THE25POINTMANTRA

The success that a trader achieves in the markets is directly correlated to their trading discipline or lack thereof. Trading discipline is 90 percent of the game. The formula is very simple: Trade with discipline and traders will succeed; trade without discipline and they will fail. How, then, can a trader succeed, day after day, trading the markets consistently? The answer is simple: trade with discipline, and respect the market.

Here are the 25 Rules of Trading Discipline.

Traders must condition themselves to behave with discipline over and over again. Many traders read through these rules every day before the trading session begins. It only takes a few minutes and strongly reinforces how they need to conduct themselves throughout the trading session.

1) THE MARKET PAYS YOU TO BE DISCIPLINED. Trading with discipline will put more money in your pocket and take less money out. The one constant truth concerning the markets is that discipline = increased profits.
2) DO NOT CLAIM TO BE DISCIPLINED IF YOU ARE NOT DISCIPLINED 100 PERCENT OF THE TIME.

Be disciplined every day, in every trade, and the market will reward you. Being disciplined is of the utmost importance, but its not a sometimes thing, like claiming you quit a bad habit, such as smoking. If you claim to quit smoking, but you sneak a cigarette every once in a while, then you clearly have not quit smoking. If you trade with discipline nine out of ten trades, then you cant claim to be a disciplined trader. It is the one undisciplined trade that will really hurt your overall performance. Discipline must be practiced on every trade. Discipline will reward you especially in recognizing less of a loss on a losing trade if you were stubborn and held on too long to a bad trade. Thus, if you lose $200 than on a trade, but would have lost $1,000 if you had remained in that losing trade; discipline saved you $800 in additional losses by exiting the bad trade with haste.

3) ALWAYS LOWER YOUR TRADE SIZE WHEN YOURE TRADING POORLY.

All good traders follow this rule. Why continue to lose on five lots (contracts) per trade when you could save yourself a lot of money by lowering your trade size down to a one lot on your next trade? If you have two losing trades in a row, always lower your trade size down to a one lot. If your next two trades are profitable, then move your trade size back up to your original lot size. It's like a batter in baseball who has struck out his last two times at bat. The next time up he will choke up on the bat, shorten his swing and try to make contact. Trading is the same: lower your trade size, try to make a tick or two - or even scratch the trade - and then raise your trade size after two consecutive winning trades.

4) NEVER LET A WINNER TURN INTO A LOSER.

All traders have violated this rule. It should be your goal, however, to try harder not to violate it in the future. What we are really talking about here is the greed factor. The market has rewarded you by moving in the direction of your position; however, you are not satisfied with a small winner. Thus you hold onto the trade in the hopes of a larger gain, only to watch the market turn and move against you. Of course, inevitably you now hesitate and the trade further deteriorates into a substantial loss. Theres no need to be greedy. Its only one trade. Youll make many more trades throughout the session and many more throughout the next trading sessions. Opportunity exists in the marketplace all of the time. Remember: No one trade should make or break your performance. Dont be greedy.

5) YOUR BIGGEST LOSER CANNOT EXCEED YOUR BIGGEST WINNER.

Keep a trade log of all your trades throughout the session. If, for example, you know that, so far, your biggest winner on the day is five e-Mini S&P points, then do not allow a losing trade to exceed those five points. This holds true on a daily and monthly basis as well. If you do allow a loss to exceed your biggest gain then, effectively, what you have when you net out the biggest winner and biggest loss is a net loss on the two trades. Not good.

6) DEVELOP A GAME PLAN AND STICK WITH IT. DO NOT CHANGE METHODOLOGIES FROM DAY TO DAY. You must have a game plan. The game plan must have a set of rules, including market setups or price action that must occur in order to take the trade. Write down the rules and follow them. If you have a proven methodology but it doesnt seem to be working in a given trading session, dont go home that night and try to devise another one. If your methodology works more than one-half of the trading sessions, then stick with it.

7) BE YOURSELF. Your trading style has to fit your personality. Do not try to be someone else. There are all kinds of people out there selling their systems, but unless your personalities are identical chances are it wont work for you.

If youre looking for a mentor or to learn a trading methodology, make sure that the system has the flexibility to accommodate different trading styles/personalities. Learn to accept your comfort zone as it relates to trade size and risk tolerance. You are who you are.

8) BE SURE YOU WILL ABLE TO TRADE THE NEXT DAY.

put yourself in the precarious position of losing more money than you can Never afford. The worst feeling in the world not being able to trade because the equity in your account is too low and your brokerage firm will not allow you to continue unless you submit more funds. Place a daily downside limit on your performance. For example, your daily loss limit can never exceed $500, or not more than your average profitable day. Once you reach the loss limit, you must turn your trading machine off and call it a day. ONCE SET, THIS LIMIT IS NOT NEGOTIABLE. You can always back tomorrow. come 9) EARN THE RIGHT TO TRADE BIGGER. Too many new traders think that because they have $25,000 in equity in their trading account that they somehow have the right to trade five or ten e-Mini S&P contracts. This cannot be further from the truth. If you cant trade a one lot successfully, what makes you think that you have the right to trade a 10 lot?

Beginners (one lot traders) should show consistent trading profits over the course of ten trading days prior to increasing to two lots. Profitable trading over ten-day periods earns the right to trade bigger. Remember: if you are trading poorly with two lots you must lower your trade size down to a one lot.

10) GET OUT OF YOUR LOSERS. You are not a loser because you have a losing trade on. You are, however, a loser if you do not get out of the losing trade once you recognize that the trade is no good. Its amazing how accurate your gut is as a market indicator. If, in your gut, you have the idea that the trade is no good then its no good; time to exit.
George Soros, one of the greatest traders of our time, wrote in his book Soros on Soros, I rely a great deal on animal instincts. When I was actively running the fund, I suffered from backache. I used the onset of acute pain as a signal that there was something wrong in my portfolio. The backache didnt tell me what was wrongyou lower back for short positions, left shoulder for currenciesbut it did prompt know, me to look for something amiss that I might not have done so otherwise. trader has losing trades throughout the session. If your winners are bigger Every than your losers you only have to be right 50% of the time. Exit the losers very quickly, and they wont cost much, monetarily or emotionally, and youll go home a winner.

11) BUY RISING MARKETS, SELL FALLING MARKETS.

This rule is one of Jesse Livermores, one of the greatest traders of all time. He made and lost fortunes and learned from his mistakes. This rule may seem obvious is also one of the most important and has a subset of rules including: but it

A market is never too high to buy and never too low to sell. Go long at new highs and go short at new lows. Picking highs and lows is impossible to do with any consistency.

This is where phrases like markets can remain irrational longer than you can stay solvent, the trend is your friend, and dont fight the Fed come from.

12) DONT HOPE AND PRAY. IF YOU DO, YOU WILL LOSE. When you find yourself making deals with the market, the devil, god, or yourself, you are in a bad tradeget out. If youre begging for something to happen that you have no control over, chances are you are in a less-than-pleasant trade position. Take medicine. Once you are out you will be able to see the market unclouded by your the stress of a losing position. Praying to the Bond god or any other futures god is a wasted exercise. Just get out!

13) DONT WORRY ABOUT NEWS. ITS HISTORY. It is a mystery why so many electronic traders listen to or watch CNBC, MSNBC, Bloomberg News or FNN all day long. The talking heads on these programs know very little about market dynamics and market price action. Few have ever traded a one lot on any exchange. Yet they claim to be experts on everything. Treat it for what it really is, entertainment. The fact is: The reporting that you hear on the business programs is old news. The story has already been dissected and consumed by the insiders and professional market participants long before the news has been disseminated. Do not trade off of the reporting. Its too late.

14) NEVER, EVER, EVER, EVER ADD TO A LOSING POSITION.

This is the easiest way to blow out your account. Doubling up on a loser might work a majority of the time, after all the market cant continue forever (see rule 11). The thing is, markets will go farther than you think possible and when you cannonball (continue to add to you loser in the hope that the market will reverse) the results are catastrophic. This has ruined traders and billion dollar trading firms alike.

15) LOVE TO LOSE MONEY. This rule is the one that generates the most questions and feedback from traders all over the world. Traders ask, What do you mean, love to lose money. Are you crazy? Once you accept the fact that you are going to have losing trades throughout the trading session, you should feel great about getting out of your losers quickly. Love to get out of your losers quickly. It will save you a lot of trading capital and will make you a much better trader.

16) IF YOUR TRADE IS NOT GOING ANYWHERE IN A GIVEN TIMEFRAME, ITS TIME TO EXIT.
This rule relates to the theory of capital flow. It is trading capital that pushes a market one way or another. An oversupply or imbalance of buy orders will push the market up. An oversupply of sell orders will push the market lower.

When price stagnation is present (as typically happens many times throughout the trading session), the market and its participants are telling us that, at the present time, they are happy or satisfied with the prevailing bid and offer.
You dont want to be in the market at these times. The market is not going anywhere. It is a waste of time, capital and emotional energy. Its much better to wait for the market to heat up a little and then place your trade.

17) MAKE A LITTLE BIT EVERYDAY. DIG YOUR DITCHES. DONT FILL THEM IN. One lot traders should have a realistic goal of making say 10-20 tics per day. If youre trading mini S&P futures thats just 2 to 5 points a day and equates to $125.00 to $250.00 per day. This may not sound like a lot of money, until you start increasing your size. Before you know it youll be trading 10 lots and making 10 times the amount of money on those winning days.

18) NEVER TAKE A BIG LOSS. ONLY A BIG LOSS CAN HURT YOU. Please review rules #5, #8, #10, #14 and #15. If you follow any one of these rules you will never violate rule #17.

Big losses prevent you from having a winning day. They wipe out too many small winners that you have worked so hard to achieve. Big losses also kill you from a psychological and emotional standpoint. It takes a long time to get your confidence back after taking a big loss on a trade.
19) HIT SINGLES NOT HOME RUNS.

You should never approach a trade with the idea that its going to be a huge winner. Play the probabilities to get an edge and sometimes theyll turn out that way. Be prepared for the big winner and let the winners run. If you step up to the plate and consistently make solid contact, every once in a while youre going to knock it out of the park.

20) CONSISTENCY BUILDS CONFIDENCE AND CONTROL.

How nice is it to be able to turn on your PC in the morning knowing that if you play by the Rules, trade with discipline and stick to your methodology, the probability of a successful day is high.
Trading is streaky. A series of winning trades builds confidence and gets traders in the zone. The opposite is also true. A series of losing trades erodes confidence. This is why it is so important to trade bigger when youre in the zone and to trade small when youre not. Making a little bit everyday (Rules #17 and #19) will allow trade throughout the trading session with confidence and control. you to

Remember Rule #9 and #17: If you make a little bit every day, then you have earned the right to trade bigger. Thus, by following the Rules of Discipline, your little bit can soon turn into much more profitable days.

21) LEARN TO SWEAT OUT (SCALE OUT) YOUR WINNERS.

The net effect of scaling out of your winners will be an increased average win per trade while keeping your losses to your pre-defined risk parameters.

You should never scale out of your losers. If your trade size is more than a one lot and your trade is a loser, you must exit the entire position en masse. If your trade size is more than a one lot and your trade is a winner, it is best to exit one-half of your position at your first price target. Rule #19this is how a single turns into a home run.

If you trade with protective stop-loss orders, you should amend the order to reflect the change in trade size (remember you have exited one half of your position) and raise or lower the stop price, depending on whether its a long or short position, to your original initiating trade entry price. You now are essentially playing with the houses money. You cant lose on the remaining position, and thats obviously a fantastic position in which to put yourself. Place a limit order a few tics above or the market, depending on your position, sit back and relax. below

22) MAKE THE SAME TYPE OF TRADES OVER AND OVER AGAIN BE A BRICKLAYER. A bricklayer shows up for work every day of his working life and executes with the methodology brick by brick by brick. same
The same consistency applies to traders, as well. Please review Rules #6 and #20.

23) DONT OVER-ANALYZE. DONT PROCRASTINATE. DONT HESITATE. IF YOU DO, YOU WILL LOSE. Traders always seem to have known where the market was going one way or another, when they failed to put a position on. Woulda, coulda, shoulda. When asked why they did not put the trade on, the responses are always the same: they did not want to chase the market; they were waiting to be filled at the absolute best possible price (and never got filled); or only two out of three of their market indicators were present and they were waiting for the third. Enter a trade after the action of the market confirms your opinion and enter promptly. The net result of all this procrastination and hesitation is the trader was correct in deducing market direction but his profit on the trade was zero. We dont get paid in this business unless we put the trade on. Dont overanalyze the trade. Place the trade and then manage it. If youre wrong, get out. But youll never be right unless you actually make the trade.

24) ALL TRADERS ARE CREATED EQUAL IN THE EYES OF THE MARKET. Traders all start out the day the same. They all start out at zero. Once the bell rings and trading begins, its how they conduct themselves from a behavioral standpoint that will dictate whether or not they will make money on the day. If you follow the 25 Rules, you should do well. If you do not, you will do poorly.

25) MARKETS ARE NEVER WRONG; OPINIONS OFTEN ARE. The market moves wherever it wants to go. It does not care about you. It does not play favorites. It does not discriminate. It does not intentionally harm any one individual. The market is always right. You must learn to respect the market. The market will mercilessly punish you if you do not play by the Rules. Learn to condition yourself to play by the 25 Rules of Trading Discipline and you will be rewarded.