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25 Disciplinary Rules in Day Trading.(V)

1 Dec

21. Learn to sweat out (scale out) your winners. The net effect of scaling out of your winners will be an increased average win per tradetrading rules while keeping your losses to your pre-defined risk parameters. You should never scale out of your losers. If your trade size is more than a one lot and your trade is a loser, you must exit the entire position en masse. If your trade size is more than a one lot and your trade is a winner, it is best to exit one-half of your position at your first price target. If you trade with protective stop loss orders, you should amend the order to reflect the change in trade size (remember you have exited one half of your position) and raise or lower the stopp price, depending on whether it’s a long or short position, to your original initiating trade entry price. You now are essentially “playing with the house’s money.” You can’t lose on your remaining position, and that’s obviously a fantastic position in wich to put yourself. Place a limit order a few tics above or below the market, depending on your possition, sit back and relax.

22. Make the same type of trades over and over again-be a bricklayer. A bricklayer shows up for work every day of his working life and executes with the same methodology – brick by brick by brick. The same consistency applies to traders, as well. Please review Rules 6 and 20. I have not changed my trading methodology and execution strategy in 20 years. I guess I’m the bricklayer.

23. Don’t over – analyze. Don’t procrastinate. Don’t hesitate. If you do you will lose. I can’t tell you how many times traders have come into my office terribly depressed because they “knew” the market was going one way or another however, they failed to put a position on. When I asked them why they did not put the trade on, their responses are always the same: they did not want to chase the market. They were waiting to be filled at the absolute best possible price ( and never got filled ), or only two out of three of their market indicators were present and they were waiting for the third. The net result of all this procrastination and hesitation is the trader was corect in deducing market direction but his profit on the trade was zero. We don’t get paid in this business unless we put the trade on. Don’t over analyze the trade. Place the trade and then manage it. If you’re wrong, get out. But you’ll never be right unless you actually make the trade.

24. All traders are created equal in the eyes of the market. We all start out the day the same. We all start out at zero. Once the bell rings and trading begins, it’s how we conduct ourselves from a behavioral standpoint that will dictate whether or not we will make money on the day. If you follow the 25 Rules, you should do well. If you do not, you will do poorly.

25. It’s the market itself that wields the ultimate scale of justice. The market moves wherever it wants to go. It does not care about you or me. It does not play favorites. It does not discriminate. It does not intentionally harm any one individual. The market is always right. You must learn to respect the market. The market will mercilessly punish you if you do not play by the rules. Learn the condition yourself to play by the 25 Rules of Trading Discipline and you will be rewarded


25 Disciplinary Rules in Day Trading.(IV)

30 Nov

16. If your trade is not going anywhere in a given timeframe, it’s time to exit. This rule relates to the theorytrading rules of capital flow. It is trading capital that pushes a market one way or another. An oversupply or imbalance of buy orders will push the market up. An oversupply of sell orders will push the market lower. When price stagnation is present (as typically happens many times throughout the trading session), the market and it’s participants are telling us that, at the  present time, they are happy or satisfied with the prevailing bid and offer. You don’t want to be in the market at these times. The market is not going anywhere. It is a waste of time, capital and emotional energy. It’s much better to wait for the market to heat up a little and then place your trade.

17. Never take a big loss. Only a big loss will hurt you. Please review rules 5, 8, 10, 11, and 15. If you follow this rules you will never violate rule 17. Big losses prevent you from having a winning day. They wipe out too many small winners that you have worked so hard to achieve. Big losses also “kill you” from a psychological and emotional stand point. It takes a long time to get your  confidence back after taking a big loss on a trade.

18.Make a little bit everyday. Dig your ditches. Don’t fill them in. When i was a young bond trader, my goal every day was to make 10 bond tics. A tic is $31.25, so if I made 10 tics on the day, I would be up $312.50. It may not sound like a lot of money to you, but it surely was to me. It is amazing how quickly your trading account will build up over time jut by making a little bit every day. If you are a new e-Mini S&P trader try to make 5 or 6 points everyday. If you can do that you’ll have that $72,000 at the end of the year.

19. Hit singles not home runs. Just as I don’t no of succesful speculators, I don’t of any trader who goes into a trade expecting to hit a home run and then actually having it happen. You should never approach a trade with the idea that it’s going to be a huge winner, Simetimes they turn out that way, but the times that I have hit a home run on a position is most definitely luck, not skill. My intent on the trade was to produce a small winner but, because I had the trade on, and at the same time (as luck would have it), the FED unexpectedly entered the market, I unwittingly had a huge winner. This probably has happened to me less than five times in 20 years.

20. Consistency builds counfidence and control. How nice is it to be able to turn on your PC in the morning knowing that if you play by the Rules, trade with discipline and stick to your methodology, the probability of a succesful day is high. I’ve had years where I could count on one hand the number of losing days that I had. Don’t you think that this consistency allowed me to be extremely confident? I knew that i was going to make money on any given day. Why would i think otherwise? Making a little bit everyday (Rules 18 and 19) will allow you to trade throughout the trading session with confidence and control. Remember Rule 9:If you make a little bit every day, then you have earned the right to trade bigger. Thus, by following the Rules of Discipline, your “little bit” can soon turn into much more profitable days.

25 Disciplinary Rules in Day Trading.(III)

29 Nov

11. The first loss is the best loss. Once you come to the realization that your trade is no good It’s best to exist immediately. “It’s never a loser until you get out” and “Not to worry, it’ll come back” are often said tongue in cheek, by traders in the pit. Once the frase is stated, it is an affirmation that the trader realizes that the trade is no good, it is not coming back and it is time to exit.

12. Don’t hope and pray. If you do, you will lose. When i was a new and undisciplined trader, I can’t tell you how many times that I prayed to the “Bond god”. My prayers where a plea to help me out of  a less than pleasant trade position. I would pray for some sort of divine intervention that, by the way, never materialized. I soon realized that praying to the  “Bond god” or any other “futures god” was a wasted exercise. Just get out!

13. Don’t worry about news. It’s history. I have never understood why so many electronic traders listen to or watch CNBC, MSNBC, Bloomberg News or FNN all day long. The “talking heads” on these programms know very little about market dynamics and market price action. Very few, if any, have ever even traded one lot in any pit on any exchange. Yet they claim to be experts on everything. Before becoming a “trading and markets expert,” the guy on CNBC reporting hourly the Bond Pit, was a phone clerk on the trading floor. Obviously this qualifies him to be an expert! He, and others can provide no utility to you. Treat it for what it really is… entertainment. The fact is: The reporting that you hear on the business programs is “old news.” The story has already been dissected and consumed by the professional market participants long before the “news” has benn diseminated. Do not trade off of the reporting. It’s too late.

14. Don’t speculate. If you do, you will lose. In all of the years that I have been a trader and associated with traders, I have never met a successful speculator. It is impossible to speculate and consistently print large winners. Dont’t be a speculator. Be a trader. Short-term scalping of the markets is the answer. The probability of a winning day or week is greatly increased iy you trade short term: small winners and even smaller losses. (I like this one)

15. Love to lose money. This rule is the one that i get the most questions and feed -back on by traders from all over the world. Traders ask, “What do you mean, love to lose money. Are you crazy?” No, I’m not crazy. What I mean is to accept the fact that you are going to have losing trades throughout the trading session. Get out of your losers quickly. Love to get out of your losers quickly. It will save you a lot of trading capital and will make you a much better trader.

25 Disciplinary Rules in Day Trading.(II)

27 Nov

6. Develop a methodology and stick with it. Don’t change methodologies from day to day. It is requaired to write down the specific market prerequisites (set-ups) that must take place in order for them to make a trade. I don’t necessarily care what the methodology is, but I do want to make sure that you have a set of rules, market set ups or price action that must appear in order that you will take the trade. You must have a game plan. If you have a proven methodology but it doesn’ seem to be working in a given trading session, don’t go home that night but try to devise another one. If your methodology works more that one-half of the trading session, then stick with it.

7. Be yourself don’t try to be someone else. In all of my years as a trader I never traded more than a 50 lot on any individual trade. Sure, I would have liked to be able to trade like colleagues in the pit who were regulary trading 100 or 200 lots per trade. However, I didn’t possess the emotional or psychological skill set necessary to trade such big size. That’s ok. I knew that my comfort zone was somewhere between 10 and 20 lots per trade. Emotinally I couldn’t handle that size. The trade would inevitably turn in to a loser because I could not trade with the same talent level that I possessed with a 10 lot. Learn to accept your comfort zone as it relates to trade size. You are who you are.

8. You always want to be able to come back and play the next day. Never put yourself in the precarious position of losing more money that you can afford. The worst feeling in the world is wanting to trade and not being able to do so because the equity in your account is to low and your brokerage firm will not allow you to continue unless you submit more funds. You require to place daily downside limits on your performance. For example, your daily loss limit can never exceed $500. Once you reach the $500 loss limit, you must turn your PC off and call it a day. You can alalways come back tomorrow.

9. Earn the right to trade bigger. Too many new trader think that because they have $25.000 equity in their trading account that they somehow have the right to trade five or ten e-Mini S&P contracts. This cannot be further from the truth. If you can’t trade a one lot successfully, what makes you think that you have the right to trade a 10 lot? Remember: if you are trading poorly with two lots you must lower your trade size down to one lot.

10. Get out of your losers. You are not a “loser” because you have a losing trade on. You are, however, a loser if you do not get out of the losing once you recognize that the trade is no good. It’s amazing to me how accurate your gut is as a market indicator. If, in your gut,  you have the ideea that the trade is no good then it’s probably no good. Time to exit. Every trader has losing trades throughout the session. A typical trade dayfor me consists of 33 percent winners. I exit my losers very quickly. They don’t cost me much. So, although I have either lost or scratched over two-thirds of my trades for the day, I still go home a winner. (others will follow)

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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