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Day Trading Success-The Key is Survival
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A lot of traders, especially new traders, are looking for a list
of simple trading rules to follow. “Rules-based trading” is
better than an undisciplined approach, that’s for sure. But
simple mechanical rules have not worked for me. Like every
successful discretionary trader, I’ve learned to recognize a
group of high-probability situations (or setups) that put the
odds on my side. In a way, these setups are “rules”, but they are
essential.
Most new traders tend to focus just about all their time and
energy on finding nearly perfect “setups”, but trade setups, even
very good ones, are *not* the key to successful trading. It’s the
*way* you trade your setups that keeps your losses smaller than
your gains. And this is the single most essential key to trading
success. To me, the process of limiting losses is more than just
money management…it is survival.
I can’t give you a list of mechanical survival rules that will
take the place of experience and make you a successful trader
overnight, but if you stick to the following principles in your
trading, you’ll be on track. You’ll be doing just about the
opposite of the crowd, and you’ll eventually learn to limit your
losses. Limiting your losses is the only way I know to make money
in this business.
The following guidelines will sound radical, but they have guided
me in making my living from trading for many years.
1. If a trade doesn’t go your way within the first one to five
minutes, get out. I usually get out within one or two minutes as
soon as my perceived edge is gone.
2.If a trade goes against you in the first few seconds, begin
drawing in your hard stop and/ or your target, trying to get out
of the trade at break even.
3. Never let your hard stops get hit. When it happens, you may
want to take a break and get some fresh air.
4.Hard stops are adjusted to market conditions. At the moment
(July 6,2005) I am using 1.50 point hard stops on the SP futures.
5. Never move your hard stop away from your entry point, hoping
that a bad trade will turn around.
6. If you find yourself *hoping* as you trade, it is a clear sign
that you are not following good survival (money management)
principles.
It will be impossible to put these principles together without a
set of high-probability setups. Without good setups, trading is
just a flip of the coin.
About the Author
Mike Reed is author of TradeStalker’s RBI Trader’s Updates. He
has been trading the Market for 23 years. His support and
resistance numbers have been published on the internet since
1996. Mike’s nightly support and resistance zones are specific
and incredibly accurate. He offers an unlimited free trial of his
nightly TradeStalker RBI Trader’s Updates.
http://www.TradeStalker.com Copyright 2005 Mike Reed
Futures Trading Systems –
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