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You Can't Become Rich In Your Pocket Until You Become Rich In Your Mind | ||||
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If I get decent money in a trade, I will not allow myself to lose money on that tradeTRADING RULES Its kind of strange in a world with no rules (like trading) that its so important to have a specific set of rules that you follow religiously. I mean lets be honest, trading really doesnt have any rules. You can get in whenever you want. You can get out whenever you want. You can add and subtract to your existing position, and you can obviously decide simply not to trade. The only thing that could prevent you from participating is the lack of required money to trade. Other than that, you get to decide what you want to do and when you want to do it. There are not to many other businesses that allow for that much freedom. Because there really arent any set rules, youll need to make your own. Otherwise, youll most likely be overwhelmed with all the different possibilities in the market. If you decide to trade without any rules, I promise you will not be successful. Freedom is good, but you need to have what I call a structured freedom. Basically, that means you should be able to trade when you want to, but the trades you do need to fall under your set rules. Rules will help you be more consistent with your trading. Theyll help you avoid mental mistakes that can drain your account. About once every six months I write a new set of trading rules for myself. These rules help me to be structured with my trading. And you know, its the strangest thing, when I have a bad day, its because I didnt follow one or more of my rules. And, of course, the opposite is usually true. If Ive had a good day trading, its because I did follow my rules. No matter what type of trading youre doing (swing trading, day trading, long-term trading), youll need to come up with your own set of rules to keep your trading structured. The problem is most people dont want to make up their own rules, because if they did they would have to take responsibility for their results. And, as we all know, most people dont want to take responsibility for their action. But, as we all know, the only way to be successful in trading is to take 100% responsibility and act in our own best interest. For those that dont know, I day trade the S&P 500 Futures almost exclusively. I updated my rules in July of 1998. I thought it might help you to see what my rules look like, and Ill try to give an explanation of each rule as it applies to my trading. These are exactly how my rules look taped up to the side of my computer in my office: RULES FOR TRADING 7/6/98 1)Always use a stop order. (I never put on a trade without a stop order.)2)After 3 losing trades in one day, Stop Trading! (I want to avoid digging myself in a huge hole.) 3) If I get 100 points + profit in a trade, I will move my stop to break-even. (If I get decent money in a trade, I will not allow myself to lose money on that trade.) 4) Only use a signal to get into the market. Dont just take a shot. (I usually get myself in trouble if I have a feeling about the market and act on it. Im much more successful when I use a chart formation or a technical reason to get into the market.) 5) Use The Secrets of Floor Traders Rules. They work!!! (This is the course Ive putt together for day trading the S&Ps. It includes all the techniques that I use to trade.) 6) Do not trade on holiday type volume. Too slow bad opportunities. Go outside, watch a movie, whatever! (In almost every case, when I trade in these types of markets, my winning trades are much smaller, and my losers are much bigger. Its not worth it.) 7) Always act with your best interest in mind. (This is something I try and do with each and every trade I put on. I realize that only Im responsible for my results.) 8) Consistently trade on long side above value and the short side below value. (I use the Value Area to help stay on the right side of the market.) 9) Always look for single ticks to help you execute your trades. (This is a Market Profile technique that I use to help me find support and resistance areas.) 10) Relax with your trades. If its not fun and enjoyable, its not worth doing. (This is self-explanatory. If you dont enjoy it, you wont be successful.) 11)You dont have to trade everyday. (Sometimes Ill just leave the market alone andforget about it for a day. It usually refreshes me.) 12) Waiting till the market shows you whether it is one-time framing or not is an excellent way to be patient waiting to find an opportunity to trade. (One-Time Framing is a trend following technique that I watch for constantly.) Those are the exact rules that I use each and everyday, and its almost automatic. After a bad day trading, I will look at my rules and see that I did not follow them like I should have. And again, the opposite is true. After a good day, Ill look at them and see that I followed them very well. I really believe my ability to follow those exact rules is a direct reflection of how much money I will make with my trading. The more I follow them, the better I trade. Im quite sure the same thing will happen for you. Although I would say youll want to come up with your own set of rules. You can certainly use mine as a guide, but the important thing is you must be comfortable with the rules you come up with. I know that Im very comfortable with my rules. Youll need to do that with your rules. If youre not comfortable, they will be very difficult for you to follow and the odds of you being profitable will be very low. One thing that is common in trading is the temptation to not follow your rules just this one time. This comes from the very real possibility of the exciting results that are possible. This is the trap that many new traders (and some experienced ones too) fall into. This trap is easy to fall into because many people have a terrible fear of missing out on a big move. A good example would be when you see the Dow Jones up 250 points and you feel as though you must find a way to get long the S&P market even if it breaks many of your rules to do so. Avoid at all costs getting caught in that trap. Doing a trade because youre afraid of missing out on a big move is not acting in your best interest. Avoid at all costs getting caught in that trap. Doing a trade because youre afraid of missing out on a big move is not acting in your best interest. Ive got news for you, there are big moves almost everyday. Besides, most people do not think about missing those big moves in a realistic way. When youve missed an opportunity, you have a tendency to think about it unrealistically. You see the bottom and the top of the big move and think to yourself that you would have been able to capture the entire move. I think we all know that isnt likely to happen. But our mind plays tricks on us and says we shouldnt have missed out. Again, the market doesnt stop moving. If you werent able to get into the previous opportunity, look for the next one. Dont let your mind play tricks on you. The more you follow your rules, the more youll trust yourself and the better your results will be. Remember, only you are responsible for your trading results, good or bad. Having a set of rules will help you get more good than bad. |
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