| Richard Donchian was born in Hartford, Connecticut in | | | | from 50 to 25 will net only 50% profit, whereas an |
| September 1905 was born over 100 years ago and | | | | advance from 25 to 50 will net 100% |
| although the vast majority of traders have never | | | | 8. In taking a position, price orders are allowable. In |
| heard of him yet, he is one of the most influential | | | | closing a position, use market orders." |
| traders of all time and the father of technical trend | | | | 9. Buy strong-acting, strong-background commodities |
| following. | | | | and sell weak ones, subject to all other rules. |
| Many modern trend following systems, such as the | | | | 10. Moves in which rails lead or participate strongly are |
| Turtle Trading system, are based on his work and | | | | usually more worth following than moves in which rails |
| legendary trader Richard Dennis was a huge fan and | | | | lag. |
| Ed Seykota used him as an inspiration. | | | | 11. A study of the capitalization of a company, the |
| Richard Donchian didn't begin trading his successful | | | | degree of activity of an issue, and whether an issue is |
| trend following system until the age of 65. He started | | | | a lethargic truck horse or a spirited race horse is fully |
| making large returns after that and continued to trade | | | | as important as a study of statistical reports. |
| until into his 90s - showing your never to old to trade. | | | | Technical Guides |
| While he operated mostly in the field of commodities | | | | 1. A move followed by a sideways range often |
| his technical analysis is applicable to any market. | | | | precedes another move of almost equal extent in the |
| His 4 week trading rule system has been at the heart | | | | same direction as the original move. Generally, when |
| of many successful trading systems and is one of the | | | | the second move from the sideways range has run its |
| simplest, easiest and most profitable ways to trade | | | | course, a counter move approaching the sideways |
| trending markets. | | | | range may be expected. |
| People tend to think complicated is better but the 4 | | | | 2. Reversal or resistance to a move is likely to be |
| week rule is simplistic but will get you on the right side | | | | encountered: |
| of every profitable trend and help you make money. | | | | - 0n reaching levels at which in the past, the |
| Apart from the 4 week rule he did a lot of work with | | | | commodity has fluctuated for a considerable length of |
| a five and twenty day moving average crossover | | | | time within a narrow range |
| signal system and used buy and sell rules using a | | | | - On approaching highs or lows |
| weekly time period. | | | | 3. Watch for good buying or selling opportunities when |
| The following trading guidelines were first published in | | | | trend lines are approached, especially on medium or |
| 1934 and there are applicable today as they ever | | | | dull volume. Be sure such a line has not been hugged |
| were and are re-produced in their original format | | | | or hit too frequently. |
| below: | | | | 4. Watch for "crawling along" or repeated bumping of |
| General Guides | | | | minor or major trend lines and prepare to see such |
| 1. Beware of acting immediately on a widespread | | | | trend lines broken. |
| public opinion. Even if correct, it will usually delay the | | | | 5. Breaking of minor trend lines counter to the major |
| move. | | | | trend gives most other important position taking signals. |
| 2. From a period of dullness and inactivity, watch for | | | | Positions can be taken or reversed on stop at such |
| and prepare to follow a move in the direction in which | | | | places. |
| volume increases. | | | | 6. Triangles of ether slope may mean either |
| 3. Limit losses and ride profits, irrespective of all other | | | | accumulation or distribution depending on other |
| rules. | | | | considerations although triangles are usually broken on |
| 4. Light commitments are advisable when market | | | | the flat side. |
| position is not certain. Clearly defined moves are | | | | 7. Watch for volume climax, especially after a long |
| signaled frequently enough to make life interesting and | | | | move. |
| concentration on these moves will prevent unprofitable | | | | 8. Don't count on gaps being closed unless you can |
| whip-sawing. | | | | distinguish between breakaway gaps, normal gaps and |
| 5. Seldom take a position in the direction of an | | | | exhaustion gaps. |
| immediately preceding three-day move. Wait for a | | | | 9. During a move, take or increase positions in the |
| one-day reversal. | | | | direction of the move at the market the morning |
| 6. Judicious use of stop orders is a valuable aid to | | | | following any one-day reversal, however slight the |
| profitable trading. Stops may be used to protect | | | | reversal may be, especially if volume declines on the |
| profits, to limit losses, and from certain formations such | | | | reversal. |
| as triangular foci to take positions. Stop orders are apt | | | | His work has stood the test of time and you can still |
| to be more valuable and less treacherous if used in | | | | trade using the above rules as you could 100 years |
| proper relation to the chart formation. | | | | ago markets still move to the influence of greed and |
| 7. In a market in which upswings are likely to equal or | | | | fear as they did 100 years ago and the above |
| exceed downswings, heavier position should be taken | | | | guidelines will never go out of date. |
| for the upswings for percentage reasons - a decline | | | | |