TRADE SCHOOL: Discipline For Day TradingThe 25-Point Mantra

Nick Fosco

Dec 10, 2010

Discipline for Day Trading

Douglas E. Zalesky:CBOT/CME/LIFFE Trader SFO Magazine Copyright: Feb 2003

- Member CBOT 20 yrs- 30 Year Treasury Bonds (CBOT)- S&P 500 (CME)- Gilts (LIFFE)

CBOT: Chicago Board of TradeCME: Chicago Mercantile ExchangeLIFFE: London International Financial Futures Exchange

The Wheel of Success

Content Internal (time/price)& External Market information Value-added content for trade decisions (i.e. WSJ,

IBD) Mechanics

Market access & entry/exit methodology Must master mechanics to be good trader Reliable trading platform

Discipline (most important spoke of wheel) Must attain and practice 100% of the time Used in EVERY trade, EVERY day

#1 The Market Pays You to be DISCIPLINED

Trading with discipline will Put more money in your pocket Market truth: Discipline = increased profit

#2 Be DISCIPLINED Every Day, In Every Trade, and The Market Will Reward You

Don’t claim to be disciplined if You let just one single trade slip It is a sometimes thing Trade with discipline 9 of 10 times

One bad undisciplined trade can really hurt

Market will reward you Small losses (loss of $200 Vs

$1,000) Reward is the ‘saving’ of $800

#3 Lower Trade Size When Trading Poorly

Good Traders Follow this rule

Two losing trades in a row; Cut trade size by at least 50%

Three losing trades in a row; Cut trade size by another 50%

Four losing trades in a row; Shut it DOWN and go have a drink.

#4 Never Turn Winner into Loser

Try very hard to not violate this rule.

Need to overcome greed factor It’s only one trade Plenty more trades to

come Place stop/limit order at

break even Need to allow enough

‘retracement’ room No one trade should

make/break trade limits for the day

#5 Biggest Loser Can’t Exceed Biggest Winner

Keep log of daily trading Take note of the biggest winner so far Cut subsequent losing trade to be smaller loss Focus on keeping overall gains for the day

#6 Develop a Methodology and Stick With It

Write down your trading methodology Run it by a trusted trader for feedback Keep it next to your computer for quick

reference Keep it as simple as possible Stick with it if at least 50% effective Should include Entry and Exit setups

#7 Be Yourself

Know your limits Monetary, Emotional and Psychological Trade in your comfort zone

#8 Trade to Fight Another Day Always have dry powder

Never lose more money than you can afford Lack of funds to enter trade Set daily loss limits and stick to them Close it up for the day when loss limit is

reached

#9 Earn the Right to Trade Bigger

Start slow and build confidence Ten days of consecutive profits; +1 lot size Ten more days of consecutive profits; +1 lot

size Drop back down to 1 lot size when trading

poor#10 Dump the Losers Loser win when

Get out of losing trades at the bottom floor Learn to trust your gut Every trader has ‘daily’ losing trades Typical traders experience 33% daily winners

#11 First Loss = Best Loss

Exit Losers Immediately Set your limit and execute it Warning phrases

It’s only a loser when you sell No worry, it will come back

#12 Hope and Pray, You Lose Praying to the ‘Market God’

Is a wasted exercise. Just get out! The longer you wait the longer the pain You will be the last one to sell

#13 Ignore the News, It’s History

The ‘Talking Heads’ Will always have a reason for the market

move ‘Experts’ push personal agenda Headline news is ‘old’ when released to media

#14 You Speculate, You Lose Be a Trader not a Speculator

Trade your plan Stick with short term winners (Scalps) Consistent small winners result in large profits

#15 Love to Lose Money

Expect to Have Losing Trades Accept the fact that any trade may be a loser Be ready to exit quickly and with small loss Successful trade is getting out with small loss

#16 Bored? Exit Trade Price stagnation is loss of opportunity

Exit when trade is moving sideways Wait for the market to heat up/down

#17 Big Losses Hurt Bad

Review & follow rules #5,8,10,11 and 15 Avoid big losses at all costs Nothing worse than digging a big hole Big losses wipe out many small winners

#18 Make A Little Bit Every Day Steady small profits result in

Large monthly winner Above average yearly returns $100/day = $2,000/month = $24,000/yr

#19 Hit Singles, Not Home Runs

Enter each trade for small gain With luck, some trades will turn into home runs Celebrate the small profits Accept that you will leave some profits on the

table#20 Consistency Builds Confidence & Control

Confidence is achieved when You stay true to your methodology Trade with discipline Stick to your trading plan

#21 Learn to Scale Out of Winners

Increase average win per trade Never scale out of losers. Exit full trade. Best to exit one-half position at first target price Raise stop-loss order to break even & trail up.

#22 Be a Brick Layer Make the same trade over and over again

Build consistency of methodology Stick with what works

#23 Don’t Over-Analyze, Procrastinate, Hesitate

Failure to act is not an option Pull the trigger when your plan says to You can always exit with a small loss Nothing worse than watching the trade get away You can only be right if you are in the trade

#24 All Traders are Market Equal The Market is an equal opportunity

employer Every day is the first day Our daily behaviors set us apart Flow the rules and you will do well

#25 The Market is Final Judge and Jury

The Market is what it is It does not care about your positions It does not discriminate It is not out to get ‘you’ It is always right It deserves respect It will punish you for failure to follow the rules

Play by the rules and you will be as one with the market