Richard Donchian - Learn The From a Trading Legend

By: Monica Hendrix
Richard Donchian was born in Hartford, Connecticut in September 1905 was born over 100 years ago and although the vast majority of traders have never heard of him yet, he is one of the most influential traders of all time and the father of technical trend following.

Many modern trend following systems, such as the Turtle Trading system, are based on his work and legendary trader Richard Dennis was a huge fan and Ed Seykota used him as an inspiration.

Richard Donchian didn't begin trading his successful trend following system until the age of 65. He started making large returns after that and continued to trade until into his 90s - showing your never to old to trade. While he operated mostly in the field of commodities his technical analysis is applicable to any market.

His 4 week trading rule system has been at the heart of many successful trading systems and is one of the simplest, easiest and most profitable ways to trade trending markets.



People tend to think complicated is better but the 4 week rule is simplistic but will get you on the right side of every profitable trend and help you make money.

Apart from the 4 week rule he did a lot of work with a five and twenty day moving average crossover signal system and used buy and sell rules using a weekly time period.

The following trading guidelines were first published in 1934 and there are applicable today as they ever were and are re-produced in their original format below:

General Guides

1. Beware of acting immediately on a widespread public opinion. Even if correct, it will usually delay the move.

2. From a period of dullness and inactivity, watch for and prepare to follow a move in the direction in which volume increases.

3. Limit losses and ride profits, irrespective of all other rules.

4. Light commitments are advisable when market position is not certain. Clearly defined moves are signaled frequently enough to make life interesting and concentration on these moves will prevent unprofitable whip-sawing.

5. Seldom take a position in the direction of an immediately preceding three-day move. Wait for a one-day reversal.

6. Judicious use of stop orders is a valuable aid to profitable trading. Stops may be used to protect profits, to limit losses, and from certain formations such as triangular foci to take positions. Stop orders are apt to be more valuable and less treacherous if used in proper relation to the chart formation.

7. In a market in which upswings are likely to equal or exceed downswings, heavier position should be taken for the upswings for percentage reasons - a decline from 50 to 25 will net only 50% profit, whereas an advance from 25 to 50 will net 100%

8. In taking a position, price orders are allowable. In closing a position, use market orders."

9. Buy strong-acting, strong-background commodities and sell weak ones, subject to all other rules.

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