Bill Luby's Rules of Trading ~ market folly

Thursday, April 2, 2009

Bill Luby's Rules of Trading

Over the past weekend, we read a great list of trading rules. The piece was by Bill Luby, the author of the VIX and More blog you'll find on our blogroll. We've been longtime readers of his blog and wanted to highlight it to MarketFolly readers who may not be aware.

Here's his list:

"As requested, here are ten overriding principles that have survived the past five years, through bull and bear markets:

  1. Always live to fight another day
  2. Entries must have a statistical edge
  3. Patience and discipline
  4. Be a jellyfish (swim with the current)
  5. Trade only liquid securities
  6. Focus on trying to capture the middle 80% of a move
  7. Know your exit points when you open a position (and stick to them!)
  8. When in doubt, reduce position size by 50%
  9. Limit losses to 2% of total equity for any single trade
  10. Start each day with a clean financial and emotional slate

The above list is relatively generic, but it helped provide me with a framework for organizing how I would approach trading as a business, what strategies I should adopt, how those strategies should be executed, and ultimately defining what success should look like.

Trading rules are vitally important - as is knowing when they should be broken. Even more important, I believe, is the process that one goes through in order to arrive at these rules and to make sure that as new market situations unfold and new blind spots are revealed, the rules and guidelines are enhanced to maximize the opportunity for the trader to continue to grow and develop."

Great stuff from Bill which I'm sure many of you all can implement into your own regimen. Make sure to check out his blog. And also, if you want another great set of trading rules, make sure to check out noted trader Dennis Gartman's Rules of Trading as well.

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