RICHARD DONCHIAN is one of the many successful trend traders. He didn’t begin trading his successful tren following system until the age of 65. He quickly amassed large returns after that and continued to trade until into his 90s.
His trading system consisted of following crossovers of the 5 and 20 day moving averages.
His 20 Guides of Trading Commodities can be applied just as well to trading stocks. Of these guides there are 4 that he - and I - consider the most important.
LIMIT LOSSES, ride profits - irrespective of all other rules. Watch for “crawling along” or repeated bumping of minor or major trendlines and prepare to see such trendlines broken. Breaking of minor trendlines counter to the major trend gives most other important position-taking signals. Positions can be taken or reversed on stops at such places. (This is possibly the most imprtant of all the technical guides.) During a move, take or increase positions in the direction of the move at the market the morning following any one-day reversal, however slight the reversal may be, expecially if volume declines on the reversal. (This has proved to be a very valuable guide.)
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