This is what my dogs are doing every Monday through Friday from 8:30am until Noon.
What does this have to do with Day Trading?
One of the biggest mistakes we see traders making is the they don't have a clear, concise and actionable set of rules that they follow day in and day out. Basically, they're just winging it! The show up for work around 9:15 every morning with the hopes of having a good day. There's no plan. There's no time table. There's no watchlist. Once the market opens they are usually overwhelmed which causes them to impulsively jump into some trade. They're not sure why they took the trade in the first place. There's not really an exit strategy if the trade goes against them and there's certainly no exit strategy on when they should start scaling out and taking some profits if/when the trade starts to work.
What I just described above USED TO fit me to a "T". That was me. I was frustrated with my trading, not making $$$ consistently and I really had no idea why. After all, I had read every trading book, attended countless webinars and felt like I understood EVERY technical indicator that ever existed. Why wasn't I making $$$? Luckily I finally woke up and said enough is enough.
I started to analyze my trades and realized I had no concrete rules about what I was doing. No rules on position sizing. No rules on the types of stocks and set-ups I would and would not trade. No rules on my stops. No rules on my exists. No rules about scaling out. No rules about what time of day I should be trading. No rules on controlling my emotions. I think you get the idea. NO RULES!
So when I finally said "enough is enough I MUST figure this out" I decided I needed to come up with a list of rules to follow. That fit the part of my personality that enjoyed having structure in my life anyway. Why didn't I think of this sooner?
So my first rule, which I WROTE DOWN ON PAPER: YOU MUST HAVE A SET OF TRADING RULES THAT YOU FOLLOW EACH AND EVERY DAY WITH EVERY SINGLE TRADE YOU PLACE!
My second rule: YOU MUST FOLLOW THESE RULES
My third rule: YOU WILL READ THESE RULES BEFORE THE MARKET OPENS EVERY DAY, FOREVER...
So, that's how it started. That's how my list of rules began. Within the first month I had over 25 concrete trading rules that I was following. And wow, did it start to change my trading for the better. Again, why didn't I think of this sooner?
Rule #4: I WILL NEVER EVER EVER AVERAGE DOWN AGAIN. PERIOD. NO EXCEPTIONS. DO THIS AGAIN AND JUST GO GET A JOB AT $HD.
I'm an extreme DIYer so $HD was looking good.
Luckily, Rule #4 (along with #1-#3) change my trading life and I'm still just a customer at $HD. Once I figured this out and actually started to follow rule #4, my P&L drastically changed. It's interesting to note that I was actually taking MORE losses on trades and my Win Rate % went down. However, the losses were so small compared to my previous losses that my P&L started to turn green. Why didn't I think of this sooner?
Fast forward to today. I have well over 250 rules. I could probably go into detail about 248 of them off the top of my head without really having to think about them. They are engrained in my brain. They are habit. They have become part of me as a Day Trader.
Before you ask, no I don't read all 250 of them every morning. I do however have my "Top 20 Trading Rules" printed out and hung on the wall right next to my desk. I read these rules at 9:15am EVERY SINGLE MORNING THE MARKET IS OPEN - that's exactly when they fit into my morning routine. My Top 20 changes from time to time as does my mood, my trading and the markets. Example: If I have a bad day and break one of my rules, that broken rule moves up to the #1 spot for a while so it's fresh in my brain. My #1 rule lately? With this slow, sideways, low volume chop fest of a market: TIME OF DAY MATTERS! Don't trade the afternoons.
So, let's go back to the beginning of this blog post. What in the heck does this have to do with my dogs? Well, anyone who has dogs, especially high energy dogs like Weimaraners, knows they can be a HUGE distraction. Early in my trading career they were constantly bothering me during peak trading hours. They wanted to go out. They "needed" to go out. They wanted to play. They were bored and thought I was just standing at my desk so why couldn't I just give them attention? This had to change. I decided I needed a rule (it was #13 at the time): ABSOLUTELY NO DISTRACTIONS FROM 8:30AM UNTIL NOON! TRADE DURING THIS TIME FRAME OR DO SOMETHING ELSE, DON'T DO BOTH. So the dog training began. I had to train them to leave me alone from 8:30 until Noon every trading day. How exactly I did this is a great story for another type of blog so I'll spare you the details, but hopefully you get the idea.
I had to take ALL the distractions away during these peak trading hours. Focusing solely on the markets and my trading. Phone muted, email closed, no deliveries, no doorbell, etc...
It had a HUGE impact on my P&L.
So my dogs #1 Trading Rule: LEAVE DAD ALONE FROM 8:30AM UNTIL NOON (We already had our first play time).
What's distracting you?
What rule(s) do you have about those distractions?
Time for some rules...