LESSONS & TRADING RULES
$ Millions Of Dollars Have Been Lost Before.
Do Not Become Part of The Statistics and Do Your Homework!
Find Trade Entry Opportunity
Calculate Stop Loss
Manage Stop To Breakeven Plus
Locate a strong Support or Resistance level. Find one where price has come to before and rejected at least two times. Ideally, you want to draw channels and use channel walls as the guide.
Once a trader figures out a system that allows to protect capital, eliminating a "Big Loss", then the focus becomes how and when to manage profits.
A traders success is measured by their ability to select a proper entry, protect capital without being taken out too early from the trade and the ability to stay with the trade to an optimum profitable point of exit. If exiting a trade early, you can always get back in when retracement to support / resistance level occurs.
Determine a dollar amount that you are willing to risk on the entry. ie. $100 per contract etc. In my case, my stops range from $150 (best option) to $200 per contract maximum. Some traders with large accounts and a significant level of experience will use much larger stops and take longer to adjust their stops into break even.
From The Start - Set Your Stop and Profit Levels. Adjust Stop to protect profits only.
Use Pre Set Orders With Built In Profit Targets and Stop Loss Protection
My number one GOAL of a trade is to bring it to break even plus. Once the trade starts to develop as expected, adjust the stop to protect more profits. Continue this process as long as price action is agreeing with your expectations, if price action / trend fails to continue, adjust the stop or close the trade.
If after entering a trade based on your analysis, price does not move as expected, either adjust the stop or close the trade.
Adjust your Take Profit Target if Momentum Stops or Speeds up. Manage Profits.
Adjust Stop To Protect More and More Profits.
Thousands of traders lose fortunes in the process of learning these lessons. It is actually harder than you think to implement consistently the lessons learned by traders before us and stick to your rules overtime.
It is quite simple to read a concept and think, it is easy to follow thru with them. The market will teach you a lesson each and everyday. Stay humble and respect the market. If not, the market will take control of your account. Once your psychology starts to work against you, you are in big trouble and in some cases paralyzed. Once you react to a market move, you have lost thousands dollars.
New traders must stick to 1 contract maximum. After months of profitable consistent trading, 2 contracts assuming that the account is large enough to handle it. Stop Loss of $150 per contract.
Preferred Minimum Account Size $100,000 and higher.
Maximum Acceptable Loss / Day
It is a good idea to have a maximum amount of loss you are ok with a day. If that amount is reached, stop trading for the day. If your market analysis is not working out due to outside forces, be it news, politics, volume, etc, it best to STOP TRADING and wait for the next day. There is no rush to put money at risk without proper trade performance.
Once a position is entered and the stop is at break even plus, if there is a dip in the market, you may add another contract with its $150.00 Stop Loss in place. As price continues to move in the direction of the trend, adjust the stop to break even plus as well.
Taking profits is as important as a proper entry. An experienced trader understands the importance of support and resistance levels and plans ahead for possible areas where the price trend may face a challenge. It is at these points or prior to that, one must consider taking profits on a portion of the position or close the trade depending your your analysis.
DO NOT TRADE DURING US. HOLIDAYS
I prefer to trade only when the European and US markets are opened. During US Holidays, volume is usually low and price momentum is minimal. It is not worth risking hard earned money or working capital during these times.
LOW VS. HIGH VOLATILITY
As a trader, one must have experience trading during different market conditions as they change overtime. In the past several years, the VIX has been extremely low and stable. Trading when the VIX is a 9 or 12 vs 50 is quite different. For example, the DOW JONES Futures /YM can swing 200 to 400 points in a matter of seconds. It is extremely volatile and it is best to stay out of the market. As a trader, one must look for pretitable moves and not speculate as to what may happen. Trading with a high VIX or Implied Volatility of the instrument to be traded should be left for highly experienced traders.