14. DON’T SPECULATE. IF YOU DO,YOU WILL LOSE.
In all of the years that I have been a trader and associated with traders, I have never met a successful speculator. It is impossible to speculate and consistently print large winners. Don’t be a speculator. Be a trader.
Short-term scalping of the markets is the answer. The probability of a winning day or week is greatly increased if you trade short term: small winners and even smaller losses.
15. LOVE TO LOSE MONEY.
This rule is the one that I get the most questions and feedback on by traders from all over the world. Traders ask, “What do you mean, love to lose money. Are you crazy?”
No, I’m not crazy. What I mean is to accept the fact that you are going to have losing trades throughout the trading session. Get out of your losers quickly. Love to get out of your losers quickly. It will save you a lot of trading capital and will make you a much better trader.
16. IF YOUR TRADE IS NOT GOING ANYWHERE IN A GIVEN TIME FRAME, IT’S TIME TO EXIT
This rule relates to the theory of capital flow. It is trading capital that pushes a market one way or another. An oversupply or imbalance of buy orders will push the market up. An oversupply of sell orders will push the market lower.
When price stagnation is present (as typically happens many times throughout the trading session), the market and its participants are telling us that, at the present time, they are happy or satisfied with the prevailing bid and offer.
You don’t want to be in the market at these times. The market is not going anywhere. It is a waste of time, capital and emotional energy. It’s much better to wait for the market to heat up a little and then place your trade.
17. NEVER TAKE A BIG LOSS. ONLY A BIG LOSS CAN HURT YOU
Please review rules #5, #8, #10, #11 and #15. If you follow any one of these rules you will never violate rule #17.
Big losses prevent you from having a winning day. They wipe out too many small winners that you have worked so hard to achieve. Big losses also “kill you” from a psychological and emotional standpoint. It takes a long time to get your confidence back after taking a big loss on a trade.
18. MAKE A LITTLE BIT EVERYDAY. DIG YOUR DITCHES. DON’T FILL THEM IN.
When I was a young bond trader, my goal every day was to make 10 bond tics. A tic is $31.25, so if I made 10 tics on the day, I would be up $312.50.
It may not sound like a lot of money to you, but it surely was to me. My mentor, David Goldberg, told me that if I could make 10 bond tics every trading day of the year, at the end of the year I would be up $72,500 in my trading account. Not bad for a 23-year old kid in 1982.
It is amazing how quickly your trading account will build up over time just by making a little bit every day. If you are a new e-Mini S&P trader try to make just 5 or 6 points per day. If you can do that you’ll have that $72,000 at the end of the year.
19. HIT SINGLES NOT HOME RUNS.
Just as I don’t know of any successful speculators, I don’t know of any trader who goes into a trade expecting to hit a home run and then actually having it happen. You should never approach a trade with the idea that it’s going to be a huge winner. Sometimes they turn out that way, but the times that I have a hit a home run on a position is most definitely luck, not skill.
My intent on the trade was to produce a small winner but, because I had the trade on, and at the same time (as luck would have it), the Fed unexpectedly entered the market, I unwittingly had a huge winner. This probably has happened to me less than five times in 20 years.
20. CONSISTENCY BUILDS CONFIDENCE AND CONTROL.
How nice is it to be able to turn on your PC in the morning knowing that if you play by the Rules, trade with discipline and stick to your methodology, the probability of a successful day is high.
I’ve had years where I could count on one hand the number of losing days that I had. Don’t you think that this consistency allowed me to be extremely confident? I knew that I was going to make money on any given day. Why would I think otherwise? Making a little bit everyday (Rules #18 and #19) will allow you to trade throughout the trading session with confidence and control.
Remember Rule #9: If you make a little bit every day, then you have earned the right to trade bigger. Thus, by following the Rules of Discipline, your “little bit” can soon turn into much more profitable days.
21. LEARN TO SWEAT OUT (SCALE OUT) YOUR WINNERS.
The net effect of scaling out of your winners will be an increased average win per trade while keeping your losses to your pre-defined risk parameters.
You should never scale out of your losers. If your trade size is more than a one lot and your trade is a loser, you must exit the entire position en masse. If your trade size is more than a one lot and your trade is a winner, it is best to exit one-half of your position at your first price target.
If you trade with protective stop-loss orders, you should amend the order to reflect the change in trade size (remember you have exited onehalf of your position) and raise or lower the stop price, depending on whether it’s a long or short position, to your original initiating trade entry price. You now are essentially “playing with the house’s money.” You can’t lose on the remaining position, and that’s obviously a fantastic position in which to put yourself. Place a limit order a few tics above or below the market, depending on your position, sit back and relax.
22. MAKE THE SAME TYPE OF TRADES OVER AND OVER AGAIN –
BE A BRICKLAYER
A bricklayer shows up for work every day of his working life and executes with the same methodology— brick by brick by brick.
The same consistency applies to traders, as well. Please review Rules #6 and #20. I have not changed my trading methodology and execution strategy in 20 years. I guess I’m the bricklayer.
23. DON’T OVER-ANALYZE. DON’T PROCRASTINATE. DON’T HESITATE.
IF YOU DO,YOU WILL LOSE
I can’t tell you how many times traders have come into my office terribly depressed because they “knew” the market was going one way or another; however, they failed to put a position on. When I ask them why they did not put the trade on, their responses are always the same: they did not want to chase the market. They were waiting to be filled at the absolute best possible price (and never got filled), or only two out of three of their market indicators were present and they were waiting for the third.
The net result of all this procrastination and hesitation is the trader was correct in deducing market direction but his profit on the trade was zero. We don’t get paid in this business unless we put the trade on. Don’t overanalyze the trade. Place the trade and then manage it. If you’re wrong, get out. But you’ll never be right unless you actually make the trade.
24. ALL TRADERS ARE CREATED EQUAL IN THE EYES OF THE MARKET.
We all start out the day the same. We all start out at zero. Once the bell rings and trading begins, it’s how we conduct ourselves from a behavioral standpoint that will dictate whether or not we will make money on the day. If you follow the 25 Rules, you should do well. If you do not, you will do poorly.
25. IT’S THE MARKET ITSELF THAT WIELDS THE ULTIMATE SCALE OF JUSTICE
The market moves wherever it wants to go. It does not care about you or me. It does not play favorites. It does not discriminate. It does not intentionally harm any one individual. The market is always right.
You must learn to respect the market. The market will mercilessly punish you if you do not play by the Rules. Learn to condition yourself to play by the 25 Rules of Trading Discipline and you will be rewarded.
14. DON’T SPECULATE. IF YOU DO,YOU WILL LOSE.