Read through the rules every day before the trading session begins. It doesn’t take more than three minutes to read through them. Think of the exercise as praying reminding you how to conduct yourself throughout the trading session.
1)THE MARKET PAYS YOU TO BE DISCIPLINED.
Trading with discipline will put more money in your pocket and take less money out. The one constant truth concerning the markets is that discipline = increased profits.
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. If you trade with discipline nine out of ten trades, then you can’t claim to be a disciplined trader. It is the one undisciplined trade that will really hurt your overall performance for the day. Discipline must be practiced on every trade. Typically it is in recognizing less of a loss on a losing trade than if you were stubborn and held on too long to a bad trade.
Thus, if I lose $200 on a trade, but I would have lost $1,000 if I had remained in that losing trade, I can claim that I “saved” myself $800 in additional losses by exiting the bad trade with haste.
3) ALWAYS LOWER YOUR TRADE SIZE WHEN YOU’RE TRADING POORLY.
All good traders follow this rule.
4) NEVER TURN A WINNER INTO A LOSER.
We have all violated this rule. However, it should be our goal to try harder not to violate it in the future. What we are really talking about here is the greed factor. The market has rewarded you by moving in the direction of your position, however, you are not satisfied with a small winner. Thus you hold onto the trade in the hopes of a larger gain, only to watch the market turn and move against you. Of course, inevitably you now hesitate and the trade further deteriorates into a substantial loss. Don’t be greedy.
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.
In all of my years as a trader I never traded more than a 50 lot on any individual trade. Sure, I would have liked to be able to trade like colleagues in the pit who were regularly trading 100 or 200 lots per trade. However, I didn’t possess the emotional or psychological skill set necessary to trade such big size. That’s OK. I knew that my comfort zone was somewhere between 10 and 20 lots per trade. Typically, if I traded more than 20 lots, I would “butcher” the trade. Emotionally I could not handle that size. The trade would inevitably turn into a loser because I could not trade with the same talent level that I possessed with a 10 lot.
Learn to accept your comfort zone as it relates to trade size. You are who you are.
8) YOU ALWAYS WANT TO BE ABLE TO COME BACK AND PLAY THE NEXT DAY.
I require my students to place daily downside limits on their performance. For example, your daily loss limit can never exceed $500. Once you reach the $500 loss 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.
Too many new traders think that because they have $25,000 equity in their trading account that they somehow have the right to trade with big lots. This cannot be further from the truth. If you can’t trade a one lot successfully, what makes you think that you have the right to trade a 10 lot?
10) GET OUT OF YOUR LOSERS.
You are not a “loser” because you have a losing trade on. You are, however, a loser if you do not get out of the losing trade once you recognize that the trade is no good. It’s amazing to me how accurate your gut is as a market indicator. If, in your gut, you have the idea that the trade is no good then it’s probably no good. Time to exit.
11) THE FIRST LOSS IS THE BEST LOSS.
Once you come to the realization that your trade is no good its best to exit immediately.
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. Don’t be a speculator. Be a trader.
15) LOVE TO LOSE MONEY.
“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 TIMEFRAME, IT’S TIME TO EXIT.
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.
18) MAKE A LITTLE BIT EVERYDAY. DIG YOUR DITCHES. DON’T FILL THEM IN.
It is amazing how quickly your trading account will build up over time just by making a little bit every day.
19) HIT SINGLES NOT HOME RUNS.
You should never approach a trade with the idea that its 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.
20) CONSISTENCY BUILDS CONFIDENCE AND CONTROL.
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.
21) LEARN TO SWEAT OUT (SCALE OUT) YOUR WINNERS.
22) MAKE THE SAME TYPE OF TRADES OVER AND OVER AGAIN – BE A BRICKLAYER.
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. 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.
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