Although Richard Donchian passed away many years ago, his influence resonates. He is known as the father of trend following.

His original technical trading system became the foundation on which later trend followers would build their systems. Where do you think the Turtle system evolved from? He is noteworthy among traders in general, as he was the originator of the managed money industry. Donchian was born in in Hartford, Connecticut. He graduated from Yale in with a BA in economics.

Donchian’s 5 and 20 day Moving Averages

He was so fascinated by trading that even after losing his investments in the stock market crash, he returned to work on Wall Street. In , he managed to borrow some capital to trade shares in Auburn Auto, what William Baldwin in his article on Donchian called, the Apple Computer of its day. The moment after he made several thousand dollars on the trade, he became a market technician, charting prices and formulating buy and sell strategies without concern for an investments basic value source: William Baldwin, Rugs to Riches Section: The Money Men , Forbes March 1, He began to keep detailed, technical records on futures prices, recording daily price data in a ledger book.

Barbara Dixon, one of his students, observed how he computed his moving averages, posted his own charts by hand, and developed his market signals without the benefit of an accurate database, software, or any computing capability. His jacket pockets were always loaded down with pencils and a pencil sharpener source: Barbara Dixon, Richard Donchian: Managed Futures Innovator and Mentor. Much of Donchians work went unnoticed by the numerous stars of finance that followed him.

Dixon makes it clear that her mentors work preceded and prefigured that of the academic theorists who developed the foundations of the modern theory of finance. Donchian was best known for his pioneer work in the field of commodity futures money management. He was a member of the Commodity Exchange, Inc. Was Donchian an overnight sensation?

What patience and persistence! Like all of the other great trend followers, the importance of price was critical for Donchian. This excerpt from William Baldwin from a March, edition of Forbes says much:. Gold has got to come down. It went up too fast.

He was never distracted from his system. Today, most people fixate on the new and fresh fast money idea of the day, yet I still find almost every word Donchian or Dixon wrote newer, fresher, and more honest than anything currently broadcast on CNBC. My favorite Donchian wisdom tackles an issue that people are still struggling with in Trading is trading, and the name of the game is increasing your wealth. A traders job description is stunningly simple: This is of utmost importance to new traders, who are often told do your research.

This is good advice, but should be considered carefully. Research alone wont ensure a profit, and at the end of the day, your main goal should be to make money, not to get an A in How to Read a Balance Sheet. Richard Donchian, though now deceased, left many students that still trade or run money management firms. A sampling of his students include: Nelson Chang, Robert Crowell, Barbara Dixon, Bruce Terry, Paul Dean and Brent Elam. Trading as a trend follower is a learned behavior. Not everyone is going to trade this way.

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Check out my epic release: How to Make a Fortune in Bull, Bear and Black Swan Markets. About Products Books Performance Podcast Blog Contact. Free instant access to my trend following legend video. Trend Following Trader Although Richard Donchian passed away many years ago, his influence resonates. Donchian Start Donchian was born in in Hartford, Connecticut.

The Personification of Persistence Was Donchian an overnight sensation? This excerpt from William Baldwin from a March, edition of Forbes says much: The following Donchian trading guidelines were first published in General Guidelines from Donchian Beware of acting immediately on a widespread public opinion. Even if correct, it will usually delay the move. From a period of dullness and inactivity, watch for and prepare to follow a move in the direction in which volume increases.

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 reversal.

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 to 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 percent profit, whereas an advance from 25 to 50 will net percent profit.

In taking a position, price orders are allowable. In closing a position, use market orders. Buy strong-acting, strong-background commodities and sell weak ones, subject to all other rules. Moves in which rails lead or participate strongly are usually more worth following than moves in which rails lag.

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. Trading Never Changes Today, most people fixate on the new and fresh fast money idea of the day, yet I still find almost every word Donchian or Dixon wrote newer, fresher, and more honest than anything currently broadcast on CNBC.

He was one of the Pentagon whiz kids in World War II. He served as a cryptanalyst and worked closely with Robert McNamara during his Air Force tenure. Donchian did not start his trend following fund until age He traded into his 90s. He personally trained legions in the art of trend following. He trained women at a time when women had little respect on Wall Street. Donchian and his Students Richard Donchian, though now deceased, left many students that still trade or run money management firms.

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