We force the market to come into our zone or level before taking a trade. We wait. It is worth it.
Joe Ross posted a link on twitter with title ‘A simple Idea to improve your trading’. I thought it is a good reminder to all my readers here. And I certainly agree with the quote below, and being disciplined in trading methodology execution was and is the key of my consistency.
I feel certain that my discipline in executing each and every trade according to my trading methodology is the secret to my success. If you want to improve your trading, what you need to do is very simple. Before you enter any trade, imagine that you will have to explain this trade to a panel of your peers, by explaining to them the reason for your entry, your money, trade, and risk management guidelines, and why you exited the trade. Imagine having to explain why you chose this particular market and this particular time frame, along with how you set objectives for the trade, and how you determined where your initial protection would be. If you can truly do this, I strongly believe that you can be successful.
Here is an important note quoted from Van. Tharp’s Trade Your Way To Financial Freedom, 2nd Edition. Just to note it down here, and hopefully it helps some of the 12 readers.
Given your goals in terms of returns and drawdowns, what kind of initial risk stop do you want? If it’s close, will you be able to get right back into the market so that you will not miss a move?
Stops, in my opinion, should be a violation of the reason why I wanted to get into the trade in the first place. And yes, I always have a way to get back into the trade.
My stop is a function of the market and what it’s doing. It’s only in directly related to risk – unless the risk is too big for me to even take a position. I control risk as part of my position sizing.
Have good trading week ahead.
It is time to read some rules again. While working on my Forex trading strategies, I visit forums regularly. There are indeed some brilliant people out there sharing their work and ideas (though there are garbage and nonsense as well). In Forex Factory, user lever70 caught my attention when he/she shared his/her own compilation/e-book freely. The book is called Rules for Forex Trading. I decided to quote the summary of his rules here, since I found it to be useful and interesting. For details, please check out his e-book. Credit goes to lever70.
- Define your long-term goals
- Treat trading as a business
- End every day in profit
- Every trade must conform to objective criteria
- Never force a trade
- Theres nothing wrong with getting out early if you are in profit
- Always have a profit target for the day
- Always stick to a small daily profit target
- Your initial trading stake should be small
- Do not enter a trade without a profit target
- Always set a hard stop
- Do not trade unless you are nearly 100% certain about what will happen
- Do not trade when signals are mixed
- Follow your system
- Dont lose your head
- Identify key support and resistance levels
- Look at longer timeframes for both support and resistance, and for clues regarding future price direction
- Be aware of peak market times
- Be careful when trading in the Asian session
- Dont trade thin or directionless markets
- Be careful when trading forex on non-news days
- If you trade intraday, dont enter a trade unless you can actively focus on it
- Avoid reversing trades
- Stay out of the market near news release time
- Watch your broker like a hawk
- Dont go crazy with leverage
- Stop trading after two consecutive losses
- Take profits quicker after a losing streak
- Dont gloat over your winners
- Be wary of chat rooms and online forums
- Dont buy systems
- Stay healthy
- Dont give up
Tony Saliba discussed the elements of good trading in Market Wizards: Interviews with Top Traders.
Clear thinking, ability to stay focused, and extreme discipline. Discipline is number one: Take a theory and stick with it. But you also have to be open-minded enough to switch tracks if you feel that your theory has been proven wrong. You have to be able to say, “My method worked for this type of market, but we are not in that type of market anymore.”
He continued to discuss trading rules he lived by
Always respect the marketplace. Never take anything for granted. Do your homework. Recap the day. Figure out what you did right and what you did wrong. That is one part of the homework; the other part is projective. What do I want to happen tomorrow? What happens if the opposite occurs? What happens if nothing happens? Think through all the “what-ifs.” Anticipate and plan, rather than react.
In The New Market Wizards: Conversations with America’s Top Traders, Monroe Trout mentioned the trading rules that he lives by.
Make sure you have the edge. Know what your edge is. Have rigid risk control rules … Basically, when you get down to it, to make money, you need to have an edge and employ good money management. Good money management alone isn’t going to increase your edge at all. If your system isn’t any good you’re still going to lose money, no matter how effective your money management rules are. But if you have an approach that makes money, then money management can make the difference between success and failure.
I’m excited and confident about the future. If I ever don’t feel that way, I will stop trading.