Richard Weissman’s Trading Rules

Over three years ago, I read an article on Richard Weissman’s top trading rules. Weissman has written articles, books, and supposedly consults and/or trains people. What I think is more important is a comment I wrote after these 10 rules: are there situations where every cliché rule does not apply? Let’s go through these one at a time in order to find out.

      1) Trade the market, not the money

Is the “market” a technical chart? Is it my unrealized gain/loss? Is “money” a technical indicator or is it my gain/loss? I can come up with a number of contradictory interpretations here.

      2) When there’s nothing to do, do nothing

I like this. Overtrading is a frequently-discussed problem. Some people feel they have to trade and get nervous when they don’t. If it’s a consistent problem then a therapist or counselor/coach might help one to feel more at ease during downtime.

      3) Stop adjustments can only be used to reduce
          reduce risk, not increase it

I think this is a recommendation to only narrow stops and never widen them. If one is using a trading system then I see a potential problem with changing the stop in either direction. Trade like you backtest and do not deviate either way.

      4) There are only two kinds of losses: big
          losses and small losses. Given these
          choices, always choose small losses.

I disagree. Not only are “big” and “small” subjective, the occasional large loss may be part of a viable business model.

      5) Don’t anticipate, just participate

I disagree. “Prepare for war in a time of peace.” Anticipate what you are going to do in all cases because if you don’t then when the time arrives to participate you may be like a deer in the headlights.

      6) Buy the strongest, sell the weakest

This does not always apply (e.g. option trading).

      7) Stagger entries & exits

I like this but it also seems to be personal preference. A workable business plan need not stagger.

      8) Look for low risk, high reward, high
          probability setups

I think this is one possible trading style but certainly not the only viable one.

      9) Correlations are for defense, not offense

Pair traders may disagree because they use correlations to make money (offense). I disagree because during market crashes, even non-correlated markets tend to move together.

      10) Be disciplined in risk management and flexible
            in perceiving market behavior

I’m not entirely sure how these two fit together. I agree with the former. Whether risk is managed at entry (limiting position size) or with stops, it should be disciplined because catastrophic loss could occur the one time I’m sloppy. With regard to the latter, I’m not a big believer in forecasting future market moves under any circumstances. I would suggest being disciplined when interpreting market behavior and then apply the plan consistently.

Out of 10 trading rules I agree with 1.5 of them. Not great but could be worse. Your mileage, like mine, may vary.