Richard Donchian graduates from
Yale with a BA in economics and begins his Wall Street career in 1930. From
1933-1935 he writes a technical market letter for Hemphill, Noyes & Co. For
several years thereafter, he publishes a stock market service, "Security
Pilot," and sells it to brokerage houses. During WW II he serves as
an Air Force statistical control officer with a group they call the "Whiz
Kids." For two years after the war, he acts as economic trend analyst
and market letter writer for Shearson Hamill & Co. Quotes from his
"Market Outlook" letters appear in the Wall Street Journal and other
financial publications. He joins Hayden, Stone in 1960 and becomes VP and
Director of Commodity Research. He writes numerous articles including
"Trend Following Methods in Commodity Price Analysis." He
publishes a weekly "Commodity Trend Timing" letter, based on his 5-20
moving average method and achieves a circulation of over 10.000.
Donchian's 20 Trading Guides
(First publication: 1934)
Beware of acting immediately
on a widespread public opinion. Even if correct, it will usually delay the
From a period of dullness and
inactivity, watch for and prepare to follow a move in the direction in which
Limit losses and ride
profits, irrespective of all other rules.
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.
Seldom take a position in the
direction of an immediately preceding three-day move. Wait for a one-day
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 the the chart formation.
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%
In taking a position, price
orders are allowable. In closing a position, use market orders."
strong-background commodities and sell weak ones, subject to all other
Moves in which rails lead or
participate strongly are usually more worth following than moves in which
A study of the capitalization
of a company, the degree of activity of an issue, and whether an issue is a
lethargic truck horse or a spirited race horse is fully as important as a
study of statistical reports.
A move followed by a sideways
range often precedes another move of almost equal extent in the same
direction as the original move. Generally, when the second move from
the sideways range has run its course, a counter move approaching the
sideways range may be expected.
Reversal or resistance to a
move is likely to be encountered
0n reaching levels at
which in the past, the commodity has fluctuated for a considerable
length of time within a narrow range
On approaching highs or
Watch for good buying or
selling opportunities when trend lines are approached, especially on medium
or dull volume. Be sure such a line has not been hugged or hit too
Watch for "crawling
along" or repeated bumping of minor or major trend lines and prepare to
see such trend lines broken.
Breaking of minor trend lines
counter to the major trend gives most other important position taking
signals. Positions can be taken or reversed on stop at such places.
Triangles of ether slope may
mean either accumulation or distribution depending on other considerations
although triangles are usually broken on the flat side.
Watch for volume climax,
especially after a long move.
Don't count on gaps being
closed unless you can distinguish between breakaway gaps, normal gaps and
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,
especially if volume declines on the reversal.