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Common sense trading rules (Michael Jenkins)
Tags - trading rules investing money
In my previous post about Michael Jenkins and his theories I talked about his general theories (as much as I understood them). Here I would like to bring in some of his thoughts on common sense trading. While I do not neccessarily agree with all his weird theories, he does tell about different nuances of trading that actually are rather useful.
Two of his main trading rules
- Division of capital. This is is one of the most crucial ones. Like couple of days ago I was touring around investing forums and one guy answered to a newbie post about forex that forex is very risky – something I totally agree with. However, he also added that his friend managed to lose $800 of his total capital of $1000 with one evening. This, in my opinion, doesn’t itself show that forex is risky or difficult or anything else. But this does show that this guy totally lacked any kind of bankroll management. It also shows that he doesn’t have any idea of stop losses, he has not even considered that you should not risk all your capital on one thing and it should be your principle not to lose more than 30% (can be also just 5-10%) of your capital within a day. So altogether, division of capital is VERY important. Great traders put only 3-10% of their capital on any one trade. This may vary of course depening on your own trading style. But correct division of capital also means you have a good risk and bankroll management. And this is what division of capital is all about.
- Trade with main trend. This is Jenkins’s second rule. There are upswings and downswings but you should always analyse to see which the main trend is and trade in this direction. He says that in regards to the trend, stocks that hit new highs for the year are strong stocks and you should never try to short new high stocks. Rather you should buy breakouts to new highs. Trying to short stocks that go to new highs is insane by his definition.
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