Part 2: Trading Card #501

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Part 2

#6 Develop a methodology and stick with it. dont change methodologies from day to day.

I require my students to actually write down the specific market prerequisites (setups) that must take place in order for them to make a trade.

I don't necessarily care what the methodology is, but I do want them to make sure that they have a set of rules, market setups or price action that must appear in order for them to take the trade.

You must have a game plan.

If you have a proven methodology but it doesn't seem to be working in a given trading session, dont go home that night and try to devise another one.

If your methodology works more than one-half of the trading sessions, then stick with it.

#7 Be yourself, dont 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 is 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

Never put yourself in the precarious position of losing more money than you can afford.

The worst feeling in the world is wanting to trade and not being able to do so because the equity in your account is too low and your brokerage firm will not allow you to continue unless you submit more funds.

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 five or ten e‐Mini S&P contracts.

This cannot be further from the truth.

If you cant trade a one lot successfully, what makes you think that you have the right to trade a 10 lot？

I demand that my students show me a trading profit over the course of ten consecutive trading days trading a one lot only.

When they have achieved a profitable ten‐day period, in my eyes, they have earned the right to trade a two lot for the next ten trading sessions.

Remember: if you are trading poorly with two lots you must lower your trade size down to a one 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. Its 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 its probably no good.

Time to exit.

Every trader has losing trades throughout the session. A typical trade day for me consists of 33 percent losing trades, 33 percent scratches and 33 percent winners.

I exit my losers very quickly. They dont cost me much. So, although I have either lost or scratched over two thirds of my trades for the day, I still go home a winner.

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