Money Management and Trading Tactics


Managing your investments is just as important as determining what securities to own and when to buy and sell them.


Ideas for the following comments come from a variety of sources. Comments and opinions are by Tech Talk. Sources include the following:

  • Personal experience
  • Dennis Gartman: Dennis writes an excellent daily report on equity markets, commodities, interest rates and currencies. Dennis distributes a special report entitled, “Dennis Gartman’s Not-so simple rules of trading” each U.S. Thanksgiving. His service is available through Dennis can be contacted through
  • John Murphy: John has written classic books on Technical Analysis that are well worth buying and reading. John is the technical analyst at His services can be accessed through this website.
  • Gerald M Loeb: Gerald wrote a classic book on investing entitled, “The Battle for Investment Survival”. The book originally was published in 1935 and subsequently has been republished multiple times. Many of Gerald’s observations on investing are “timeless”. The book remains available in the business and investment section of most book stores.
  • Adrienne Laris Toghraie: Adrienne is a trading coach. Tech Talk originally met Adrienne in 2000 at the International Federation of Technical Analysts convention at Niagara Falls where she gave a presentation. She has written several books on the topic and offers training courses designed to help serious traders to become more successful. She encourages traders to use a disciplined approach based on their personal psychological profile. Adrienne’s website is located at She can be contacted at . In addition to her trading courses in cities across North America, Adrienne offers a “Trading on Target” home study course consisting of six modules. Each can be purchased individually. Adrienne’s comments frequently appear in daily Tech Talk reports.



Rules of engagement (in no particular order)


1. Diversify, diversify, diversify. Over-concentrated equity portfolios are vulnerable to a “blow up” that can greatly diminish value of the portfolio.


Fortunately, most Exchange Traded Funds have greatly reduced the risk associated with over-concentration in a small number of securities. ETFs consist of baskets of securities. However, even ETFs need to be examined closely for content and weights. For example, Biotech HOLDERS consists of a diversified basket of biotech securities, but one stock in the basket (Genentech) represents over 38% of its weight.


Diversification between sectors also is important. As a rule, no sector should exceed 20% of the equity value of a portfolio.


Diversification also can be taken too far. A large number of small equity positions dilutes performance. As a rule, equity portfolios valued between $100,000 and $1 million should not hold more than 20 equity or ETF positions. Equity portfolios valued between $10,000 to $100,000 should not hold more than 10 positions. Equity portfolios valued below $10,000 should not hold more than five positions due to transaction costs associated with odd lots.


2. Holding cash equivalents (e.g. treasury bills) between trades is preferred (particularly if trading is based on seasonality). Patience is a virtue when determining opportune times to enter and exit trades. Being fully invested in equities limits portfolio performance.


3. “Buy low, sell high” is not a preferred strategy in equity markets. The reason is that the investor first has to determine when price of the equity is low. The preferred strategy is to “buy high and sell higher”. Look for technical signs for a price bottom and an improvement in momentum before buying.


4. Invest in the direction of the intermediate trend. When an uptrend is first triggered, buy the breakout. After an uptrend is established, buy the dips. Conversely, when a downtrend is first triggered, sell the breakdown. After the downtrend is established, sell recovery bounces.


Another way to express rule #4 is, “Let your profits run, cut your losses short”.


5. Develop positions over time with multiple transactions. Do not develop a position with one transaction. Positions are added as success of the trade becomes apparent. The following guidelines are suggested:

  • Each successive addition to a position should be equal or smaller than previous.
  • Only profitable positions should be increased
  • Do not add to losing positions. Don’t throw good money after bad.


6. When using margin (e.g. an option writing strategy), never meet a margin call. Liquidate the position before “digging a deeper hole”.


7. Have a plan and work your plan. Know the reasons why a transaction was initiated. Reasons could be a combination of fundamental, technical and seasonal. Better yet, write down the reasons for the initial transaction. Each transaction should be supported by at least two of the three forms of analysis. Position should be monitored and retained as long as original reasons for the transaction apply. If only one of the initial reasons for the transaction remains, reduce positions. If all initial reasons for the transaction no longer exist, positions should be liquidated.


8. Use fundamental analysis to determine what to buy. Use technical analysis and seasonality analysis to determine when to buy and sell.  Technicals and fundamentals only work when fundamentals are working. By fundamentals, Tech Talk mean a series of recurring and potentially positive fundamental events that will create the environment for a momentum play during a chosen period of investment (e.g. a period of seasonal strength).


9. When equity markets appear to be reaching a peak and profit taking is becoming prudent, close out losing positions first, close out positions with low profits next and close out positions with the largest percentage gain last. Stick with your winners and let your profits run.


10. Technical analysis and seasonality analysis are skills that improve with experience and study. Technical and seasonality analysis is a learning experience that lasts a life time. Honing your skills will improve returns and reduce risk over time.


11. Use the “KISS” principal for investing (Keep It Simple, Stupid). A complicated investment plan is not always a better plan.


12. Don’t be afraid to be a contrarian. The media is infamous for taking an emotional stance on markets: One day the market (or sector, stock, commodity) is “going to the moon”. A week later, the market “has no bottom”. Also, the print media is notorious for recognizing an intermediate trend just as the trend is about to peak. For example, cover pages by magazines in 2000 declaring the “Internet generation” were clearly premature and caused considerable financial pain for those who bought internet stocks at that time. In addition, the investment dealer/broker sector is notorious for its bullish sentiment on markets. The industry’s frequency of Buy recommendations substantially exceeds their frequency of Sell recommendations. The tip off is when analysts and the media take extreme views. For example, analysts on both sides of the border were calling for crude oil in July 2006 to move to $100 U.S within a year when the price of crude oil was at $75 U.S. barrel. Investors who took the other side of that trade did very well. Ironically, downside extremes appeared in January 2007 when the price of crude oil briefly touched below $50 U.S. per barrel. By then, analysts were calling for $40 U.S. per barrel. Once again, investors who took the other side of the trade did very well. When most investors and traders are bullish on the market, sector or stock, chances are that most of the buying has been completed and downside risk is significant. Conversely, when most investors and traders are bearish on the market, sector or stock, chances are than most of the selling has been completed and upside potential is significant. At worst, stay away from markets that technically are overbought or oversold. At best, prepare a strategy to take advantage. Learn to be comfortable being a contrarian. If you are right, most people initially will disagree with you.  


13. Try limiting (eliminating?) the emotional part of investing. Except for very short term (e.g. day) traders, try to make investment decisions after the markets are closed rather than becoming caught up with inter-day ups and downs.


14. When considering a trade using fundamentals, technicals and seasonality, start with long term data (e.g. long term charts, seasonality studies for 10 years or more, a history of current management’s success rate at operating growth programs). Next, move forward to medium term (i.e. weekly) data. Then, progress to short term data (e.g. daily MACDs and RSIs). 


15. Bear market corrections happen much faster and more violently than bull market corrections. You don’t want to own major positions in the equity market when the market enters the “Break Down “phase.


16.Understanding psychology of the market usually is more important than understanding economics that influences markets. Market makers correctly state that, “When they are crying, you should be buying and when they are yelling, you should be selling”.


17. Know yourself and your abilities to trade. Successful traders have:

  • A plan. They have a model that works.
  • Focus. They know how to interpret the significance of data and how to respond when “noise” and emotions are building around them.
  • An ability to transfer experience from one skill to another. For example, a successful golfer with a great golf swing knows the importance of keeping his head down and following through with his swing. The same principles apply to successful trading.
  • The right frame of mind. The successful trader is alert to possibilities. He/she has a positive attitude and expects to win with his next trade. His efforts are not sabotaged by previous and recent unsuccessful efforts.
  • An ability to learn from past mistakes. Successful traders keep a diary of their trading activity and adjust their plan according to their past experiences.
  • An ability to take the key factor in a trading idea and translate the idea into an investment vehicle with optimal risk/reward parameters (e.g. Should the trader buy an ETF, a highly rated equity, a covered call write or a convertible debenture given circumstances related to the trade?)
  • An ability to improve on their ideas as well as other people’s ideas.
  • An innate desire to learn as a result of a personality profile that includes:


High self esteem


A strong belief system including a strong spiritual belief, belief in one self, belief in others, belief in your trading system and belief that your efforts will be successful


Entrepreneurial thinking


A passion for excellence


A competitive spirit




Adrienne Laris Toghraie offers programs and publications that coach individuals who want to go the next step toward successful trading.


18. Market value for equity securities has very little to do with balance sheets, book values and profit and loss statements. Ten fundamental analysts using the same data will calculate 10 different values for the same security. Market values are determined by the hopes and fears of humanity. Influences include greed, act of God, invention, weather, financial and personal stress, etc.  


19. Stick with securities that have good-to-excellent liquidity. Equity securities and ETFs should trade at least an average of 50,000 shares/units per day to consider investment. Exceptions exist, but are rare. Bid/ask spreads for less actively traded securities are wider. In addition, chances of unexpected price spikes are increased.


20. Avoid junior exploration and development stocks of non-producing companies in the energy and mining sectors. They are more prone to manipulation by promoters than companies that have operating revenues, cash flow and earnings.


21. Take profits in a trade only if you have a good reason other than price. Reasons include a change in fundamentals that negate original reasons for the purchase, deterioration in fundamentals and the end of a period of seasonal strength. 


22. Do not avoid taking a profit because of possible tax consequences. Avoiding capital gains taxes frequency has the opposite impact. Gains often slip away or are lost entirely. The owners of Nortel shares in 2000 are the classic example. Many refused to take profits when price of the stock was trading over $100 per share because they wanted to avoid paying capital gains tax. The rest is history. 


23. Know your “ouch” point on a trade where losses no longer are tolerated. Accepting losses promptly is the first key to trading success. At least use mental stops at that “ouch” point. Actual stop loss orders are better.


24. When examining potential equity positions, consider the size of ownership held by senior management.  A large interest (say 10% or more) gives management a powerful incentive to encourage higher stock prices.


25. Stocks and sectors, that were top performers in a previous intermediate cycle, rarely are top performers in the next intermediate cycle.


26. The key reasons for market tops and bottoms and the key reasons for sector advances and declines in the previous intermediate cycle never work in the next intermediate cycle. .


27. Shorting the market, a sector or a stock is a valid strategy, but is more difficult than going long the market. The reason is lack of available information and opportunity. Most corporations are reluctant to release negative information about their operations on a continuing basis. In addition, most fundamental analysts are reluctant to offer and maintain a sell recommendation on a stock for an extended period of time. Opportunities to identify seasonal trades on the short side also are limited. Very few markets have consistent periods of seasonal weakness caused by a series of recurring events (e.g lumber prices from April to September). Most markets, sectors and stocks have a period of seasonal strength followed by a period of random performance.


28. All rules are made to be broken, but only infrequently. The trick is to have the insight needed to know when to break the rules and still profit.