Saturday, May 21, 2011

Lesson No 7 - Trading Rules

Formulate your own trading rules that suits your style of trading and follow them religiously. Examples below are some that you might want to adopt, adjust, change or add.

1. Check the overnight performance of the various markets.

2. Check the timing for announcement of economic data and the various figures.

3. Plan your Trades.

4. Justify your trade entry.

5. Put in a stop immediately.

6. Limit your losses per trade, 5 ticks, 10 ticks or 20 ticks.

7. Limit your losses per day, $500, $1,000 or $2,000.

8. Stop trading if being stop out 3, 4 or 5 times in a row.

9. Avoid getting in an out of the market too often unless you are a scalper.

10. Avoid Averaging on bad trades unless it's in your trading plan.

11. Avoid chasing the market if you miss it, the market is there everyday.

12. Don't ever allow a big winning trade to turn into a loser, move your stop to protect it.

13. Beware of the risk of trying to pick tops or bottoms, many stops are placed there.

14. Trade what you see not what you think.

15. Get out of a Trade immediately if you don't feel comfortable.

16. Stop trading if you are tired.

17. Never never carry a losing position overnight.

18. Do a post mortem of your trades at the end of the day.

19. Control your frustration, don't blame anybody for your losses and admit when you are wrong.

20. Learn from your losses, you paid for them.

Trading is simple but it's not easy.

Many traders are not making money because they can't even follow simple rules.

2 comments:

Ben said...

Hi Pat,

Want to ask you a question on stops !

For example, if a day-trading system calls for 15-tick target and 5-tick stop, the market went 6-tick your favour and then turn back to breakeven then becomes negative, do you manually cut at 1,2, 3 tick loss in order to have a smaller loss or do you let market stop you out at your 5-tick stop ?

Just need a confirmation from a Super Trader. I had read that good traders lose the same amount each time in their losing trades. Don't lose random amount.

However, in above example, people can also argue that you let a winner becomes a loser. Should we take profit even if the trade did not go to our target ?

Fat88Trader said...

Ben, what you have suggested is a very good profit/loss ratio of 1:3 for day trading.

As for the example you have given, it all depend on the market condition, the individual trader and his risk tolerance.

It's always a lousy feeling for a profitable trade to turn into a loser, I suggest moving up the stop to 1 tick above the entry level, at least cover the comm while letting the profit run as far as possible, squaring it at MOC. A former trader used to tell me "I'm having a free ride".