Most brand-new traders tend to focus practically all their energy and time on discovering almost ideal “setups”, however trade setups, even excellent ones, are * not * the secret to effective trading. It’s the * method * you trade your setups that keeps your losses smaller sized than your gains. And this is the single most necessary secret to trading success. To me, the procedure of restricting losses is more than simply finance … it is survival
I can’t provide you a list of mechanical survival guidelines that will replace experience and make you an effective trader overnight, however if you stay with the following concepts in your trading, you’ll be on track. You’ll be doing practically the reverse of the crowd, and you’ll ultimately find out to restrict your losses. Restricting your losses is the only method I understand to earn money in this organization.
The following standards will sound extreme, however they have actually directed me in making my living from trading for several years.
1. If a trade does not go your method within the very first one to 5 minutes, go out. I generally go out within a couple of minutes as quickly as my viewed edge is gone.
2. If a trade breaks you in the very first couple of seconds, start attracting your difficult stop and/ or your target, attempting to leave the trade at break even.
3. Never let your difficult stops get struck. You might desire to take a break and get some fresh air when it occurs.
4. Hard stops are adapted to market conditions. At the minute (July 6,2005) I am utilizing 1.50 point difficult stops on the SP futures.
5. Never move your difficult stop far from your entry point, hoping that a bad trade will reverse.
6. If you discover yourself * hoping * as you trade, it is a clear indication that you are not following great survival (finance) concepts.
It will be difficult to put these concepts together without a set of high-probability setups. Without great setups, trading is simply a
turn of the coin.