Following Rules, A Critical Component of Day Trading
All throughout life we are taught RULES. At school as children we have rules to follow. If we don’t we get in trouble. Our parents set rules, our employers set rules, or standards if you will. Why? We know why. Right? In life, we need rules to follow to maintain order and discipline. If we speed, and get caught, we get busted and are issued a citation for not following the rules. It’s for our own safety.
When new people enter the trading arena. They sometimes do not realize how important rules are to follow! Just in “LIFE” Rules in “TRADING” are just as important, if not more important! We put our risk capital to “work” to try to profit every day. We absolutely must have rules to live by in order to be successful traders. Following rules creates discipline. Trading with a set of rules, and discipline, over time creates SKILL.
A skillful day trader can make a lot of money. An un-skillful trader can lose a lot of money, but so can a skillful trader? Why oh why can a skillful trader LOSE money? Well we don’t win every trade! In some form or fashion, ALL traders experience draw-downs. Draw-downs are simply a point in time when you are down money in your trading account. Back in 2008 millions of investors lost literally tens of millions of dollars! That was a draw-down. Those that “hung in there” recovered quite a bit, as the market is about right back where it was back in 2008!
My point is: draw-downs happen whether you are an investor or a trader. Is there a difference between a trader and investor? You bet there is! An investor is normally someone who puts his money to work, long term in hopes of gains later down the road. A trader is looking for profits to withdraw every week, month, or quarter to live off of! The investor normally has a “day job” or has some sort of monthly income covering his month to month expenses. Traders use their trading accounts to cover their monthly expenses.
As day traders you are really breaking it down one more level. We day trade for daily income. Day trading IS our “day job”.
Regardless of your trading “status”: Investor, Trader, Day Trader. YOU WILL have draw-downs. The difference is that an investor may not see the draw-downs for several months, or sometimes years! Where traders and day traders may realize losses every day!
Back to the rules: a day trader must have a solid set of rules to follow. We discuss discipline and rules so much that some of you may be wondering WHY? Well it’s because it is one of the MAIN reasons people LOSE money. Or should I say – fail to recover. We ALL lose money as we discussed. A skilled trader, following rules will brush it off, trade emotionless and forge ahead and recover his losses and ultimately makes money. IS that the end of the story? NO. It will continue like a cycle. Traders will win, lose, recover, win, lose, recover, etc etc. It never ends!
This is why day trading for a living is so difficult. It can be an emotional roller-coaster – if you let it! For those investors out there: if you call your fund manager every day you see the Dow down 100 points he is going to tell you – Look at the big picture and don’t look at day to day numbers as you’ll drive yourself nuts. You are paying a fund manager to decide what investments to make, stocks to buy, etc. He too will have draw downs. A good fund manager, over time, will make money.
So if you want to be a successful trader. Particularly a day trader. You have to have the confidence to trade without emotion, to trade with a set of rules! To diligently follow those rules through the “thick and thin”. Not an easy task. It takes a lot of practice. Sometimes years of practice.
Well enough ranting on and on – I think you get the idea. Below are two videos that I produced this past week of live day trading on the emini markets (S&P). This is a live account and on the videos I am trading, of course. I am also talking about the rules that I teach in my day trading course and following them!
After you watch the videos, be sure to browse our website and feel free to email or call if you have any questions about our emini system.
Video 1:
Video 2:
Cheers!
ETS
