Tell me the rules of Trading....

Discussion in 'Psychology' started by ultranet, Oct 26, 2006.

  1. eagle


    Rule #1. Trust yourself. Listen to your conscience since only you who will be absorbing the pain when losing.
    Rule #2. If you start to trust the guru then go back to the first rule.
    #21     Oct 26, 2006
  2. sulong is nuts...

    Rule #1 - listen to every single rule everyone on this post told you... And since they all cancel one another out, don't trade at all... Pretty easy, huh?

    Seriously though, if you're a total newb, check out Rules of the Trade by David Nassar. Everybody on ET hates it, but read my review in the Books section and you'll understand why it has so many bad reviews... If you are a total newb, read an "intro to daytrading" book or something of the sort before you read this one...
    #22     Oct 26, 2006
  3. Dont get high on your own thread...

    Try this: Top picker and bottom pickers are cotton pickers

    not a rule but what the hey
    #23     Oct 26, 2006
  4. samosa


    Here I got this from another website. I just copied and pasted it.

    Trading Rules
    A survey conducted of more than 500 experienced futures brokers were asked what, in their experience, caused most futures traders to lose money. These account executives represent the trading experience of more than 10,000 futures traders. In addition, most of these Account Executives (AEs) have also traded or are currently trading for themselves. Their answers are not summarized because different traders make (and lose) money for different reasons. Perhaps you may recognize some of your strengths and weaknesses. Yet many of the reasons given are very similar from broker to broker. The repetitions stand to demonstrate that alas, many futures traders lose money for many of the same reasons. Perhaps these statements from experienced brokers can make a contribution to you, and make this sometimes fickle, often intricate, always interesting market place of futures trading possible. Here is what they said:

    1. Many futures traders trade without a plan. They do not define specific risk and profit objectives before trading. Even if they establish a plan, they “second guess” it and don’t stick to it, particularly if the trade is a loss. Consequently, they overtrade and use their equity to the limit (are undercapitalized), which puts them in a squeeze and forces them to liquidate positions. Usually, they liquidate the good trades and keep the bad ones.

    2. Many traders don’t realize the market has in many cases, already discounted the news they hear and read.

    3. After several profitable trades, many speculators become wild and not conservative. They base their trades on hunches and long shots, rather than sound fundamental and technical reasoning, or put their money into one deal that "can´t fail."

    4. Traders often try to carry too big a position with too little capital, and trade too frequently for the size of the account.

    5. Some traders try to “beat the market” by day trading, nervous scalping, and getting greedy.

    6. They fail to pre-define risk, add to a losing position, and fail to use stops.

    7. They frequently have a directional bias; for example, always wanting to be long.

    8. Lack of experience in the market causes many traders to become emotionally and/or financially committed to one trade, and unwilling or unable to take a loss. They may be unable to admit they have made a mistake, or they look at the market on too short a timeframe.

    9. They overtrade.

    10. Many traders can’t (or don’t) take the small losses. They often stick with a loser until it really hurts, then take the loss. This is an undisciplined approach...a trader needs to develop and stick with a system.

    11. Many traders get a fundamental case and hang onto it, even after the market technically turns. Only believe fundamentals as long as the technical signals follow. Both must agree.

    12. Many traders break a cardinal rule: “Cut losses short. Let profits run.”

    13. Many people trade with their hearts instead of their heads. For some traders, adversity (or success) distorts judgment. That’s why they should have a plan first, and stick to it.

    14. Often traders have bad timing, and not enough capital to survive the shake out.

    15. Too many traders perceive futures markets as an intuitive arena. The inability to distinguish between price fluctuations that reflect a fundamental change and those, which represent an interim change often, causes losses.

    16. Not following a disciplined trading program leads to accepting large losses and small profits. Many traders do not define offensive and defensive plans when an initial position is taken.

    17. Emotion makes many traders hold a loser too long. Many traders don’t discipline themselves to take small losses and big gains.

    18. Too many traders are under financed, and get washed out at the extremes.

    19. Greed causes some traders to allow profits to dwindle into losses while hoping for larger profits. This is really a lack of discipline. Also, having too many trades on at one time and overtrading for the amount of capital involved can stem from greed.

    20. Trying to trade inactive markets is dangerous.

    21. Taking too big a risk with too little profit potential is a sure road to losses.

    22. Many traders lose by not taking losses in proportion to the size of their accounts.

    23. Often, traders do not recognize the difference between trading markets and trending markets.

    24. Lack of discipline is a major shortcoming. Lack of discipline includes several lesser items; i.e., impatience, need for action, etc. Also, many traders are unable to take a loss and do it quickly.

    25. Trading against the trend, especially without reasonable stops, and insufficient capital to trade with and/or improper money management are major causes of large tosses in the futures markets; however, a large capital base alone does not guarantee success.

    26. Overtrading is dangerous, and often stems from lack of planning.

    27. Trading very speculative commodities is a frequent mistake.

    28. There is a striking inability to stay with winners. Most traders are too willing to take small profits and, therefore, miss out on big profits. Another problem is under capitalization; small accounts can’t diversify, and can’t use valid stops.

    29. Some traders are on an ego trip and won’t take advice from another person; any trades must be their ideas.

    30. Many traders have the habit of not cutting losses fast, and getting out of winners too soon. It sounds simple, but it takes discipline to trade correctly. This is hard whether you’re losing or winning.

    31. Many traders overtrade their accounts. Futures traders tend to have no discipline, no plan, and no patience. They overtrade and can’t wait for the right opportunity. Instead, they seem compelled to trade every rumor.

    32. Staying with a losing positien because a trader’s information (or worse yet, intuition) indicates the deteriorating market is only a temporary situation can lead to large losses.

    33. Lack of risk capital in the market means inadequate capital for diversification and staying power in the market.

    34. Some speculators don’t have the temperament to accept small losses in a trade, or the patience to let winners ride.

    35. Greed, as evidenced by trying to pick tops or bottoms, is a frequent error.

    36. Not having a trading plan results in a lack of money management. Then, when too much ego gets involved, the result is emotional trading.

    37. Frequently, traders judge markets on the local situation only, rather than taking the worldwide situation into account.

    38. Speculators allow emotions to overcome intelligence when markets are going for them or against them. They do not have a plan and follow it. A good plan must include defense points (stops).

    39. Some traders are not willing to believe price action, and thus trade contrary to the trend.

    40. Many speculators trade only one commodity.

    41. Getting out of a rallying commodity too quickly, or holding losers too long results in losses.

    42. Trading against the trend is a common mistake. This may result from overtrading, too many day trades, and under capitalization, accentuated by failure to use a money management approach to trading futures.

    43. Often, traders jump into a market based on a story in the morning paper; the market many times has already discounted the information.

    44. Lack of self-discipline on the part of the trader and/ or broker creates losses.

    45. Traders don’t clearly identify and then adhere to risk parameters; i.e., stops.

    46. Most traders overtrade without doing enough research. They take too many positions with too little information. They do a lot of day trading for which they are under margined; thus, they are unable to accept small losses.

    47. Many speculators use “conventional wisdom” which is either local, or “old news” to the market. They take small profits, not riding gains as they should, and tend to stay with losing positions. Most traders do not spend enough time and effort analyzing the market, and/or analyzing their own emotional make ups.

    48. Too many traders do not apply money management techniques. They have no discipline, no plan. Many also overstay when the market goes against them, and won’t limit their losses.

    49. Many traders are undercapitalized. They trade positions too large, relative to their available capital. They are not flexible enough to change their minds or opinions when the trend is clearly against their positions. They don’t have a good battle plan and the courage to stick to it.

    50. Don’t make trading decisions based on inside information. It’s illegal, and besides, it’s usually wrong.

    * This material is of opinion only, and should be used only for educational purposes.
    #24     Oct 26, 2006

  5. Start with Cuttting losers quickly. Most don't understand that statement and even fewer are able to do it consistently. Once you have that down, you have 99% of what trading is all about. It's not rocket science.
    #25     Oct 26, 2006
  6. Sounds great! What's quickly? 4 ticks, 6 or 8.? 10 or 15? What's a good profit target? 4,6,8,10, 50? It changes with every trade in the futures market. I can't see any rhyme or reason as to what really moves the e-minis. Now mind you, I'm not saying there isn't a rhyme or reason, I just can't see one that has any consistancey. What works one trade is a complete bust the next. That just don't come together for me. Far too much subjectivity in every single technical indicator I've ever seen when adapted to this market.
    Like I said, my hats off to you folks that can pull this off, but it just ain't my game. I been beating my head against a wall for nearly 3 years trying to get a grasp around day trading futures and it's constantly one step forward, three steps back. I don't like throwing in the towel, but at this point that does seem like the better part of valor.
    Guess it's back to the equities market for me. All I need is a ten times bigger account and I'd be set. That ain't gonna' happen either. Looks like I hit the F'N wall.... again. Damn, I'm bummed! Good luck e-mini traders, I'm pulling the pin.
    #26     Oct 26, 2006
  7. lescor


    Not really a rule but in a way kinda. I preach this mantra to every new trader who asks me for advice.

    The three goals of trading, in order of importance.

    1. Preserve capital
    2. Earn consistent returns
    3. Earn large returns.

    The 'rule' part is - don't try to skip any steps.
    #27     Oct 26, 2006
  8. Cutten


    Many "rules" are garbage. However, some always apply, e.g.

    1) Early on in your trading career you are likely to be clueless, and lose money. So, at first, trade as small as is possible to avoid losing too much money. Wait until you have some successful experience, and then scale up in size accordingly.

    2) Never make a trade which could take you out of the business. Limit the size so that even if everything goes wrong, you might be hurt but won't be tapped out.

    3) You must be able to define a clear edge (based on testing, or experience, or past success etc) for it to make sense to enter a trade on any real size. If you can't, you should accept that the trade is a "test" or gamble, and only trade small.

    4) Let your market experience be your main teacher. Take all ideas, advice, market maxims etc with a pinch of salt - it's best to use them as starting points for your own testing, rather than following them blindly. Do not take anything as gospel until you test it yourself and see how it performs during actual market trading.

    5) Study market history in depth so you know the extremes to which markets can go, and the extent to which they can surprise and bankrupt even experienced practitioners.

    6) Analyse all your trades and trading decisions once you have finished them. Evaluate what you did right and what you did wrong, and gradually adapt your approch in the light of experience.

    7) Remember that markets change, and that methods which work amazingly in some conditions, perform poorly in others. Always be aware of the current market state, and on the lookout for signs that the market environment may be changing to a new regime. E.g. the dot com era 1997-2000 was a lot different to the crash era 2000-2003. That in turn was much different to the low volatility slow rally of 2003-2006. They each had different characteristics and methods that worked well in one regime often stopped working once the regime shifted.

    8) Always contingency plan for each of your positions, and your portfolio as a whole. If a president resigns or is assassinated, a currency peg collapses, bonds are defaulted on, accounts are restated, a profits warning is released etc, you should already know what to do, instead of having to make things up on the fly. Plan for all eventualities ahead of time, and work out your best possible responses *before* the events actually occur. Then when they do happen, you will have a huge edge over 99% of participants in the market. On more mundane trades, make sure you always have a plan for what to do if the market goes significantly against you, in your favour, or just sits around doing nothing.

    9) Beware whenever you are surprised. When the market makes a significant move against your position, a move which you had not anticipated as a possibility, this is a sign that you have been caught out by the market and do not really understand what is going on. In such cases, you are extremely likely to make inferior trading decisions, and your position is quite likely to be a poor one. So, when surprised badly by the market, it's generally best to get out immediately, and then start working out what went wrong, what is happening etc, before you dip your toe back in the water. Most people react to being surprised by losses in exactly the wrong way - they freeze in the headlights and do nothing as their losses mount; or worse still, they increase their size when they have no clue what is happening, doing pure gambling in the hope of "making back their losses". Make sure to avoid this.

    10) The more professional your approach to trading, the better you will do. The lazier and more amateur you are, the less well you will do. Sure, a good trader can go upstairs, log onto his pc, and trade in his boxer shorts and make money, then surf porn on the net for a couple of hours. But an equally skilled trader who takes it seriously will, in the long run, make more money with less risk than the dilettante. Trading allows significant freedom in working habits, but this can be a trap if you use it as an excuse for laziness and backsliding.

    That's 10 off the top of my head, that I think make sense and would help to avoid a lot of the main errors. Finally, there's a useful quote about how to evaluate ideas and choose what to believe versus what to discard:

    "Do not believe in anything simply because you have heard it.

    Do not believe in traditions because they have been handed down for many generations.

    Do not believe in anything because it is spoken and rumored by many.

    Do not believe in anything simply because it is found written in your books.

    Do not believe in anything merely on the authority of your teachers and elders.

    But after observation and analysis, when you find that anything agrees with

    reason…then accept it and live up to it.

    -The Buddha"
    #28     Oct 27, 2006
  9. me1969


    Cutten, thanks a lot. These rules are platinum: You can listen to them daily and it's never getting boring.
    #29     Oct 27, 2006
  10. Jeez no surfing for porn in my boxer shorts... next you'll want me to put the scotch away during trading hours :(
    #30     Oct 27, 2006