Tag Archives: psychology

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.

Advertisements
%d bloggers like this: