The Trade Decision
Trading Educators Inc.
1. Avoid adding to a losing position.
2. Always determine a stop and a profit objective before entering a trade. Place stops based on market information, i.e., what you see and know, not based on your account balance. If a "proper" stop is too expensive, don't do the trade.
3. Remember the "power of a position." Avoid making a market judgment when you are already in a position.
4. Your decision to exit a trade means you perceive changing circumstances. Don't suddenly think you can pick a price. Exit at the market.
THE MARKET HAS CHARACTER
5. In a Bull market, avoid selling a dull market, you may be seeing the end of the Bull, but that doesn’t mean prices will drop. In Bear market, avoid buying a dull market, you may be seeing the end of the Bear, but there is no guarantee prices will suddenly rise.
6. There are times, because of lack of liquidity, or excessive volatility, when you should not trade. Avoid trading days before a holiday, and when you know the Fed or one of its governors is going to make a speech. Avoid entering or exiting a market when a report is due out.
7. Trading systems that work in an up market may not work in a down or sideways market.
8. There are at least three types of markets: up trending, range bound, and down trending. Have different trading strategies for each.
9. Up market and down market patterns are ALWAYS present, merely one is more dominant. In an up market, for example, it is very easy to take sell signal after sell signal, only to be stopped out time and again. Select trades in accord with the dominant aspect of the market.
10. A buy signal that fails is usually a sell signal. A sell signal that fails is usually a buy signal.
11. It's always easier to enter a losing trade.
12. In the "blowout" stage of the market, up or down, risk managers are issuing margin-call position-liquidation orders. They don't check the screen for overbought or oversold. They just keep issuing liquidation orders. Don't stand in front of a runaway freight train.
13. Don’t trade if you are superstitious; don't trade if something bothers you.
14. Buy the rumor, sell the news.
15. News is only important when the market doesn't react in the direction of the news.
16. Read today's paper tomorrow. When you read yesterday's paper each day with the knowledge of what the market already did, you will affirm that this mornings paper with yesterday's news has nothing to do with today's market.
A TIME TO TRADE
17. On the open, avoid entering a new trade in the direction of a gap unless you first prove that it works in that market and time frame. Don’t let the market make you make a trade. (Closing an existing position is obviously ok.)
18. The first and last tick are the most expensive. Get in late and out early.
19. When everyone is in, it's time to get out.
20. Avoid trading when you are sick, under stress, or do not feel well. Don’t trade when things in your life are not going well.
TRACKING YOUR TRADES
21. Size kills. Only change your unit of trading under a plan of attained goals. Also, have a plan for reducing size when your trading is cold or market volume is down.
22. Confidence kills. Remember, you really don't know anything. Respect the market every second of every day. Expect the unexpected. Always know your position and exit your trade immediately whenever you feel uneasy.
23. Measure yourself by profitable "days in a row," not by individual trades.
24. The best way to break a streak of "losing days in a row" is to not trade for a day or more.
25. Don't stop trading when you’re on a winning streak. "When you’re hot, your hot,” but that doesn’t mean you have to trade all day long. You can continue your hot streak tomorrow.
26. Two strikes and you’re out! Don't turn two losing trades in a row into four in a row. When you’re off, turn the screen off, do something else. "When you’re not, hot you’re not."
27. Scalpers reduce the number of variables effecting market risk by being in a position only for seconds. Day traders reduce market risk by being in trades for a matter of minutes.
28. If you convert a scalp or day trade into a position trade, by definition you did not consider the risks of the trade.
29. Don't ever fret about a missed opportunity. There is always another one just around the corner. Besides, several just happened that you didn't even know about.
30. If you look for market secrets you will only find things that no one cares about. Trade what you see, not what you think.
31. Avoid asking for someone else's opinion, they probably did not do as much homework as you.
32. When the market is going up, say "the market is going up." When the market is going down, say "the market is going down." Say it without qualifications, no "buts" attached. This is a reality check. You'll be amazed at how hard it is to say what is literally going on in front of you when your mind is full of preconceived opinions.
33. THE DAILY MARKET COMMENTARY: I've never had an opinion I didn't like, however, successful day trading requires flexibility. Do your homework not to develop a market opinion, but rather to understand the potential for both sides of the market. This will allow you to make your trades based on what the market is doing at the time of the trade.
34. Here is a quote to remember: "When you wake up, your instincts are wrong."
SOME FINAL THOUGHTS
35. When you make a mistake of discipline, whine like a fool to anyone who will listen. Errors in discipline are mistakes you will keep on making for many years. Wearing ashes and sack cloth may help extend the time before you do it again.
36. If you squirmed and moaned while you read this list, then you share two obvious characteristics with many of us:
A. You have traded long enough to recognize that you (not the market) make mistakes, and you try to overcome them.
B. Now this is ugly, you have become part of the market and you can never leave.
No matter where life takes you, you will always check the market and always want to continue being a part of it. It's like that first true love, it will always be there no matter what the distance, no matter whether they are alive or dead.
Trading Educators Inc.
Joe Ross, trader, author, trading educator is one of the most eclectic traders in the business. His 50+ years include position trading of shares, and futures. He daytrades stock indices, currencies, and forex. He trades futures spreads and options on futures, and has written books about it all - 12 to be exact. Joe is the discoverer of The Law of Charts™, and is famous for the Ross hook™ and the Traders Trick Entry™.
(© by Joe Ross Re-transmission of reproduction of this material is strictly prohibited without the prior written consent of Trading Educators, Inc.)