Richard Donchian’s Trading Rules (Father of TrendFollowing)

Richard Donchian developed a plan in 1934 (no, that is not a typo) that he soon published as a set of guidelines. The majority of those guidelines are still relevant to every investor today:

  1. Beware of acting immediately on widespread public opinion. Even if correct, if will usually delay the move.
  2. From a period of dullness and inactivity, watch for and prepare to follow a move in the direction in which volume increases.
  3. LIMIT LOSSES, ride profits – irrespective of all other rules.
  4. Light commitments are advisable when a market position is not certain.
  5. Seldom take a position in the direction of an immediately preceding three-day move. Wait for one-day reversal.
  6. Judicious use of stop orders is valuable aid to profitable trading.
  7. In a market in which upswings are likely to equal or exceed downswings, a heavier position should be taken for the upswings for percentage reasons – a decline from 50 to 25 will net only 50% profit, whereas an advance from 25 to 50 will net 100%.
  8. In taking a position, price orders are allowable. In closing a position, use ‘market’ orders.
  9. Buy strong acting, strong background (markets) and sell weak ones, subject to all other rules.

 More information is available here: http://en.wikipedia.org/wiki/Richard_Donchian

Professional Money Management Services:
If you are not happy with your portfolio and would like to learn more about our money management services,
Click Here. Our fact based investment system is based on how the market actually works, not someone’s opinion (which is what market legends like Donchian and Livermore taught). ** Serious inquires only, please.

If you enjoyed this post, make sure you subscribe to my RSS feed!
1 reply

Trackbacks & Pingbacks

  1. […] This post was mentioned on Twitter by Adam Sarhan. Adam Sarhan said: Richard Donchian's Trading Rules http://bit.ly/cqmj4e #stocks #trading #investing #bloomberg #cnbc #barrons #wsj #banks #eu #ft #news […]

Leave a Reply

Want to join the discussion?
Feel free to contribute!

Leave a Reply

Your email address will not be published. Required fields are marked *