There are several key things I had to learn to become profitable:
Develop an ambush mentality, rather than predictive.
The purpose of the system is to capture a particular type of market action. When the market acts in a particular way, it makes money. When it doesn't, it doesn't make money. I can't control or predict when the good action will take place. I can only open a position and quickly determine if the action is there or not. If not, I get out, and I don't let it hit that stop.
It's just like setting up an ambush. You hide and wait. If the poor fools don't come along to get whacked, you get up and leave. You don't just sit there until something bad happens to you. I consider hitting my initial stop a bad thing, even though it is only 3 NQ points.
Let the market teach me to trade.
For one, it's free.
To design the system, I looked at the prior day's chart. I looked for the big moves. I found what chart gave a good entry signal and caught that move. From then on, I kept track of how many good entry signals showed up on that chart, vs. crappy ones. Eventually I decided on several charts that usually give the good signals.
It's an ongoing process. I keep track of how things change from month to month. For example, August had a lot of 10-15 point range days and the 90 tick had most of the good signals. This month it's moving a bit more and the 300 tick is the big money maker.
Study Exits.
When someone discusses a method you always hear about entries but hardly ever about the exits. I use the same process to study exits as I do to study entries. I have a table of what the best exit was and the number of times it occurred. Once I have a winner going, I may begin to see some of these exit signals. I can make an informed decision about getting out because I have an idea of the odds.
Make money by keeping losses small (just like poker).
The winners are easy (if you study exits). The goal is to add a large amount of small negative numbers together and get a total WAY LESS than those winners.
Trading maxims cannot be applied blindly!
Everyone has already heard the long lists of trading maxims. Good stuff, but I had to learn to do my homework before applying them. For example, "letting your winners run." How long should I let them run? By studying exits I have a good handle on how long. Another example is "trade with the trend." Well, there are only fifty million different trends you can trade with, and they're usually all different. I chose a particular trend which is aligned with my winner holding period.
Be patient.
There's no rush, take your time.
And now, the best for last:
Successful traders are obsessive-compulsive rule followers.
Corallary: Don't trade like an ass-monkey.
