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 ½ of your available capital to avoid over extension or a potential margin call.
Remember, the un-predictability of the markets is stressful in its own right-don’t add to the stress with something you can control.
2. DON’T TRADE TOO MANY MARKETS AT THE SAME TIME
Just as you shouldn’t over extend your capital, be cautious also not to over extend your attention span.
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 to thin.
3. DON’T 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&P’s 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, don’t believe you’ll 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, don’t fit your trading size to margin requirements. They have nothing to do with one another. And always, always trade within your capabilities.
4. DON’T TRADE WHEN YOU DON’T UNDERSTAND THE MARKET
Many novice traders are deceived into thinking that the successful trader is always in the market. But when you don’t 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 “I really don’t know what’s going on, but the market is acting well, I should jump in.” 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 improves.
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 CONSENSUS
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 to day 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 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 opposition’s sake.
8. BELIEF IN YOURSELF
I think by now we all know what this means.
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 ½ of your available capital to avoid over extension or a potential margin call.
Remember, the un-predictability of the markets is stressful in its own right-don’t add to the stress with something you can control.
2. DON’T TRADE TOO MANY MARKETS AT THE SAME TIME
Just as you shouldn’t over extend your capital, be cautious also not to over extend your attention span.
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 to thin.
3. DON’T 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&P’s 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, don’t believe you’ll 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, don’t fit your trading size to margin requirements. They have nothing to do with one another. And always, always trade within your capabilities.
4. DON’T TRADE WHEN YOU DON’T UNDERSTAND THE MARKET
Many novice traders are deceived into thinking that the successful trader is always in the market. But when you don’t 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 “I really don’t know what’s going on, but the market is acting well, I should jump in.” 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 improves.
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 CONSENSUS
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 to day 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 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 opposition’s sake.
8. BELIEF IN YOURSELF
I think by now we all know what this means.
By Archie Johnson of VtUniversity.com
