How Richard Dennis Turned $1300 to $200 Million


Richard Dennis' 13 rules for new traders include..... have a worst case exit and when a trade goes bad walk away.

"After graduating high school, I got a summer job as a runner on the floor and I dabbled in trading a little bit," Richard Dennis said. "With my minimum-wage salary, I was making $40 a week, and losing $40 an hour trading."

He added: "I didn't know what I was doing."

"Yes, in retrospect, I would say this to new traders — although it may not be a reassuring thought — when you start, you ought to be as bad a trader as you are ever going to be," he said. "You shouldn't be too surprised if you really screw up."

Though Dennis was placing trades in a haphazard and unpredictable manner at first, he'd soon start to notice patterns, develop systems, and pick up on nuances in the market that often go overlooked. It was a battle and process he'd work through alone.

"I would say I am self-taught," he said. "I had very pale ideas, rules, and attitudes about the market then. But a few that I learned were right, like go with the trend."

Once Dennis found his niche, the floodgates opened. 

"The seat (Dennis' seat on the MidAmerica Commodities Exchange) cost Dennis $1,200, leaving him a scant $400 for trading," Jack Schwager, maker of the series "Market Wizards", said. "Incredible as it may seem, he eventually transformed that tiny stake into a fortune, which has been estimated by some to approach $200 million."

Eventually, Dennis would retire from trading altogether after suffering large losses in the late 1980s, but his legacy lives on. 

Here are the 13 trading rules that helped Dennis built his fortune.

1. The trend is your friend

"The market being in a trend is the main thing that eventually gets us in a trade," he said. "Whatever method you use to enter trades, the most critical thing is that there is a major trend, your approach should assure that you get in that trend."

2.  Friday's market action matters for the next week

"Yes, at a minimum, it is important not to have a short position with a loss on Friday if the market closes at a high, or a long position if it closes at a low," he said.

3. Get out

"I have learned that when you have a destabilizing loss, get out, go home, take a nap, do something, but put a little time between that and your next decision," he said.

4. Don't play catch up

"I learned to avoid playing catch up or double up to recoup losses," he said. "I also learned that a certain amount of loss will affect your judgement, so you have to put some time between that loss and the next trade."

5. Wait for your pitch

"After all is said and done, you have to minimize your losses and try to preserve capital for those few instances when you can make a lot in a very short period of time," he said. 

6. Consistency is king

"The key is consistency and discipline," he said. "Almost anybody can make up a list of rules that are 80 percent as good as what we taught our people."

7. Reflect

"When things go bad, traders shouldn't stick their heads in the sand and just hope it gets better," he said. "The trading experience is so intense that there is a natural tendency to want to avoid thinking about it once the day is over."

8. Prepare to be humbled

"There is another point I think is as important: You should expect the unexpected in this business; expect the extreme," he said, adding, "The unexpected and the impossible happen every now and then."

9. Always have a worst-case stop

"You should always have a worst case point," he said. "The only choice should be to get out quicker."

10. Keep emotion the outskirts

"Trading decisions should be made as unemotionally as possible," he said. "You have to maintain your perspective."

11. Bet small (specifically for novices)

"Trade small because that's when you are as bad as you are ever going to be," he said.

12. Don't let a mistake go to waste (specifically for novices)

"Learn from your mistakes," he said.

13. The process is key (specifically for novices)

"Focus on whether what you are doing is right, not on the random nature of any single trade's outcome," he said. "Don't be misled by the day-to-day fluctuations in your equity."

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