A Few Rules We Follow
We hope you enjoyed and benefitted from our previous “The Ticker” articles as much as we have putting them together. We are serious when we say it’s our objective to help you be the absolute best dam trader you can be.
We designed our educational material around the Tradrr platform we are developing for a reason; there’s more to trading futures than just graphical interfaces. How to use our platform is very important but to start there, especially for traders recently introduced to futures would be premature. Learning how to trade futures and their derivatives is a marathon, not a sprint. Nonetheless, we follow rules. Here’s a few of perhaps some of the best “hints” that universally will improve your trading regardless of your level of expertise.
Everybody has a list of “do’s” and “don’ts”. The problem is that traders far too often disregard their very own rules. Advice from experience, choose your trading style, take the time to learn how to use the tools you require, then practice, practice and practice some more. If you think learning about futures then trading futures is going to be easy then you’re probably going to be very disappointed. Again, it’s a marathon not a sprint.
To get you started here are a couple of the “rules” we follow. Take the time to think up your own but again, if you do follow them please.
Don’t trade when the words “hope”, “pray”, “wish” or even “think” are associated. There will be plenty more opportunities. As a position trader I don’t trade much. In addition I use options and not the ones that expire in fifteen minutes; we aren’t averse to paying a premium for time.
Follow the trend. Post identifying the trend it’s best to follow it realizing that in today’s world it can change on a dime. We will be taking more time on this and related subjects in the Order Flow and Position Trading courses. The introductory courses are a great place to start. The for purchase advanced courses is where you’ll essentially obtain and learn from the same tools as we do with examples that will benefit any trading plan.
Make a plan and learn the basics of futures trading before you start. Unless you want to fall into the category of either being “lucky” (trust me it doesn’t last) or blowing yourself out of the market quicker than you’ve ever lost before, you are best to start trading a “paper” account. If you need help setting one up let us know; we do have our favorite brokers, clearinghouses and data providers to recommend that we’ve worked with for years. They are not the cheapest; they’re the best and that matters.
Follow your plan. Think about it; you are in the process of making your first plan. We hope you are not just doing that for fun. You are creating your trading plan for you to use it. If you are putting it together as just an exercise do yourself a favor; do something else. Trust us, there are far better ways to spend your money than losing it trading. Learning then trading futures is a major decision so in short, don’t screw it up. That doesn’t mean you won’t change your plan over time but give it a chance first to show you what needs to be changed.
Choose a trading style. We’ve spoken generically about various trading styles like day, swing and scalp trading, position trading and order flow (which essentially is a tool used everywhere). In today’s world, most everybody wants to be a day trader. Perhaps you should pay homage to the 1965 Beatles hit “Day Tripper” first before unbridledly choosing any particular style, Sure, Im a position trader but that doesn’t mean I’m not going to jump at a sold day, swing or scalp trade on my radar. Choosing a trading style helps you build a plan; it doesn’t preclude you from trading other styles.
Understand your personal risk and reward status. If you take anything away from this course the most important qualities necessary to having the chance to make a living trading futures is understanding yourself. That includes understand what you can afford to lose. Have a goal, dependent upon your goal decide the amount of capital you can afford, reassess that goal determining if the amount you have to risk is sufficient the start trading. If after reassessing whether the amount you have to risk is indeed insufficient revise your goal, do not increase your expected rate of return; that only gets you into trouble realistically with an added stress factor.
Do not overtrade. As reiterated any times throughout this course, I do not trade much. In a prior lifetime I traded a lot more. As I have aged the reflexes are just not there; neither is the interest. Sure, a no-brainer crosses the screen and I’m actually watching I’ll take that trade (with the requisite stops in place). Some new to the field traders think they can hit every little up and down. Trust me, you cannot, not with the “algos” out there competing against you or those who simply have better reflexes and tools. It’s best to trade within your own preset boundaries and wait for your opportunities, you know the ones in your plan to emerge and find you versus what amounts to just shooting buckshot.
Cut your losses short. There will be plenty more opportunities. Just how many times have we brought this issue to light in this course? We’re not doing it for our health; we instinctively abide by this rule. We’re bringing it to your attention. Most traders who are new to trading futures, especially if coming from the equity and ETF world think their loser is “going to come back”. After all you have just spent a decade or more being rewarded for just that as the markets unilaterally moved higher shaking off the downside moves. It doesn’t work that way with futures. In futures, with a losing position, you need o keep feeding the meter. Remember, you don’t really own your position like you do in a regular stock or bond margin account.
Let your profits run but don’t be greedy: bulls make money, bears make money and pigs get slaughtered. This one goes back to a good friend of my Dad’s, Bob Kinol, when I started being a regular at E.F. Hutton more than fifty years ago. He also crowned me as “boy chartist & bookie” as winning the weekly football pools were very good to me. There were a couple good traders at my Dad’s office, Every single one of them abided by this rule and a few of the ones that follow. Funny, things have not changed much in all these years. This one however remains a problem for most, not because they aren’t decent traders, they’re lazy. Too many of you out there are looking for the big one; not me. I’m happy to take a piece out of several transactions knowing I have the ability to find the next one.
You’ll never go broke taking a profit. Not much more to add here as it’s very similar to what’s written above. when coupled with cutting your losses short there’s even more value. Think about it, go back and review what we’re drilling into your head. You don’t have to win on every trade. As illustrated you can have more losing than winning trades and still be profitable. The trades that created more angst than others however are those where you’re profitable and “give it back”. Don’t do that.
Do not stay too long in a good trade. This is for all of you who call themselves a day trader. You are short term in nature by design. Your trading plan and set-up dictate that your desire is like the hamburger chain, “In & Out”. So ask yourself, regardless of being up or down in a position; why are you sticking around? For those of you who consider themselves more of a position trader, quite frankly this rule doesn’t really apply. For those of you who like to trade, be you a day, scalp or swing trader, if you’re not getting in and out you’re not being consistent with your own plan. Always follow your plan; if it’s not working reevaluate it and reassess who you are. If you’re not profitable that’s the first place to look.
Recognize fear, greed, ignorance, stupidity and impatience in the markets; take advantage of them. You’ve just about completed a course in Trading Psychology. Throughout the course we’ve tried to keep you away from a few emotions like fear and greed. When you’re out there trading however we want you to look for them as you watch how others trade and the patterns they create. Quite frankly we’re “wick” or “candle” traders. We first assess the overall direction of the markets then we watch for aberrations, you know the ones that are significantly contrary to the direction markets should be heading. While you know not to react to fear, greed or many of the other emotions that lesser qualified traders exhibit, we also suggest that you take advantage of the opportunities that arise when they do.
Not owning a position is a position. The best way to teach this is by adding another moniker to the often used list of positions we use, “long”, “short” and now “flat”. If you’re talking about tires then flat is not a good thing. If your indicators and your observations suggest you cannot differentiate between whether to go long or short it’s best to stay flat. Being out of the market is a position. As a matter of fact it’s the position we employ most often. When we review our ten to twelve indicators, unless a 90% congruency rate is achieved we don’t take the trade. What those indicators are may be different than yours but do yourself a favor, take the time to devise your own. In our upcoming advanced courses in Order Flow and Position Trading we’ll actually reveal our checklists and our trading plan. Stay tuned, they are pretty good.
Gamblers and thrill seekers often lose. Let me start you off with a good story; I play Roulette. On my Stats I final a question related to gambling in Monte Carlo was asked. The answer was covering 22 of 37 numbers on the Roulette table. If you lost, just double up and without a table limit you’ll eventually win. Trust me it works but if the casino sees you playing this method they’ll escort you out. I didn’t consider that gambling; didn’t win much but never lost any money. Like a casino, if you do not have a game plan, in this case a trading plan you are essentially gambling. Clearinghouses like casinos make money every time you enter a trade. So if you are trading without a plan you are essentially making the “house” a winner. Don’t do that
Don’t trade on rumors. Think about it, if you are the recipient of insider information how many people before you have already acted on the news. Do you actually believe that you were the intended beneficiary of that news or are you just a victim of a “pump & dump” scheme where the true beneficiaries have already lined their pockets? Rumors are much more effective in equity and related markets; that’s one of the major reasons we prefer to trade futures where “supply & demand” exists and the information available is broadcasted to everyone at the same time. In the futures world the playing field has been leveled, Sure there are still some bad apples out there but over time, especially on the DOM you’ll be able to spot them.
Learn from your losses. Regardless of what you do, be it raising a child to searching for buried treasure, you learn from mistakes. If not you’ve defined the word “idiot” in its primary form, “doing the same thing over and over again expecting a different result”. It’s best not to do that, especially if you’re trading with real money and that money is yours. Without doubt most people learn more from losses and mistakes than winners. When you lose money you can observe what went wrong. When you make money, it is not always because what you thought was right; there may have been another, under the waterline reason why your trade was a good one. Winners are harder to dig into than losers. In losers you know what you were thinking. People naturally review all losing trades to make sure they don’t make the same mistake again. We review our winners to make sure something other than what we expected didn’t create the result. We are always learning.
Always use stop losses. Let me repeat that; always use stop losses. Let me emphasize; ALWAYS USE STOP LOSSES. When we enter a trade without a stop loss assigned our “click & trade” system will ask us if we intended to enter the trade without first assigning a stop loss. Yes, we can override that but we don’t. The world is always changing, information flows at the speed of the Internet. If you are wrong there’s no guarantee you’ll be able to get out. ALWAYS USE STOP LOSSES.
Again, before you start trading understand not just your objectives. Understand what makes you “tick” before watching the market’s ticks.
Hope you enjoyed this post. I’m just a young 68 years old; my Dad became a broker when I was 13. It’s time for me to ‘give back’ to all of you what’s in my head. It’s not always pretty but while it’s usually based on history today it’s the future, and that future is now . . . regardless, economically the worst has yet to come so hang in there and continue to sit on your hands; and your money.
Remember, learning how to trade is not a sprint; it’s a marathon. Everyone learns at their own pace. If you pick everything up the first time through, great but if not email me at dzimmer@substack.com so we can further help.
Originally posted at https://tradrr.com/a-few-rules-we-follow/