Barbara S.Dixon – Donchian’s 20 Guides to Trading Commodities (Aeticle)

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Barbara Dixon, a pupil of noted trend follower Richard Donchian, said in Commodities magazine twenty years ago:

Donchian is one of Wall Street’s most renowned experts, particularly in commodities. He began his work in 1930 and claims to have become obsessed with markets after reading Edwin LeFevre’s fictitious biography of Jesse Livermore, Reminiscences of a Stock Operator. After suffering considerable losses as a result of the 1929 crisis, he became interested in technical analysis. This led him to the realization that only the chartists made sense and money. Donchian authored his first market letter when he was 25 years old in 1930, and Shearson’s current ‘Trend Timing’ commodities letter began in 1960, when Donchian joined Hayden Stone. Countless commodity traders have learned from these messages. The ‘Twenty Trading Guides’ are an excellent complement to the letters and will very likely continue to be relevant for the next 44 years.

General Guidelines

Be wary of acting on popular opinion right away. Even if correct, it will frequently cause the relocation to be delayed.
Watch for and ready to follow a shift in the direction of increased volume after a time of dullness and inaction.
LIMIT LOSSES, RIDE PROFITS – regardless of other rules.
When a market position is uncertain, it is best to make limited commitments. Clearly defined moves are indicated often enough to keep things exciting, and focusing on these actions to the exclusion of others will keep you from wasting time ‘whipsawing.’
Rarely take a position in the direction of the previous three-day move. Wait for a one-day turnaround.
Stop orders, when used wisely, may be a significant asset in effective trading. Stops can be utilized to safeguard gains, reduce losses, and enter trades from certain formations like triangular foci. Stop orders are more beneficial and less dangerous when applied correctly in regard to the chart formation.
In a market where upswings are anticipated to equal or surpass downswings, a stronger position for the upswings should be placed for percentage reasons – a slide from 50 to 25 will earn only 50% profit, whilst an advance from 25 to 50 will net 100%.
Price orders are permitted when taking a position. Use’market’ orders to close a trade.
Subject to all other guidelines, buy strong acting, strong background commodities and sell weak ones.
Railways (formerly the Transportation Index) that lead or participate aggressively are typically worth watching more than rails that lag.
A study of a company’s capitalization, degree of activity (a varying factor), and whether an issue is a sluggish truck horse like Consolidated Edison or Exxon or a spirited, volatile race horse like Teledyne (NYSE) or Resorts International (American) is just as important as a study of statistical reports. (Volatile stocks are the 1978 equivalents of two 1934 offerings, Aluminum Co. of America, then on the Curb, and Case Threshing Machine, now J.I. Case, a subsidiary of Tenneco.)

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