Kay’s 10 Tips for Disciplinary Trading
1. Know Your Account Size
Your trading activity should correspond to your account size, to your availability and other individual factors. If your account is relatively small, you have to scale down your activity so that you don’t risk too much on any one trade. If you’re not available to monitor your trades constantly, don’t open high risk short term positions that require quick intervention.
2. Let the Winning Trade Run
“Amateurs go broke by taking large losses and professionals go broke by taking small profits.” It took me long time to understand this fact because we’ve all heard the statement that goes, “You don’t ever go broke by taking small profits” and this statement is utterly false. Actually, you do go broke by taking small profits. Professionals make money because they let their winning trades run.
3. Be Disciplined With Your Setup
Biggest mistake traders make is not knowing how to defeat their own emotions. Do not get in to trade just because it’s moving fast. Do not chase after the big move if you missed it, let it go and move on. Let go of certain trades if you are one step late. If it reaches the target, close it out (or close 50-70% positions and keep rest) and be content.
4. Place Your Stop Where It Belongs
Traders tend to jump into a trade when the stock moves fast, and then they place their stops according to their risk/reward calculations at that time. This is a HUGE mistake because this sets you up for getting stopped out left and right. If you know your solid support and resistance, have faith in it. Place your stop below or above the pivot, and keep it there. If the risk/reward ratio is not good, that’s is not a good trade for you to get in, in the first place.
5. Make Decisions According To Your Analysis
People tend to panic looking at their account when they see red numbers or overly rejoicing when they see green numbers. This sets you up for an emotional roller coaster. This is how you are going to have depressing days or super happy days. Stop it, and look at your chart; make decision to either tighten your stop or have faith in your analysis, and let the market come to you. Don’t get out of the trade out of a fear or stay in the trade out of greed. Do your homework, do your analysis and make logical decision.
6. Plan ahead
Never enter a trade because the price is suddenly rising or falling (this will take years to discipline yourself). Always plan your trades in advance. Know your desired entry point. Calculate your risk/reward ratio before entering, and stick with your plan.
7. Don’t Fall In Love With Any Stock
Technical traders or not, many traders fall in love with their trades and they don’t want to exit. They are overly optimistic on certain stock. I see this happening a lot in AAPL communities. People worship this company. If someone tweets idea opposite from your current position, and you get furious? You are in love with the stock.
8. Learn To Take A Break If Necessary
You are now constantly losing money and feeling it in your blood stream that you are about to go wild! You need to find something quick to make up for all the losses. If you are in this stage, you are in the danger zone; you will lose all of your money if you trade with high emotions. I know its super hard but you need to shut off your computer for about a week and take a break from the trading all together. Trust me, you will able to think more straight when you come back. Traders only want to take a break when they make money. No, it’s more important that you need to take a break when you are losing money.
9. Set-Up Your Trades After Hours
When I first started trading, I used to always place my trades after hours using triggers and contingencies (now that I can over-rule my emotions during the market hours after a long years of training, I do not do this anymore). If you find yourself getting into trades out of high emotion because the stock is moving fast, it’s probably best to practice placing your trades after hours.
10. How 2 Truly Be Successful in Trading
I always use this analogy when someone asks me regarding this topic. Today, Japanese cars are more popular because they are cheaper, lasts longer, and always wins with best value. But what we don’t realize is that Japanese didn’t know how to build cars at first so they had to learn from Ford, and to mimic what Ford has done with their cars (a long time ago). But what happened last 20 years? Japanese surpassed Ford and now they are making things much better . That’s exactly what you need to do. That’s how you succeed in any business world. You find someone who has similar strategy as you (in trading) and mimic that person. Learn everything you can and to master everything that person knows about trading and then (after many years of study and learning from that person), find your own style. And make it better! Samsung’s smart phones were garbage just about 5 years ago (2009’s). And I don’t argue the fact that Samsung copied Apple’s iPhone and its features. But today, they are going neck to neck as far as sales are concerned and popularity (scaling world-wide). What happened? Samsung copied first, but now they are on their way to make things better. That’s what you need to do.