Trading Rule # 11 & 12

Trading Rule # 11:  Control Against Minute-by-Minute Movements and Take the Market Seriously

Watching the ticker can be fun. It can even be mesmerizing. Many people, though, enter a trade and then anxiously watch the tape with their eyes glued to the screen, almost as if their whole life is depended on this one trade. Or, they go channel surfing, moving from one business TV channel to the next, their mind obsessed with the outcome of that one particular trade.

This kind of behaviour does no one any good. Rather, what it does is raise your blood pressure and add to your stress levels. Do your blood pressure a favour, enter the trade if all of your trading rules are met, put a stop loss, and go take a nap, or go to a movie, or play with your kid, or help your wife with the cooking.
It’s not that hard to make money either in a roaring bull market or a raging bear market. Don’t take yourself to be a genius when everything is going great for you. Equally, don’t think of yourself to be dumb when nothing is going right. The market whips us all now and then. The whipping usually comes just when we think we have got it all figured out.

If we see an analogy with the possible moves in chess. Just after the first move, there are 400 moves open for both players. Each player can move any of his 8 pawns 1 or 2 squares and the knights each have two squares they can go on to- and, hence 20 x 20 possibilities. After two moves apiece, there are 72,084 possible moves available, after 3 moves apiece, there are 9+ million moves possible, and after the four moves apiece, there are 318,979,564,000, or about 319 billion possibilities.

Well those are the numbers of possibilities in a game of chess which is played between only 2 players. In contrast, the trading game has hundreds of thousands of players and, therefore, practically infinite number of possible moves available!

So, you must learn to put yourself in control when dealing with the market. Remember, the market, and only the market, is always right, and it’s we who could be wrong.

Trading Rule # 12:  Always stick to your Rules

If you follow the rules you have made, then you have a better chance of succeeding. This applies to any aspect of life. Keep things simple and follow the rules. Ignore the rules and you will have no money.
The definition of successful trader is one who has his or her trading plan written down, who also applies risk and money management rules, and the one who then lives by those rules.

One final take on rules: take some time off to work out a set of trading rules that you believe work for you. Take a printout of the rules in large font and paste one copy on the top of your trading terminal and another in an even larger type font at a prominent spot in your trading room.
The above idea mind sound as a reminder. However, this is another rule which governs the law of attraction. If you will read my other blog www.deep-mindcontrol.blogspot.com then you will clearly understand how important this rule can be for you.

You see by following this rule you are giving auto suggestions to yourself about what you want to attract in to your life. Everything that comes to you start with an image in your mind and then it’s transformed in to any physical form.
This is my personal experience of applying Laws of Attraction in to my trading.

Trading Rule # 9 & 10

Trading Rule # 9:  Avoid Over Dependency on Market Gurus

I am spitting in my own rice bowl here, but you should not be letting some self-appointed market guru dictate or dominate your trading decisions. The most you should expect, or accept, from experts are a few trading patterns, and a bit of advice on how to make a trading plan. No one knows or cares as much about your personal circumstances as you yourself do: how much money you can invest, your tolerance for pain, your goals, your most suitable and comfortable time frame, etc. and note, your guru will not bother to part with a single penny if all his great picks you fall for come a cropper.

Most of the traders, especially new traders rely completely on media news or advices from their friends or other traders. While to some extent it is ok to consider these resources as they give you some idea about the market movement or current trades. However, don’t completely depend on them as the best methodology to establish yourself is through “Trial and Error”.

As I have mentioned in most of my posts earlier, when I began trading, I used to go with the media trend and though it helped me a lot in determining the trend but not completely. It’s when I started learning from my mistakes and kept preparing new trading plan every day.

Relying completely on market gurus or media is like seating on the river side with a book in hand “How to Swim”, that will but not completely help you. It’s when you go down in the water and learn to spread your hands with the flow that you actually start learning swimming.

At first it might sound like a risk and you might feel hesitant about it, but, believe me with practice and time you will realize that, you are in much better position to analyze the market trend with the news available with you, and once you will start putting these analysis into practice, you will start to reap the fruits with initial trial and errors though.

Trading Rule # 10:  Make a Habit of Preparing Daily Trading Log

One thing I personally follow is preparing a trading log daily, you can prepare your own trading log with simple formula in excel as per your requirements.
A trading diary or log is a great way to check and confirm your trading entries and exits. Consider what this can do for you as a trader. If it is followed properly, it can, and most likely will, help improve your level of self-discipline and ultimately lead to an increase in your self-confidence. How? If you execute when the signals call for action, you can validate whether you responded when called upon to do so. You can check your work. You will find out whether you hesitated when your methods called for you to exit and if you timed it as per the system or not.

This is where my excel checklist will help you a lot as it has been designed in such a way that as you put previous day’s High/Low and current day’s High/Low (At 9:30) a.m., it will give you exact entry/exit point and approximate high for that particular day and with stop loss at 5% or 10% as per specified by you (I have given an option for you to decide what % stop loss you wish to follow).

The trading log will reinforce the validity of your trading strategy. By cataloguing your trades, you will gain more experience in identifying the patterns that drive your trading signals. It also keeps track of what went right or what went wrong with a trading plan. It will allow you to study and examine the results in black and white. On successful trading days, it will be good to capitalize on your success so that it can be repeated. Of course, on bad days, provided you are not tempted to average down or tempted to hide from your spouse about your bad day, it can help you focus on what went wrong so that you can understand and improve on it and stop repeating the same mistakes over and over again.

Remember, your ultimate goal is to come out as a winner!

Trading Rule # 7 & 8

Trading Rule # 7: Always Average Up and Be Truthful about your losses

It has been observed by experts that mostly people average down when they are incurring losses, fearing that keeping more quantity will put them in more vulnerable situation. Whereas, professionals average up, never down. They got to be professional in the first place because they added to their winners, not their losers. For one, you shouldn’t even be in a situation where you start thinking about averaging down. You should have exited the trade before it got to the point where averaging down became tempting.

In fact, this rule is as old as trading itself. Dickson G. Watts, who was President of the New York Cotton Exchange, wrote about it as early as the 1880s, in the book Speculation as a Fine Art and Thought on Life:
“It is better to ‘average up’ than to ‘average down’. This opinion is contrary to the one commonly held and acted upon; it being the practice to buy, and on a decline to buy more. This reduces the average. Probably four times out of five this method will result in striking a reaction in the market that will prevent loss, but the fifth time, meeting with a permanently declining market, the operator loses his head and closes out, making a heavy loss – a loss so great as to bring complete demoralization, often ruin.”

Then too, you will often hear traders boasting about their winning trades. In contrast, seldom will you hear traders admit about their losing trades. Here one thing you should promise to yourself about the trading is that never ever delude yourself by boasting about your winning trades; instead be honest to yourself about your losing trades. Please make it a habit not to lie about your trading loses. By facing the truth when you do make losses, at least you won’t be tempted to average down again.

Why should one never average down? Mathematically, it would take too long to explain – as experts say. It’s sufficient to know that that’s how real life trading works. Almost all hugh bankruptcies in trading companies worldwide happened because the traders involved doubled up losing positions with excessive leverage or lied about the losses to themselves and to their bosses. Hoping to recover losses by averaging down through additional leverage hardly ever works unless someone is really very lucky.

Trading Rule # 8:  Maintain Consistency

Successful traders find a formula and stick to it. Experts suggest a trader, particularly a novice trader, should adhere to one or two carefully selected trading patterns that work best for him/her. The need for a plan, a strategy and applying it in a consistent, methodical manner cannot be overemphasized.

When it comes to trading, rules are not made to be broken unless you want to end up broke. More importantly, rules exist to protect us from ourselves. Take the example of a few simple traffic rules, namely driving after consuming alcoholic drinks. Now consider breaking the three rules by speeding on the right side of the road after couple of alcoholic drinks; what do you think will happen? Do you think that the only risk is that the traffic police will catch you and fine you? Actually, you are likely to be added to the list of road accident victims. The same goes for a trader; should you choose to speculate in an inconsistent fashion, trust me, the financial results might well be similar to your trading account.

If you require more assistance with excel based checklist then leave your comment with your e-mail id and I would be happy to send you the checklist which will give you entry/exit point with stop loss.
The checklist will help you keep a track of the scripts you are following with the trend.