25 Disciplinary Rules in day trading.(I)

26 Nov

My sugest is that you print this rules and positioned in an area with high visibility. So let’s start:

  1. The Market pays you to be disciplined. Trading with discipline will put more money your pocket and take less money out. The one constant truth concerning the markets is that disciplined = incresed profit.
  2. Be disciplined every day, in every trade, and the market will reward you. But don’t claim to be disciplined if you are not 100% of the time. Being disciplined is of the utmost importance, but it’s not a sometimes thing, like claiming you quit a bad habit, such as smoking. If you claim to quit smoking but you sneak a cigarette every once in a while, then you clearly have not quit smoking. If you trade with discipline nine out of ten trades, then you can’t claim to be a disciplined trader. It is the one undisciplined that will really hurt your overall
    performance for the day. Discipline must be practiced on every day. When I state that “the market will reward you”, tipically it is in recognizing less of a loss on a lossing trade than if you were stubborn and held on too long to a bad trade. Thus, if I lose $200 on a trade, but I would have lost $1,000 if I had remained in that losing trade, I can claim that I “saved” myself $800 in additional losses by existing the bad trade with haste.
  3. Always lower your trade size when you’re trading pourly. All good traders follow this rule. Why continue to lose on five lots (contracts) per trade when you could save yourself alot of money by lowering your trade size down to one lot on your next trade? If I have two losing trades in a row, I always lower my trade size down to one lot. If my next two trades are profitable, then i move my trade size back up to my original lot size. It’s like a batter in baseball who has struck out his last two times at bat. The next time up he will choke up on the bat, shorten his swing and try to make contact. Trading is the same: lower your trade size, try to make a tick or two or even scratch the trade and then rraise you trade size after two consecutive winning trades.
  4. Never turn a winner into a loser. We have all violated this rule. However, it should be our goal to try harder not to violate it in the future. What we are really talking about here is the greed factor. The market has rewarded you by moving in the direction of your position, however, you are not satisfied with a small winner. Thus you hold on to the trade in the hopes of a larger gain, only to watch the market turn and move against you. Of course, inevitably you now hesitate and the trade futher deteriorates into a substantial loss. There’s no need to be greedy. It’s only one trade. You’ll make many more trades throughout the session and many more throughout the next sessions. Opportunity exists in the marketplace all of the time. Remember: No one trade should make or break your perfomance for the day. Don’t be greedy!
  5. Your biggest loser can’t exceed your biggest winner. Keep a trade log of all your trades throughout the session. If, for example, you know that, so far, your biggest winner on the day is five e-Mini S&P, then do not allow a lossing trade to exceed your biggest gain then, effectively, what you have when you net out the biggest winner and biggest loss on the two trades. Not good.            (others will follow)
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