to fear and our understanding of greed are all individual. No collection of rules can over-ride these personality traits.

A simple list of rules does not help us. Traders need to understand how the rules have been developed. What market situations, what personal strengths and weaknesses contributed to the formulation of the rule and the writers’ particular application of it? Success does not come by slavishly emulating the behaviour of successful traders. It comes from empathy with their circumstance and the extraction of details relevant to our own situation.

Trading is a lonely activity. Many traders talk only to themselves and their broker. Some extend this to a community based in a cyberspace chat room. The quality of this interaction and advice is uneven. True understanding is often obscured by bravado, boasting or straight out fantasy. Few chat room posts talk about losing trades and many brokers are too polite to mention it to clients. The opportunities for growth through personal experience are limited by our capital. We might just not live long enough in the market to make all the mistakes required to become a good trader.

Most serious traders move beyond their personal experience by reading books about trading and traders. They attend trading workshops, not because they don’t know how to trade, but because they want to know how they can trade better. Trading success comes from the constant minor adjustment and readjustment of techniques and behaviour.

Eng gives us 50 trading rules. Read them with care – even the ones that you already know. Somewhere there is something just for you that will improve your trading.

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