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25 rules of trading discipline by Douglas E. Zalesky

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25 rules of trading discipline

I read an article by Douglas E. Zalesky in SFO magazine back in 2006. It is a great list of rules traders should read.

Here I am listing out 25 rules of trading discipline discussed in his article. I think it is good to spend a couple of minutes every day to go through the list before start trading.

25 Rules of Trading Discipline

  1. The market pays you to be disciplined.
  2. Be disciplined every day, in every trade, and the market will reward you. But don’t claim to be disciplined if you are not 100 percent of the time.
  3. Always lower your trade size when you’re trading poorly.
  4. Never turn a winner into a loser.
  5. Your biggest loser can?t exceed your biggest winner.
  6. Develop a methodology and stick with it. don’t change methodologies from day to day.
  7. Be yourself. Don’t try to be someone else.
  8. You always want to be able to come back and play the next day. Once you reach the daily downside limit, you must turn your PC off and call it a day. You can always come back tomorrow.
  9. Earn the right to trade bigger. Remember: if you are trading poorly with two lots you must lower your trade size down to one lot.
  10. Get out of your losers.
  11. The first loss is the best loss.
  12. Don’t hope and pray. If you do, you will lose.
  13. don’t worry about news. it?s history.
  14. Don’t speculate. if you do, you will lose.
  15. Love to lose money. 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.
  16. If your trade is not going anywhere in a given timeframe, it?s time to exit.
  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.
  18. make a little bit every day. dig your ditches. don’t fill them in.
  19. Hit singles, not home runs.
  20. consistency builds confidence and control.
  21. Learn to sweat out (scale-out) your winners.
  22. Make the same type of trades over and over again? be a bricklayer.
  23. don’t over-analyze. don’t procrastinate. don’t hesitate. if you do, you will lose.
  24. all traders are created equal in the eyes of the market.
  25. It’s the market itself that wields the ultimate scale of justice.

Full article in SFO [PDF] : The 25-Point Mantra: Discipline for Day Trading

This blog post is also part of my Back to Basics of Trading Series, feel free to check it out.

Grading my trade and myself

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I have been thinking of grading my trades and execution. There are indeed some bloggers grading their trades. Trader-x grading his trade setup with alphabets (A, A+…etc), J.C from NYSE scalper’s tales grading his daily trades as well:

I’m going to re-define what I consider a good trade and a bad trade. Since I’m not doing 8000 and 10,000 share positions as often any more, I’ll consider a good trade anything that makes $150 or more and a bad trade anything that loses $100 or more.

I find it to be useful by grading my trades and trade execution. It gives me an insight of my trading performance from another aspect in addition to expectancy and accuracy.

Here is my grading plan. This is to be done separately on each type of trade setup. Basically, I am applying the ideas introduced by John Carter in Mastering the trade.

  • 1: Target hit
  • 2: Out at a differrent price from target, but profitable (time stop)
  • 3: Out at even (scratch, time stop)
  • 4: Out at a different price from stop, but a losing trade
  • 5: Stop hit

The following scale is to grade how well I actually executed the trade:

  • 1: Followed trade as dictated in my plan
  • 2: Followed trade entry, but closed out position before predetermined target was hit
  • 3: Followed trade entry, but removed stop and let position run past original target
  • 4: Entered setup late and didn’t set target
  • 5: Impulse trade

Add up daily scores and divide by the total number of trades to get an average for both categories. This will keep a grade point average of the number of trades you made that are profitable and those that are executed as originally planned. Track by trading method used, so you are able to rate each method and tweak as needed. Review the score at end of each month to see what needs to be modified.

I am particularly interested in looking at the second category which is a psychological challege. It is easy to have some buy/sell signals, but, to follow the plan, trust myself, trust my plan and methodology and reduce number of impulsive trades are challeges traders face everyday. I have the tendency to exit a trade prematurely, This grading plan will always warn me to “behave myself”.

This is just another way to improve my trading.

No smoking please.

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I found this comic on the web which is the best illustration of how do people in South east Asia feel. We are haunted by haze.

[photopress:comics061015.jpg,full,pp_image]

Quote from Reuters AlertNet

Haze from the Sumatra and Borneo fires blanketed neighbouring Malaysia and Singapore in past weeks, sending air quality to unhealthy levels and disrupting flights and sea navigation.
“Unless action is taken against the offenders, mainly large plantation and timber companies, we will continue to choke on haze in the coming years,” Hapsoro, a forest campaigner for Greenpeace Southeast Asia. tells Reuters.
But Riau police chief Ito Sumardi says fires and haze have significantly decreased in Riau thanks to firm law enforcement.


WTF?

Some blogging problem with Technorati

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I still can’t figure out what is going wrong. Technorati just can’t get my updated post since August. Though I have made some recommended changes such as adding “rel=bookmark” etc. Well, it still doesn’t work. Enough, I am not going to waste my time on this now, it is time to hit the gym.

October 2006 : Week 2 review

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Dear diary

Before I leave home for coffee and movie “The Departed”, here is my result of the week.

The trade on Friday, the 13th, it turns my weekly result from red to break even. Only 3 trades were made this week. Two losers with 1-R loss each and one winner with 2-R gain.

Nothing much to write about for this result. At least, I managed to close the week in black. I am looking forward a better trading week.

Postmortem 13-Oct-2006

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Dear diary,

So bulls just don’t want to give up. I can’t remember when did I start hearing or reading about ‘We are overbought‘, ‘We are deeply overbought‘. Right now, the market proves again my own philosophy , ‘High will get higher, cheap will get cheaper‘. So, next week we are going to see profit taking, so next week we are going to push the index further, or so now we are really super overbought…argh…WHO CARES? I don’t care.
There was no trade that got away today. The only low risk dummy setup was NQ trade which I managed to got in with 2.09-R gain. I need to be confident with every trade I made. My own judgement is the best thing I can rely on when I am trading.

It is Saturday again. I am going to catch a movie later, and maybe visit the latest and biggest mall in Singapore Vivo city. I will forget everything about trading today. Time to relax.