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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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