Today was a bad day. Took some heavy losses (2% in one account and 8.5% in another) buying AAPL calls (210 and 220) when APPL was at 212.50. AAPL reversed, hit my too liberal stop (210 instead of 211). Because these these were options, took a heavy hit. Note to self: if you base a stop on the underlying security it is OK, but try to at least calculate the maximum loss - and use it to so as not to exceed 2%. TOS does estimate it. And remember - options can move UP and DOWN really fast.. they are like a handgrenade and you need to get rid of them fast either way.
I do not want this to happen again. Last time this happened I worked on my rules but never posted them. Now I am posting them. I could not decide how to wittle them down, so instead I took every rule, do's / don't I have ever thought of and wrote them up. Turns out there are 37. Secondly I got a sponsor and for the next 90 days I will be checking in with him to make sure I am not violating these rules. The rules may evolve but at least this is a good start.
1.
You MUST always trade with stops. If not an OCO order, enter stop within 5 minutes. Default target +3, stop between -.50 and -1.00 If using Art of Trading, go with Stewie’s stops.
2.
Adjust position size so maximum 2% of that account size could be lost on any single trade.
3.
Only 2-3 open trades at a time, simple BUY/SELL x number of shares. No scaling in our out.
4.
Must have 50% of account in cash or long-term holds at any one time, so you could never lose > 50%-- even all of your trades got messed up / executed wrongly due to clerical errors.
5.
Must keep a PnL spreadsheet/log for each trade. This serves as a sanity check also.
6.
Never reconsider your stop and loosen/relax/lower it. Ever. Not at the open either.
7.
Never let a winner turn into a loser. Raise your stop to break-even as soon as you can.
8.
Take what the market gives you. Don’t get greedy.
9.
Don’t revenge trade, either that day or next. It almost always leads to a series of bigger losses.
10.
No adding to a losing trade (i.e. no doubling down).
11.
Gracefully accept small loses. They aren’t bad. They are the cost of doing business. Even regular businesses have some days where they lose money instead of make money.
12.
Get out of a losing (or neutral) trade. Closing a losing position is a good thing.
13.
Don’t try to make back losses. Every trade is fresh and is its own trade.
14.
Put the stop in a clear support so you don’t get stopped for random movement.
15.
The above may mean WAITING for low-risk entry point (e.g. bounce of the 20 MA).
16.
Buy during consolidation and sell into the pop / retail rally.
17.
Buy at support, sell at resistance.
18.
Capital preservation (keep what u have) is #1, making money 2nd. Live to trade another day.
19.
For 90 days, from 1/27 to to 4/27, can only initiate new trades on Art of Trading Alerts.
20.
During the 90 days, use stock to trade 80% of the time –but could use an option in special circumstances when circumstances warrant (keep the stop based on the underlying security ).
21.
Not allowed to trade options past Tuesday of Expiration Week until you are good with them.
22.
Always check/re-check your order before pressing enter. Clerical errors are killers.
23.
Cut your losers off quickly and let your winners run. You can always re-enter the trade.
24.
If you are thinking about whether to cut off your loser now, you probably should.
25.
If you are thinking about taking profit now, you probably should. Take the money and run.
26.
If your account is < 25k, don’t hold overnight just to avoid using up 1 of 3 daytrades.
27.
Trade with the market direction. If you are trading against the overall trend, you better have a really good reason and you better get out quickly (for either profits or losses).
28.
For the stock you are trading, can you describe the long-term (6 months) trend, the monthly trend, and the weekly trend, both itself and vis-à-vis the market in general?
29.
Try to fight your bullish bias, and be objective. Good traders can trade in either direction, you just want to be on the right side of the trade.
30.
A profit is a profit, is a profit, is a profit.
31.
Patience is a virtue, except when waiting for the next rally as your account is bleeding dry.
32.
Try to fight your bullish bias, and be objective. Good traders can trade in either direction. You just want to be on the right side of the trade.
33.
Don’t chase stocks – i.e. don’t buy as the stock is shooting up. Wait for the retracement.
34.
Don’t set your stops using zeros and even numbers (or you may get stopped out too soon).
35.
Cut your losers off quickly and let your winners run. Both are hard. Remember: You can always re-enter the trade.
36.
If your are bored, don’t trade. If you need some excitement, papertrade it instead.
37.
Post your trades to keep yourself honest and accountable.
