H.J. Wolf's Ten Rules

 H.J. Wolf's Ten Rules.

1. Do not overtrade.

2. Limit losses. Place stops at technical danger points on all trades, and if the location of the danger point is uncertain use a 2-point or 2-point stop, or await a better opportunity.

3. Follow the trend. Do not buck the trend, and do not hedge. Be either long or short, but not both at the same time.

4. Favor active issues. Do not tie up funds in obscure or inactive stocks, and avoid thin-market issues except in long-pull operations.

5. Buy during weaknesses. Buy only after reactions confirming higher support.

6. Sell during strength. Close out on unusual advances at first sign of hesitation; and sell short only after evidence of distribution with lower support followed by lower top.

7. Distribute risk. Do not concentrate in one issue, but trade in equal lots of several different issues, aloof which are definitely attractive. Avoid spreading over too many different issues.

8. Protect profits. Never let a 3-point profit run into a loss, and never accept a reaction of over 5 points unless the favorable trend of the stock has been definitely established.

9. Avoid uncertainty. When the trend is in doubt, stay out. Avoid a trader's market when the ultimate trend is uncertain unless the trade can be protected by a small stop and justifies the risk.

10. Discount fundamental outlook. Never ignore fundamental conditions, and always favor the trade wherein fundamental and technical conditions cooperate. Avoid a trade wherein fundamental and technical conditions are opposed, except in cases of imminent liquidation, or overextended short interest.

From Studies in Stock Speculation, Volume II, H.J. Wolf, 1985, Fraser Publishing Company, extracted from Investment Psychology Explained, Martin J. Pring, 1993, John Wiley & Sons.