"Jens, the coaching humbled me, because I have been working in the industry a long time. Being with you was the first time that I really got to hear 'first hand' how day traders think. I've found there are many misconceptions that I built up over the years that I must now change
— or I won’t be successful. Thank you for everything."
Richard
The Rules of Day Trading
18:06:16 brandon: A trading plan is essential for success.
It is utterly impossible to succeed at trading without a concrete plan. The
following are suggestions, some general, some specific, that I think will
help traders achieve their goals.
GENERAL POINTS
Homework: The study of specific equities and their relationship to
the overall market is essential. It is suggested that the trader work at least
one hour outside of market hours on familiarization with stocks that could
be traded the next day.
18:08:40 brandon: This can be done on the Internet. Also suggested is ""Nightly
Business Report"" on PBS. As time goes on, the trader will have greater understanding
of the widely traded stocks, and will be able to better judge information
for potential opportunities.
18:09:18 brandon: In addition, the trader should spend time every day honing
his craft; studying trading techniques, refining his ideas, etc. Weekends
require at least 2-3 hours of study to setup for the following week. The trader
should be prepared to spend a minimum of 12 hours a week outside market hours
on this planning and study.
Schedule: A standard schedule is essential. The
trader should arrive a the trading center 45 minutes before the market opens
(or more) and plan on being there all day.
18:10:07 brandon: Before the market opens: The trader should have a list of
potential trading stocks from his homework from the prior evening.
18:11:02 brandon: He should look at these as to how they traded intraday the
day before, and draw conclusions as to whether or not he will follow them
when the market opens.
18:11:15 brandon: The trader should have his attention on the market, and
on nothing else, be rested, and be ready to attack the market. If there is
some outside influence that could take attention off the market, the trader
should cease trading until the situation is addressed and handled, and he
can trade without external influences that could have a detrimental effect.
Taking heat: This is the term used for watching
a trade go the wrong way. It is the number one reason why traders lose money.
Losses are inevitable. Nobody makes money every day. The key to winning overall
is to limit the losses and offset them by winning trades.
18:13:29 brandon: The trader should never take more than a set limit of heat.
In my personal experience, it is extremely difficult to set a number limit
on how much heat, such as one-half a point, etc. An easier way to define the
problem would be in terms of dollar value loss on the trade. 18:13:38 brandon:
so for example, don't lose more then $500 on a trade
18:13:42 brandon: then figure out how many shares that takes
Maximum Shares per Trade
18:15:55 brandon: Traders with little experience get wiped out in short order
by trading large amounts of shares. Until the trader is making money consistently,
i.e. 10 trading days in a row with no losing days, the number of shares should
be limited
Mistakes
18:16:30 brandon: Traders make mistakes. The most common mistake is to sell
when one wants to buy, and vice versa. The computer can go down, the feed
to the exchange can be interrupted. There are a lot of things that can go
wrong. The trader must assume full responsibility for any mistake that occurs.
Open positions should be exited immediately (almost always at a loss) when
a mistake occurs.
Number of Trades Per Day
18:17:14 brandon: Trading too much in one day is the third reason why traders
lose money consistently. There is absolutely no reason to trade more than
15 trades per day. The maximum number of trades should be limited to 15 per
day.
Trading Times
18:18:08 brandon: Trades are consistently more successful before 11:00 a.m.
and after 2:00 p.m. Trades are consistently less successful between 11 and
2. There is only one exception; if a particular stock is ""in play"" (being
traded heavily due to some factor such as a big news announcement), this rule
can be broken with relative safety.
18:18:21 brandon: But trying to ""find a trade"" between 11:00 and 2:00 is
almost always a bad move, and should be avoided by the trader. It is safer
to miss a few opportunities than to consistently lose money when the market
is slow. Also, under most circumstances, initiating a trade after 3:45 is
too dangerous, and should be avoided. Never initiate a trade before the market
opens or after it closes.
Maximum Positions at One Time:
18:18:38 brandon: The trader should try and limit himself to one open position
at a time. Two positions is acceptable, but three is not.
18:19:18 brandon: this is more of a general rule
18:19:24 brandon: if you are doing basket trades obviously it wont apply
18:19:30 brandon: but most people don't do baskets
18:19:57 brandon: Holding overnight is usually done to try and avoid a loss.
It Holding overnight for an expected gain is too risky for the trader.
18:20:03 brandon: keep in mind this is for daytraders
18:20:23 brandon: All rules are made to be broken. All
rules can be safely broken under certain circumstances. But in my experience,
breaking more than one rule is a grave mistake, and reduces the possibility
of success to less than 25%%. It should not be done.
Trading Regimen
18:21:17 brandon: Every trader has a regimen; a style or set of rules that
he follows to choose trades. For example, most day traders use technical analysis
as part of their personal regimen to form conclusions.
18:21:31 brandon: The personal regimen would include the specifics of what
indicators are used and why. These regimens are constantly being refined and
polished, due to the fact that the market changes all the time, and what worked
6 months ago may not work now. The trader must have a personal regimen, a
specific set of rules or guidelines that he follows.
18:22:18 brandon: This must be in writing. These guidelines must be his own,
in other words, he must not use another trader screaming, ""Buy Hollywood
Global Internet right now"" as a buy signal, or some ""hot tip"", or some
computer program, or anything else, to make his FINAL decisions.
18:22:34 brandon: He must make his final decisions himself, and he can't do
it without a personal regimen. No personal regimen means the trader is open
to the vagaries of whomever or whatever is making the decisions around him.
The trader himself must make the call, not something or someone else.
18:22:55 brandon: The personal trading regimen helps the trader refine his
skills and learn what works and what does not. He can change his regimen at
any time, of course, but he must have something to change.
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