...and with the long-term trend.

On Monday I published my 1st Annual Presidents Day Rules of Trading.

Rule #1, with a short description:

NEVER AGAIN ADD TO A LOSING POSITION.

Admit quickly when you're wrong. Get out and plan the trade again. Set your mind right and agree that you're not going to let a bad trade destroy you. Remember: You have complete control over how much you lose, and it's okay to lose a small amount 10 times in a row. Never succumb to the Siren call of "if I'd only removed my stop." That works 19 times out of 20 and then one day you realize you've been holding a time bomb in your trading account. Boom.

P.S.

Holding onto losing trades works. Until it doesn't. I once created a trading system with a 1,000 pip stop loss and a 1 pip profit target and it won 99% of the time. You can stop out often, or you can stop out infrequently. But you cannot avoid stopping out. Why not just admit when you're wrong, and admit it quickly?

I've traded systems with no stop losses. But when it comes to managing money, that sort of trading doesn't work so well. In fact, it works terribly. 

There is also a lot of talk lately about whether brokers are still hunting stops and so forth. And which brokers have a "true ECN" or "true straight-through-processing." While that debate matters, it distracts us from reality: most traders in every market lose money.  Futures. Stocks. Bonds. Individuals, hedge funds, mutual funds, it doesn't matter. Most traders lose money at the same rate, regardless of broker. Even if they're trading on regulated, "true" exchanges. They still crap on their trading accounts anyway. 

I don't always follow these rules. I also become a Drunk Monkey Loser when I don't follow these rules. Obeying the rules doesn't guarantee me profits.

My trading benefits from a no-nonsense approach. Yours might not. Only you can teach you to trade. What happens for good or bad in your trading platform is your fault. (Same for me, too).

Thanks for reading. Happy President's Day.

1. Never again add to a losing position.
2. Trade against the short-term trend, and with the long-term trend.
3. Go long what is strong.
4. When you find yourself in a hole, stop digging. Throw away the shovel.
5. Always plan for adding to a winning trade.
6. A good trade tells a simple story. If the story is complex, skip the trade.
7. Set a maximum loss per day. When you reach it, shut down all the garbage mashers on the detention level and walk away.
8. Don't trade on days when you should be reading fiction, poetry, listening to classical music, or running, or doing yoga, having sex, or walking the dog. This is most days.
9. Be patient when things are working.
10. Clean up your life in this order: People, Finances, Desk.
11. Stop out fast. Failure is a dish best served quickly.
12. When you're in a rut, take a timeout. You should have been doing #8, anyway.
13. Remove all toxic people from your life.
14. Relentlessly prioritize your life.
15. Be grateful, generous, and give credit to someone else for the good things.

Click here to download:

Presidents_Day_Rules_of_Trading.pdf (349 KB)

(download)

Click here to download:

Presidents_Day_Rules_of_Trading.pdf (349 KB)

Trading is about growing up. You want to be a mighty tree. Not a dead leaf.