1. NEVER OVER TRADE
I have found that an amazingly
high percentage of traders are forced out of positions because of over
trading. Over trading tends to put traders on thin ice, and can eat into
valuable trading equity.
Experience has taught me to
always have at least 100 percent additional capital available to protect a
position. In other words, when establishing a position, risk only Ĺ of
your available capital to avoid over extension or a potential margin call.
un-predictability of the markets is stressful in its own right-donít add
to the stress with something you can control.
2. DONíT TRADE TO MANY
MARKETS AT THE SAME TIME
Just as you shouldnít over
extend your capital, be cautious also not to over extend your attention
Computerization has allowed us
to now watch more markets than was once possible. Regardless of this
technology, however, greed can often cause us to take more than our mental
energies will allow. Even the most sophisticated system cannot produce the
best results if you have your hand in eight different markets.
I cannot stress the importance
of finding a personal trading niche and staying focused. The markets are
not a candy store. Successful trading requires work. Make sure you get the
best return for your efforts by not spreading yourself too thin.
3. DONíT TREAT ALL
MARKETS THE SAME
Learn to adjust the size of
your positions and the frequency of your trades for different markets.
In soybeans, for example, your
goal may be a 50 cent move - $2,500 per 5000 bushels - over the next two
or three months. The S&P markets, on the other hand, frequently make
the equivalent of a $2,500 move in one day. You probably would never want
to trade as many S&Pís as soybeans unless you increase your trading
capital to accommodate such a risk.
The same is true with margin
requirements. If you are trading 5-10 bonds, it is unwise to start trading
60 contracts of corn merely because the margin requirements are the same.
(Oh, how many times I have done this one!) Just because you are
comfortable trading 10 bonds, donít believe youíll feel at ease
trading 300 corn.
As you progress in your
trading, you will develop a comfort level I refer to as the sleeping
position. (An overnight position which does not disturb your sleep). For
me that would mean sleeping soundly with 500 beans (100 contracts), but
tossing and turning with 50 bonds.
Remember, donít fit your
trading size to margin requirements. They have nothing to do with one
another. And always, always trade within your capabilities.
4. DONíT TRADE WHEN YOU
DONíT UNDERSTAND THE MARKET
Many novice traders are
deceived into thinking that the successful trader is always in the market.
But when you donít understand what is happening in the market is when it
is best to leave it alone. You do not need to trade all of the time. The
market will open tomorrow, next month, and next year. There is no law that
says you must trade today.
How many times I have thought
ďI really donít know whatís going on, but the market is acting well,
I should jump in.Ē but the difference between this thought and active
action can be very expensive.
Keeping a safe distance from
the market is always prudent when you are in doubt. Unless you are
reasonably sure of your conviction to either buy, sell or hold, it is
better to observe the market from the sidelines until your confidence
5. NEVER TRADE PRICE-ALWAYS
TRADE THE MARKET
Once I refused to buy soybeans
because they were seven dollars. I was bullish and so was the market, but
seven dollars was a price I had never seen before in beans. Subsequently,
I watched the market go to 13 dollars.
Put your trust in the markets,
and do not be afraid when they reach historic highs or lows. Markets are
where they are for a reason. Evaluate that reason on its own merits, and
except the inherit unpredictable qualities of speculation.
6. PAY ATTENTION TO MARKET
When too many market
participants are moving the market in any one direction, the market
becomes very vulnerable.
Also be sure to pay attention
to the makeup of these participants. For example, is the activity due to
public or commercial trading?
Never underestimate the makeup
and volume of the market participants.
7. IGNORE THE MINOR
FLUCTUATIONS AND PLACE POSITIONS IN HARMONY WITH THE BASIC TREND
Minor daily or day today
market moves cannot be anticipated with sufficient accuracy, or traded
with any level of consistent success. Only when put in the perspective of
the basic main trend do minor fluctuations have any significance. The key,
therefore, is to ignore minor fluctuations and to trade with the trend.
Trading against the trend and
solely to play the part of the contrarian has wiped out more profits and
traders than any other single violation of basic trading principles. One
can make many errors of judgment in establishing positions in harmony with
the basic trend of the price movement. But to deliberately trade against
the trend requires a conviction in opinion, precise timing and price level
judgment and that can be difficult for even the nimblest of pros.
We are all in the markets to
make money, if you feel that your contrary opinion is indeed the best way
to achieve this goal, then you should follow your instincts. But no one
has made and kept profits by becoming addicted to either the action in
minor fluctuations or to opposing the majority for oppositionís sake.
8. BELIEF IN YOURSELF
I think by now we all know
what this means.
THE MARKETíS ANSWER TO
THE OLD WISE TALE: TRADING RULES TO DISREGARD
The following are some of the
most common trading rules. But sometimes the most well- intentioned advice
can be unrealistic, unproductive, or just plain outmoded-which is how I
feel about the following:
1. BUY ON THE LOW AND SELL
AT THE TOP
Guessing at reversal points
can be risky and very frustrating. Trade with the trend, and let the
market tell you by patterned reverse in direction, when itís over.
Always buy when the market is on the way backup, and sell when it is on
the way back down.
Be sure to watch the volume of
the market carefully at Price extremes. Declining volume usually means the
market is not accepting these higher or lower prices and could indicate a
turn. A market that is topping or bottoming out does not spend much time
at the extremes, so there will be little volume at these points. I cannot
stress the importance of daily volume enough.
Remember: let the market
determine the trend, and trade with the trend by buying on the way up and
selling on the way down.
2. ALWAYS REMAIN TRUE TO
YOUR TRADING PLAN
The only plan you should have
is a plan to know yourself and to follow the trading stop that works best
Iím not criticizing the
careful planning that goes into the development of trading goals. Instead,
I am advocating a flexibility that will not prohibit your growth as a
trader. When you establish goals for yourself, leave room to alter your
plan as it suits your increasing knowledge of the markets.
The key to any plan is how
well it holds overtime. So be sure that the goals you develop are
reflective of who you are and what you wish to accomplish. And always be
yourself and trade naturally.
3. ONLY TRADE WITH RISK
CAPITAL AND BE AWARE OF THE RISK OF LOSING
I would never suggest that
anyone trade with the rent money. This is a risk business, however, and
once you have decided that you are in the financial position to open a
futures account, it is best to concentrate on trading and not on risking.
Of course in concentrating on
trading, you want to be sure to avoid spreading yourself too thin. How
often I have seen traders jeopardize the profits from years of hard work
by pyramiding a position when they cannot truly afford it!
Be sure to accept the risk
inherit in futures, but never let greed become a substitute for the
courage to take risks.
PERSONAL BELIEFS: TRADING
RULES I DEVELOPED THROUGH MY OWN EXPERIENCE
To offer only positive or
negative responses to common trading maxims without devoting my own
personal convictions would be unfair.
My own personal trading
beliefs reflect the flexibility that I feel has contributed to my success
in over 30 years of trading. And although on the surface they appear to be
quite simple, they are principles that nonetheless have stood the test of
time over three decades of changing markets. The difficulty is not in
their concept, but in the discipline required to implement them properly:
1. START SLOWLY
Why do beginners rush in where
experts fear to trade? Maybe itís because novices donít know the
dangers awaiting the unwary. Thereís absolutely no rush. The markets
will be there tomorrow. Just be sure you are there to trade them and in
the proper frame of mind.
The rewards of successful
trading do not come easily. Thereís a price you must pay. There are
skills you must develop. Thatís why you must be patient and allow
2. LEARN FROM YOUR MISTAKES
You must never have a losing
trade and fail to ask yourself why. Maybe you were wrong in your
assessment of the market. That would be easy to correct. But suppose you
were right in your judgment of the market and still lost money? Was your
timing wrong? Did you over trade? Did other information change your
opinion? Was your management of your account wrong? Did another position
in your account force you to liquidate? These and other questions must be
asked and answered if you are to learn and if you are to ever turn your
trading account into a profitable venture.
Never make a mistake without
asking yourself why.
3. UNDERSTAND THAT TOO MUCH
MARKET ANALYSIS CAN LIMIT YOUR SUCCESS
Everyone has a different view
of the markets, but your view is the only one that counts. Use as little
market analysis as possible. Find just two or three things that work for
you and stick with them.
Don't get "paralysis of
4.LEARN TO LOOK AT ALL
SIDES OF THE MARKET
One of the best traders I know
refers to it as thinking in 180 degrees. If you are bullish and trading
from the long side, donít ignore bearish thinking. Being aware of the
bullish thoughts as well as the bearish ones will allow you to become more
flexible and a much better trader.
There is success to be found
in both bullish and bearish views of the market. I believe that the trader
who becomes active in both bullish and bearish positions has more fun and
finds more opportunities for success.
Even though these rules were
written in 1977, they still hold true unto this day. However, when options
on futures contracts were introduced around 1980, my leverage increased
and risk decreased... It's now much easier to profit from the markets than
A little common sense goes a
long way in this business, and if you add just a small amount of technical
analysis to it, you will be way ahead of the crowed.
Refer your trading friends to
this page, These are trading nuggets that will help them regardless of
their method of trading.
Thanks for reading,
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