List of personal rules for trading that makes U successful
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You ask a VERY important and very wise question. You might be a novice at trading, but your question proves that you are no dummy.
The very first hard learned lesson I got in the business of trading, was to not follow the crowd and do what the crowd is doing. I started out as a equity options trader and eventually made the switch to the currency markets. Over in equities, I saw the herd mentality rule the day. Bandwagon trading was the rule rather than the exception. The problem was the "group think" mentality that lead so many people down the rabbit hole and eventually into financial decay. When you are in a business with a more than 85% failure rate AND group think rules the hour, it does not take a rocket scientist to see that failure is not to distant in the future.
The second most important thing I learned was to get away from high manipulated markets and find a market that cannot be singularly manipulated by any competing source for long and extended periods of time. The stock market is notorious for being highly manipulated at several different levels. A singular stock can be set on its head by a singular manipulative source, for its own purposes. Stocks are also mathematically flawed as a matter of strict truth in that they can be suppressed to zero value, taking with it double-sided earnings potential with equal scale and magnitude. A lawsuit by a single individual almost anywhere on earth, can disrupt what might be a nicely trading stock - if you were Long the position. Finding out about that lawsuit before it is too late, is like finding a needle in a haystack - as just one example.
The third lesson I learned was the importance of finding a market with reasonably stable behavioral characteristics. All financially traded markets have wild-eye gyrations from time to time, but the best markets for trading are those whose data is always seeking its own normative level of equilibrium. A trader needs movement in order to profit on a regular and routine basis, but not just any kind of movement. A trader needs routine movement within a normative envelope or range of parameters that are consistently demonstrated as being the historically representation of the routine behavioral patterns of a particular market. Too little Delta and the range of profitability can be severely restricted. To much Delta and the probability for excessive draw before profitability might be too high. Therefore, it is important to find markets with an acceptable range of session Delta that allows for both profit and reduced risk at the same time. This single concept can save you TONS of lost capital in learning this lesson on your own.
The fourth lesson that I learned the really hard way, was the importance of developing a mechanical system to trade with. Trying to out think the market (which is always right 100% of time and thus, never wrong!) in real-time is a silly game, played by high-risk fools. I learned to front-run my thinking by building a trading system the contained the most effective thoughts, ideas, concepts and solutions. That's the entire point of trading with a system anyway - to remove the psychological barriers to successful trading in real-time. If I know that I'm going to do a "thing" anyway, why rehash the same thought over and over again, while introducing the probability of human error into real-time mix. That makes no sense. So, I use a system that already contains those thoughts which have been fully vetted, tested and analyzed against the historicity of the market data I trade. Using a fully vetted system is just plain smart.
The fifth lesson I learned the really hard way, was to finally trust the system I created. I eventually developed a way to trade without a system, but I still use the system to increase the rate at which my capital grows. Before I could trade without it however, I had to learn to trust it in the heat of battle, in real-time. It is one thing to trust your system during back-testing. However, it is quite another thing to trust that same system (or, any system) in live trading. At some point, you get comfortable with what you've created because you've been to war with it so many times in the past. You will also find times when your "mind" was telling you one thing about the market that day and the system was saying something else - only to find out later in the session that the system was correct and YOU were dead wrong. The inverse happens as well, but the former typically happens far more than the latter. Learn to trust what you have built and you will be light years ahead of most traders.
The sixth lesson that I learned was the importance of trading with financial goals that are built into the trading methodology that you deploy. Many people out there don't have a clue about size management. They have not run the numbers to see what effect a serious of blown trades will have on their overall account balance and long-term success. They don't even think twice about building a capital growth plan, because they really don't have any idea of what their probability for long-range success will be at any time in the future. They don't plan for the future consequently the future typically never comes for them. They sit with the same account balance they had several years ago, merely because they have not mapped their trading methodology directly into their capital management philosophy. They don't understand that connection because they cannot see that connection. And, it is a VERY real connection. Serious minded traders have a clearly mapped out capital growth plan that is strategically developed AND mapped directly into their trading methodology.
The seventh lesson I learned was the importance of risk reduction. I saved this one for last, because it is the most important as far as I am concerned. No trader worth his or her weight in salt fails to pay attention to the importance of reducing risk in every trade and ALL highly successful trades will walk away from a trade without looking back, if they cannot adequately identify, quantify, measure and clear the risk question BEFORE entering the trade. Good traders ALWAYS pay attention to how risk evolves. The best traders in the world understand that risk in fact, DOES evolve and thus their approach to trading must evolve with it. Developing ways to effectively execute on solid risk management strategies, both in your trade system and your capital management system, is the serious trader's imperative. There is absolutely NO such thing as a successful, long term trader who failed to get the risk management question under control. Learn to mitigate the risk in your trading and you will jump to light speed past most others calling themselves "traders."
There are many other detailed lessons that I could have laid out for you, but these were some of the biggest mountains that over the years, I've had to learn to climb.
Hope this helps and successful trading to you.
Rule #1 Drawing up a list of trading rules, like this, will likely not help you become a profitable trader
Rule#2 A trader finding a profitable backtest will likely find it does not work in the real market
Rule#3 You need 1+ outperformance edges (very rare) and solid money management skills.
Rule#4 You need 1+ outperformance edges (very rare) and solid money management skills.
Rule#5 You need 1+ outperformance edges (very rare) and solid money management skills.
Rule#6 You need 1+ outperformance edges (very rare) and solid money management skills.
Rule#7 You need 1+ outperformance edges (very rare) and solid money management skills.
Rule#8 You need 1+ outperformance edges (very rare) and solid money management skills.
Rule#9 You need 1+ outperformance edges (very rare) and solid money management skills.
Rule#10 You need 1+ outperformance edges (very rare) and solid money management skills.
Rule#11 You need 1+ outperformance edges (very rare) and solid money management skills.
etc. etc.
Rule#2 A trader finding a profitable backtest will likely find it does not work in the real market
Rule#3 You need 1+ outperformance edges (very rare) and solid money management skills.
Rule#4 You need 1+ outperformance edges (very rare) and solid money management skills.
Rule#5 You need 1+ outperformance edges (very rare) and solid money management skills.
Rule#6 You need 1+ outperformance edges (very rare) and solid money management skills.
Rule#7 You need 1+ outperformance edges (very rare) and solid money management skills.
Rule#8 You need 1+ outperformance edges (very rare) and solid money management skills.
Rule#9 You need 1+ outperformance edges (very rare) and solid money management skills.
Rule#10 You need 1+ outperformance edges (very rare) and solid money management skills.
Rule#11 You need 1+ outperformance edges (very rare) and solid money management skills.
etc. etc.
#1 -- Do NOT attempt to become a scalper
#2 -- only use risk capital
#3 -- Never lose more than 3 points on ES or $0.25 on CL
#4 -- Let your winners run as long as you can stand
#5 -- Learn to draw great straight lines
#6 -- Leave indicators, oscillators & squiggly lines & volume to the amateurs.
#7 -- Be a good patriot person & enjoy these freedoms to trade.
GL!
I've found you will rarely get much response when asking for advice about trading successfully. Those that are, are busy and if they stopped to reply to questions like this, they'd never get anything else done but giving away free advice.
Others are paper traders wannabe's that will cut and paste from online resources to try and appear legit but will make mistakes that are usually obvious. Things like commenting on how an exec. with a company will do this and that and how that will impact trading the stock when in fact that exec. has been long gone from that company.
But the first thing I would suggest is to keep text on a cell and type complete words with decent grammar, spelling and punctuation in forums, even if you're on the forum on a device with a 2" screen. I manage even when I'm on my 3.1" screen.
Just something about taking a thread serious when it looks like text type.
Oh, 1 rule that is imperative, stick to whatever plan you have. When you try to improvise along the way because you think you can make more if do something else, you'll loose....usually.
And don't fret when you leave money on the table. That's a tough one. I left a bunch on after scaling out of a couple of positions late yesterday and evening thinking I did well to get out and have what I have and this morning I realize it I had waiting until this morning, (had a feeling but didn't follow it) I would have started the day $900 + to finish an OK week. Instead, I'm out, in cash, and am sitting here frustrated that I'm missed a lot of plays already but if I jump in haste, I know I'll loose.
I'm not sure if experienced traders go through that, but it's hard to accept leaving money out there.
Others are paper traders wannabe's that will cut and paste from online resources to try and appear legit but will make mistakes that are usually obvious. Things like commenting on how an exec. with a company will do this and that and how that will impact trading the stock when in fact that exec. has been long gone from that company.
But the first thing I would suggest is to keep text on a cell and type complete words with decent grammar, spelling and punctuation in forums, even if you're on the forum on a device with a 2" screen.
I manage even when I'm on my 3.1" screen. Just something about taking a thread serious when it looks like text type.
Oh, 1 rule that is imperative, stick to whatever plan you have. When you try to improvise along the way because you think you can make more if do something else, you'll loose....usually.
And don't fret when you leave money on the table. That's a tough one. I left a bunch on after scaling out of a couple of positions late yesterday and evening thinking I did well to get out and have what I have and this morning I realize it I had waiting until this morning, (had a feeling but didn't follow it) I would have started the day $900 + to finish an OK week. Instead, I'm out, in cash, and am sitting here frustrated that I'm missed a lot of plays already but if I jump in haste, I know I'll loose.
I'm not sure if experienced traders go through that, but it's hard to accept leaving money out there.
1. The best lessons you'll learn, are those you'll learn on your own. No different than in life.
2. If you can't master your emotions, you won't make it in trading. The sooner you can face this and deal with it, the sooner you'll because successful. The business is filled with people who have great minds and wonderful systems. But they fail to master their emotions. They overtrade, they rush their signals, they cut winners short. They fail, when they should have been winning. Decide at the outset which type of trader you'll be: Highly disciplined, or a slacker.
3. Most often the best thing to do in trading is nothing. Learning to sit on your hands and develop patience is difficult, but necessary.
4. Be very cautious in dealings with other individuals and organizations in this business. Assume that they are either fools or thieves, until proven otherwise.
here is a small list of my personal rules that i have made over the last 10 years.
â« Learning to trade is like learning to drive a car. When you are learning you can¡¦t have the radio on, looking for hot girls, reading signs and watching other cars. 1 step at a time, everything in trading takes time to learn. Give it that time.
â« Go for singles, don¡¦t trade for the home runs. They will come when you are trading good
â« You must have a reason to buy or sell a market ie did it break support or resistance and you must log it in your journal.
â« Get all economic reports for the next day and enter them in your journal with market expectations the day before
â« Don¡¦t short an uptrend and don¡¦t buy a downtrend. Sounds simple but you would be amazed how many times I did exactly this.
â« Time is not your friend, if it doesn¡¦t go the way you thought it would then just get out
â« Once you are up 50% put in a hard stop or look to get out
â« Never buy front month options and always buy the option that you think will be in the money by expiration.
â« Get out when you know you are wrong
â« Don¡¦t go anywhere within 10 minutes of a report coming out
â« The longer you are in a trade the more exposure you have to loss
â« Use your trend lines, they will tell you where everything is going
â« Look to aggressively trade narrow pivot days, a great signal for a trending day
â« Markets will seek out the path of least resistance
â« Don¡¦t trade if indicators are not confirming each other
â« Never add to a losing position
â« You have 5-10 minutes for your trade to move in your direction, as long as its moving in your favor you can extend every 5 minutes.
â« Go with the direction of the trend
â« Once a 5 minute trend line is broken look for reversals
â« Get your stop in immediately, protect your ass
â« No sleeping during the markets
â« Learning to trade is like learning to drive a car. When you are learning you can¡¦t have the radio on, looking for hot girls, reading signs and watching other cars. 1 step at a time, everything in trading takes time to learn. Give it that time.
â« Go for singles, don¡¦t trade for the home runs. They will come when you are trading good
â« You must have a reason to buy or sell a market ie did it break support or resistance and you must log it in your journal.
â« Get all economic reports for the next day and enter them in your journal with market expectations the day before
â« Don¡¦t short an uptrend and don¡¦t buy a downtrend. Sounds simple but you would be amazed how many times I did exactly this.
â« Time is not your friend, if it doesn¡¦t go the way you thought it would then just get out
â« Once you are up 50% put in a hard stop or look to get out
â« Never buy front month options and always buy the option that you think will be in the money by expiration.
â« Get out when you know you are wrong
â« Don¡¦t go anywhere within 10 minutes of a report coming out
â« The longer you are in a trade the more exposure you have to loss
â« Use your trend lines, they will tell you where everything is going
â« Look to aggressively trade narrow pivot days, a great signal for a trending day
â« Markets will seek out the path of least resistance
â« Don¡¦t trade if indicators are not confirming each other
â« Never add to a losing position
â« You have 5-10 minutes for your trade to move in your direction, as long as its moving in your favor you can extend every 5 minutes.
â« Go with the direction of the trend
â« Once a 5 minute trend line is broken look for reversals
â« Get your stop in immediately, protect your ass
â« No sleeping during the markets
1) Do sleep during the market if you are tired. There are trade signals all day long better to have a refreshed mind.
2) Have patience, once you take a trade, it can take hours to pay off and hours to wait to get in.
3) Use sim to develop your ideas, and real money to test them. Know you will lose some money until you can become profitable and accept that.
4) Accept that you have an edge that over time will produce a positive win% but a single trade can become a loser. Trying to turn a losing trade into a winning trade will cause a bigger loss. Remember, we use sim to prove the edge and real money to learn how to trade with the psychological pressure of trading real money.
2) Have patience, once you take a trade, it can take hours to pay off and hours to wait to get in.
3) Use sim to develop your ideas, and real money to test them. Know you will lose some money until you can become profitable and accept that.
4) Accept that you have an edge that over time will produce a positive win% but a single trade can become a loser. Trying to turn a losing trade into a winning trade will cause a bigger loss. Remember, we use sim to prove the edge and real money to learn how to trade with the psychological pressure of trading real money.