21 Rules To Trading Success by TTC

Discussion in 'Trading' started by TTC-SN, Dec 30, 2011.

  1. TTC-SN


    Before we indulge into what makes a trader successful, let's get a few things out of the way. Trading is not a hobby, trading is not a game, trading is not what you do when you are bored, trading is not a tool that you use to insert some sort of excitement into your life, or to make a few extra dollars to buy your girlfriend that Gucci handbag.

    Trading is a business!

    I have to admit, that in my early days as a trader, I have been guilty of a few things mentioned in the first paragraph. However, with time and some pain, I have learnt from trial and error on how to become a successful trader. I hope this comes in helpful to beginner traders and as a refresher to the more seasoned traders.

    In this thread, we will concentrate on discipline.

    So here we go. Just as there are hundreds of ways to reach the peak of Mount Everest (29,029 ft above sea level), there are hundreds of tools you can use to trade. However, to reach the peak, it doesn't matter which route you take, provided the route is heading up. In the same way, it doesn't matter what trading tools you use, provided you have discipline.

    The success of a trader is directly proportional to one's discipline. Disciplined trades win; undisciplined trades lose. Simple.

    1) Discipline is practiced 100%:

    Trading discipline is practiced every single time, in every single trade, on every single day. If this is not the case, the phrase "discipline" can be flushed down the drain. Let's take for example a trader that trades breakouts. These trades often take off, but occasionally tend to fail. If a trader trades 2 out of the 5 possible breakouts, there is a chance that those 2 will be the failed trades.
    Repeat: "Every single time, in every single trade, on every single day."

    2) Discipline = profits!:

    A traders wages are paid to them by the market. The market only pays out to disciplined traders.

    3) Don't let your winners become losers:

    There are two factors to this happening. Greed and ego!.

    With greed, the trader has decided that he will stay in until the target is reached. With ego, a trader feels that since he has determined the stock as being strong/weak, it can go no other way, but his way.

    Sometimes, the facts change after entering a trade. The facts have to be observed and obeyed. In obeying the facts, a successful trader puts money in his pocket.

    4) Trade with a plan:

    Trading without a plan, is like driving to Timbuktu without a map. The only difference is that you will end up with empty pockets.

    Have a plan and stick to it!

    5) Start small:

    The right to trade bigger must be earned.

    A trader must consistently be able to profitably trade 100 shares for a given period of time, before increasing his/her size. Starting with big sizes in the beginning can play havoc with one's emotions and account. Don't rush, your time too, shall come.

    6) You are who you are:

    Do not try and be the next Dan Zanger or Timothy Sykes (does he even trade anymore?). I don't know how they did it, nor do I care. All I know is that, if I tried to do what they did, I would be hiding somewhere in Afghanistan. Every trader has his own emotional and psychological skill set. Use yours and make a good living, or find your way to Afghanistan.

    7) Don't hold on to those losers:

    Having a losing trade does not make one a loser. However holding on to one does.

    If you have figured out that the trade is not going in the intended direction, what are you waiting for?. Most of the times, your gut feeling will kick in; listen to it!

    8) Keep your losses small:

    Be careful with this one. A few small losses will give you very good end of day balances. However, many small losses may make things look a little more uglier. But, this should never be the case, as after a certain number of losses one should understand that something may need altering to get back on track.

    9) Love your losses:

    Almost everyday there will be losing trades. Don't try and fight these. These are equivalent to overhead costs incurred in other businesses. Knowing, and accepting, that you will have losing trades, will keep your emotions in check. It reduces the stress factor multiple times over.

    10) Watching is never fun:

    Make sure you have loss limits for each trade and for each day. These limits need to be determined by the amount of capital one is investing in this business. You always want to come back again and play the next day.

    11) Watch Bloomberg and CNBC.......because the presenters are soft on the eyes:

    And that's it!!!

    If you're watching it for the news, here's a little tip; it's too late!!!. The fact is that by the time the news comes on these channel, it has already been dissected and consumed by the professional traders.

    12) Let your winners run:

    Use your moving averages, trendlines, support and resistance lines, Fibonacci or whatever it takes to keep you in the trade. In my early days, I would be jumping in ecstasy with a $.50 gain. By the end of the day, that gain would be a $2.00 gain and I would have missed 75% of that move. More than anyone, I understand the irony of winning and still being unhappy!.

    13) Keep your targets realistic:

    Who doesn't love making $5K and $10k a day. To make these targets, one must increase size. If you are not used to it, then no target will be reached except a big 0! (see #5). If $1K is more realistic, then aim for that; you will be pleasantly surprised to see that on most days you will actually exceed your target. At worst, $1K x 251 trading days will still put $251K in your pocket at the end of the year. In an average year, double that and in a good year, quadruple that!.

    14) Starbucks is a better hangout place:

    Sometimes after entering a trade, the movement dies down. There are many reasons for this, but regardless of the reasons, it's time to exit. Hanging out in trades like this, leads to a loss in time, capital and emotional energy. All these, utilized in a stock that has movement, will lead to a better looking P&L account.

    15) Discipline + Consistency = Confidence:

    I remember in my early trading days, I would have a breakdown after 2 to 3 losing trades. Now I can have the same happen and my heart beat remains at 72 bpm. The reason for this is that in my early days I traded with very little or no discipline. Discipline now gives me control; I control the trade, rather than the other way of round.

    16) Scale out your winners:

    There is multiple ways that this can be done. For example, if you are holding 1000 shares, cash in on 500 when the first target is reached. Let the second 500 run to the next target. Make sure that the appropriate stops have been placed for the second 500 shares. This, in effect, allows you to play with the house's money. You can't be in a better position than that.

    Note: It is not a good idea to scale out of a losing trade; a trade either works or doesn't. If it doesn't, get out. It's as simple as that. No if's, but's or why's.

    Note: There was a thread here on ET, regarding not scaling out, which had some very good points. I am still working on this to see which strategy my trading likes. Depending on the results, some of my rules could change.

    17) Don't sit around, keep busy:

    Entering a trade requires a little babysitting. Once things have settled down, move the chart on to another monitor where you can keep an eye on it, without making it a priority. Whether to have hard stops or not depends on each one's trading strategies and risk appetite. Once the trade gets moving, move on to find other opportunities. The plan and strategies remain the same; you are only multiplying what you're doing.

    McDonald's didn't become the Corporation it is, by just sitting on one store.

    18) All traders are created equal:

    Before the markets bell sounds, all P&L logs, look identical. That is, they all read $0.00. It is how we conduct ourselves from that point on, that will determine who survives and who doesn't.

    19) Don't hesitate, don't over analyze, don't procrastinate or you will lose:

    Ever been in a situation where you have pinned down the trade and only missed entering it by a penny or two and then it runs in your direction for the whole day. Yeah, we all know that feeling. So despite the correct analysis and dissection, your P&L gives you back a big 0!.

    In this business, you do not get paid, unless you put on the trade.

    20) The market is always right:

    The market has no intention of belittling anyone. The market doesn't care to favor you or me; the market does not discriminate. However, if the market is not respected, subsequent retributions will follow almost instantly. Watch what the market is doing and then follow it.

    Do not follow what you "feel". That is just your ego messing with your head and that will take you down a big dark hole, never to be seen again.

    21) Only you can inflict the pain:

    When trading, it is not other traders that will pick your pocket. It is you that empties your pockets out for them. Who's to blame a trader for taking money that's laying around. This business is difficult as it is; don't trade against yourself!

    I am sure that we have some very smart traders on here. Please do share your thoughts on what you think may make us all better traders. I hope this is helpful to all of you.

    Happy trading for the next year :)