Your "Best" Trading Rule for Beginners

In trading, it is common to go from $5000 loss in the morning to $400-$500 profit in the afternoon and I exit. I think the main thing about trading is not only the stop loss but to use money you can afford to lose. Stop loss is not a hard and fast rule as stocks can rebound sharply right after you exit.

Also the discipline to guard against greed is important. Even if the stocks rise later, forget about it.

Here's a couple more that may be worth considering, maybe not so well publishised (is there such a word?)

Have an open mind

Whatever trading plan / method / setup that you currently use - IT CAN BE IMPROVED

Before you incorporate a new "gem" into your trading - check it out thoroughly to make sure it works for you

Experiment

Spend lots of time looking at charts, charts and more charts

and finally:
Gurus are not infallable.
Because they appear to make trading appear easy, i.e. their returns etc. - does not mean that you will accomplish the same results.
The method they use almost certainly works - but you have to apply it in your own best interest.

Hope this is of help
Peter

jeflin said:

In trading, it is common to go from $5000 loss in the morning to $400-$500 profit in the afternoon and I exit. I think the main thing about trading is not only the stop loss but to use money you can afford to lose. Stop loss is not a hard and fast rule as stocks can rebound sharply right after you exit.

Also the discipline to guard against greed is important. Even if the stocks rise later, forget about it.

Click to expand...

Love this seen it before posted by others.
I have one question to ask you.

You lose the money you can afford to lose----then what?
I suppose re finance with more money you can afford to lose.
Then
You lose more money you can afford to lose---then what?

If a stop loss is not a hard and fast rule why have one? Just go on gut feel.
Stocks can also plummet endlessly after you exit as well.

Your example is also common to myself but more often in the 100s than 1000s and I use hard stops these stopped losses only total a very small % of my capital base often 1-2%.My method is vastly different than yours you'll note.

1) prices will go further than you think
2) good trades are hard to find
3) trade at your price; dont chase
4) If you don't know what your edge is; you don't have one
5) disclipline is the key
6) commission & spread fees are a bigger hurdle than you think
7) having good hardware, software & platforms is a must

mazzatelli1000 said:

Im personally not comfortable with this one, but I think it is more psychological, as some people will understand this risk management from another perspective

"Assume we are wrong until proven correct" - For me this means I can buy today and eventually some time in the future it will go up and be proven correct

No ones right or wrong - just clarifying interpretation

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some more info to clarify rule 1 from POP....

The correct way to control positions is to only hold them once they prove to be correct.

Let the market tell you your position is proven correct, but never let the market tell you that your position is wrong. You, as a good trader, must always be in command of knowing and telling yourself when your position is bad.

The market will tell you when your position is a good one to hold. Most traders do the opposite of what is correct by removing positions only when proven wrong. Think about that. Your exposure and risk is much higher if you let the market prove you wrong instead of your actions removing positions systematically unless or until the market proves your position correct.

You never want to be in a position that is never proven correct. If you only get out when the market proves you wrong, it is possible to have higher risk due to the longer time period required to prove your position wrong.

What makes this strategy more comfortable is that you must take action without exception if the market does not prove the position correct. Most traders do it the opposite by doing nothing unless they get stopped out, and then it isn't their decision to get out at all -- it is the market's decision to get you out.

Your thinking should be: When your position is right, you have to do nothing instead of doing nothing when you are wrong!

It is very critical to your success in trading. Over time it has proven to be the rule which keeps the losses small and keeps a trader swift and fast to take that loss. It won't always prove to be correct, but you will stay in the game this way.

Sakk said:

some more info to clarify rule 1 from POP....

The correct way to control positions is to only hold them once they prove to be correct.

Let the market tell you your position is proven correct, but never let the market tell you that your position is wrong. You, as a good trader, must always be in command of knowing and telling yourself when your position is bad.

The market will tell you when your position is a good one to hold. Most traders do the opposite of what is correct by removing positions only when proven wrong. Think about that. Your exposure and risk is much higher if you let the market prove you wrong instead of your actions removing positions systematically unless or until the market proves your position correct.

You never want to be in a position that is never proven correct. If you only get out when the market proves you wrong, it is possible to have higher risk due to the longer time period required to prove your position wrong.

What makes this strategy more comfortable is that you must take action without exception if the market does not prove the position correct. Most traders do it the opposite by doing nothing unless they get stopped out, and then it isn't their decision to get out at all -- it is the market's decision to get you out.

Your thinking should be: When your position is right, you have to do nothing instead of doing nothing when you are wrong!

It is very critical to your success in trading. Over time it has proven to be the rule which keeps the losses small and keeps a trader swift and fast to take that loss. It won't always prove to be correct, but you will stay in the game this way.

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good explanation - cheers.

Hi Sakk,
I'm with you

I know within one period, if or not my trade is likely to be successful - no follow through and I'm out.
You don't have to wait for your stop to be hit!

The most dangerous part of a trade are the initial few bars, retracements can be a bit of a worry - but if they happen on low volume - then everything tends to be hunky dory

Peter

tech/a said:

Love this seen it before posted by others.
I have one question to ask you.

You lose the money you can afford to lose----then what?
I suppose re finance with more money you can afford to lose.
Then
You lose more money you can afford to lose---then what?

If a stop loss is not a hard and fast rule why have one? Just go on gut feel.
Stocks can also plummet endlessly after you exit as well.

Your example is also common to myself but more often in the 100s than 1000s and I use hard stops these stopped losses only total a very small % of my capital base often 1-2%.My method is vastly different than yours you'll note.

Click to expand...

I appreciate the wisdom of a mechanical approach to implementing stop losses. It is defensive and can prevent huge losses but a trader must have the flexibility to adjust his strategy.

I like to set stop loss at 10% but from personal experience, I sometimes made conscious decisions to let losses run a bit deeper before exiting. It has saved my skin on a few occasions. Why is that strategy used for one stock over another is difficult to explain.

Much like why a market recover spontaneously for no particular reason after a morning of hard selling. By the way, I have not done much trading for years as my risk appetite has changed.

Oh, here is one I heard the other day, LOVE it and SO SO SO perfect for intraday traders on all markets and notably, the SPI.

Don't go for the juice, if you can't handle the squeeze!

ha ha ha, still cracks me up!

jeflin said:

I appreciate the wisdom of a mechanical approach to implementing stop losses. It is defensive and can prevent huge losses but a trader must have the flexibility to adjust his strategy.

I like to set stop loss at 10% but from personal experience, I sometimes made conscious decisions to let losses run a bit deeper before exiting. It has saved my skin on a few occasions. Why is that strategy used for one stock over another is difficult to explain.

Much like why a market recover spontaneously for no particular reason after a morning of hard selling. By the way, I have not done much trading for years as my risk appetite has changed.

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There are many ways to approach this.

Having a hard % stop may not be the wisest approach to risk.
In these markets its not unusual for me to have a 3-4c risk on a $27 stock.
BHP I was trading on Friday and had a 4c stop on a 5 min chart.
Never got hit,still in it. If it did Id have lost $40 plus Commish on a $27,000 trade.
Ive often reset on another trade is this occurs 15-20 mins later and pulled a k.
I could take 20 $40 hits and have one $1K + trade and I'm still profitable.
Mind you Id be a pretty crap trader if I got 20 in a row!

tech/a said:

Mind you Id be a pretty crap trader if I got 20 in a row!

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Not sure if I agree with the last statement Tech ... feel like crap yes, but getting that sort of streak with only a 40% win is more than probable. A good 'trader' is more than likely to get 20 in a row wrong at some point, but a good trader , as you mentioned, would not have wiped his account out, and would be in a position to continue trading.

tech/a said:

There are many ways to approach this.

Having a hard % stop may not be the wisest approach to risk.
In these markets its not unusual for me to have a 3-4c risk on a $27 stock.
BHP I was trading on Friday and had a 4c stop on a 5 min chart.
Never got hit,still in it. If it did Id have lost $40 plus Commish on a $27,000 trade.
Ive often reset on another trade is this occurs 15-20 mins later and pulled a k.
I could take 20 $40 hits and have one $1K + trade and I'm still profitable.
Mind you Id be a pretty crap trader if I got 20 in a row!

Click to expand...

Tech I'm assuming you are talking direct shares here and not cfd's or any other such stuff.

Thats a very tight stop - do you find it difficult to manage? Its not uncommon to get a 5c intraday spread open up with even small volatility spikes on leading stocks - I saw a 20c spread for a while on one stock on Friday. Are you using autostops or manual stops? (I'd be thinking manual would be easier to manage).

Also catching a full $1 move on a stock like BHP without a 4c down move isn't that common an occurence I wouldn't have thought - so what is a more typical win trade in such a scenario? Or is your trailing stop wider than the initial stop? (and even still, catching a full $1 move I'm assuming is fairly rare?)

Forex trading is a mind game. Once it is set you go on to your path. You can only set your self here when you trade with your own strategy. Brokers are a means of help for you to know all the tools and procedures to open a trading account etc.

leverage, margin etc are all the sources which you use when you are stuck with the marketplace. Make your own strategy and start trading. Don't worry about the commissions or fees the broker is taking. Once you are set in this market you happly pay the commissions.

I am also trading with same procedures as i have discussed above.

Hi Cuttlefish
Smart traders use a lower timeframe to fine tune their entry/exits.

In theory, the lower the timeframe, the closer the entry / stop level i.e. risk (provided your stock has enough liquidity to make the chart meaningful)

A move on a lower timeframe manifests itself onto the higher timeframe. i.e. The higher timeframe "is the sum total of all the lower timeframes" can't remember where I heard /read this truism.

Personally I can't handle timeframes as low as 5mins, I've tried them but have decided they are not for me, they are the domain of the professionals and pro active traders.

Hope this helps
Peter

I'm sure Tech will explain it a bit better

When you have such tight stops, your entry becomes paramount. Usually safest buying counter ticks in a trend IMO.

This is where it helps to have enough contracts (shares) to scale out. Take some quick, let some more run and widen the stop. Let a final lot run with a much wider stop.

cuttlefish said:

Tech I'm assuming you are talking direct shares here and not cfd's or any other such stuff.

Thats a very tight stop - do you find it difficult to manage? Its not uncommon to get a 5c intraday spread open up with even small volatility spikes on leading stocks - I saw a 20c spread for a while on one stock on Friday. Are you using autostops or manual stops? (I'd be thinking manual would be easier to manage).

Also catching a full $1 move on a stock like BHP without a 4c down move isn't that common an occurence I wouldn't have thought - so what is a more typical win trade in such a scenario? Or is your trailing stop wider than the initial stop? (and even still, catching a full $1 move I'm assuming is fairly rare?)

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BB has the basics.
I'm currently very short term trading often days without a trade as I can currently only trade long as I'm only trading stock. MR C also has part of the method.

This is the plan which has taken quite a while to perfect but is reaping the reward now.Without going into the entry exit stratagies which are Elliott VSA based.

Take Friday.
You may have noticed the Asian markets reverse from bearish to bullish at around Midday. Well I did. So I took several smaller positions with the intention of keeping O/N. The market was mildly bullish so I set tight stops as if I was stopped out then the market wasnt doing as expected.
I was on one and re entered again 15 mins later to hold O/N (A $40 loss).
I currently have a fair profit.

Anyway on Monday I expect bullishness which I will hit hard probably taking 1 or 2 more trades in each depending on what setup presents itself. Each larger than my initial trades.

If I have doubts about continued Bullishness (I'm suspecting a return in his wave 4 after a correction against its initial move,it should finalise at 4350-4800 ish---All trades taken are in wave 4 corrective phases---if the analysis is correct)--I'll sell at least 50% of trading on Monday.

If I have grave doubts then I'll sell the lot.
In anycase if I hold overnight my exposure will be decreased dramatically to that held durig the day.
In this environment I can only be sure of whats happening now.
The whole trading method is designed to keep as much R/R on my side of the fence and absolutely minimise risk.

With IB I can trade 4:1 Margin during the day which can give me very sizable positions with minimal risk everyday I trade.
Even if I look like being out of the office for more than an hr I'll close everything out rather than set a trailing stop which if I'm going out will be very tight---I'd rather be stopped out with a premature profit than cop a sizable loss in this market.

Its my own hybrid of T/H's scalping---But its not scalping just very short term trading. I dont want to be caught on the wrong side of those gaps,If you trade BHP you'll know what I mean.(Those O/Night ones!)

Consistent profit on a consistent basis is my aim--and plenty of stress free sleep.(up now as I have the flu!)

Cheers for the response tech. Its an interesting approach - and raises a bunch of additional questions for me. I've been trying to apply VSA intraday when observing 1 and 5 minute charts and can see merit in it. (the emotional discipline to read the signals without confirmation bias is still the biggest challenge if actively trading, and of course I'm only a novice in the interpretation of the volume as well).

One thing that I'm curious about in the situation you describe is the decision to hold overnight yet using such tight intraday stops. I'm assuming the tight stop is only your entry stop but once you are in profit you have more loose exit criteria. (otherwise, given that a 4c range tends to be about the minimum range for a 5 minute bar you'd be in and out much more frequently I'd imagine).

In relation to the broader day to day trend - are you using VSA for that decision or Elliot/other factors? And prior to Friday's open were you already planning to open a trade to hold overnight but waiting for some intraday confirmation, or was the decision to enter for an overnight hold made as a result of intraday activity combined with the daily charts? Or was the overnight hold decision a default based on no exit criteria being triggered by days end?

I guess I can see a lot of merit in the approach you are describing for day trading but am finding the risk inherent in an overnight hold hard to reconcile with the rest of the approach.

Why don't you just forward test every method in your imagination on a sim, thousands of times.........you willl learn application, what suits your personality and what works for you and why. Pretty simple and probably the most important thing you will do to help your trading.

I think one of the most important things I have learnt, which is barely mentioned, is just HOW DIFFERENT the same market can be, day to day. It can act the same for 30 days in a row and then look like a completely different market which requires a completely different style, the very next day, and this can continue for an unknown period of time, before all of a sudden, it happens again. Just one reason why I don't like mechanical systems, takes too long to adapt, whereas with a discretionary approach, you can pick up this change intraday and alter your style on the spot.

MRC & Co said:

Why don't you just forward test every method in your imagination on a sim, thousands of times.........you willl learn application, what suits your personality and what works for you and why. Pretty simple and probably the most important thing you will do to help your trading.

I think one of the most important things I have learnt, which is barely mentioned, is just HOW DIFFERENT the same market can be, day to day. It can act the same for 30 days in a row and then look like a completely different market which requires a completely different style, the very next day, and this can continue for an unknown period of time, before all of a sudden, it happens again. Just one reason why I don't like mechanical systems, takes too long to adapt, whereas with a discretionary approach, you can pick up this change intraday and alter your style on the spot.

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A bit of Linda Raschke in you

mazzatelli1000 said:

A bit of Linda Raschke in you

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Read a bit of her and I like her style.

But never heard her mention the things I said above......that is just my own experience.