Day Trading - 12 Key Trading Concepts to Survive and Crush it from a 20 year Trading Veteran
By Marc Nicolas, DayTradingZones.com
Trading is inherently risky. By following 12 fundamental money management rules you can keep your capital safe while building valuable trading experience.
Our 12 rules to keep you in the 10% winning club vs. 90% of traders who lose money:
- Trading is like poker. You want to understand when to press and when to reduce the number of trades, strategies and size until there is a different market condition when you have higher probabilities of success.
- I have been trading over 20 years and what is paramount is create walls against your emotions. In this business, the way to do this is to open multiple accounts for different strategies (aka options income, directional, futures, retirement, long term vs short term capital tax treatment.). If you blow one account, you will always be able to come back vs. your entire asset in one account that takes a big hit.
- Always pay yourself first and foremost on a daily basis. This is not a video game. It is real money with real emotional and financial consequences. Most brokers now have ACH daily, weekly, etc.
- Look for high liquidity volume markets with narrow bid/ask spreads - Orders are filled quickly and it has high volatility so there are opportunities for 2 to 4 good trades during the day.
- Only risk 1% of your capital per trade, then your capital can absorb 100 consecutive bad trades - Even the best systems can expect 20% losing trades, so the 1% rule gives you room to maneuver. (That applies for income and directional trades)
- Limit the hours you trade – We prefer the first 60-90 minutes when typically there is a good trend before the lunch time chop for directional trading – many professional traders trade this time period. If you trade for income with credit spreads or Iron condors then the hours do not matter as much as the date to expiration and the time decay left in the option spread.
- Limit the number of trades you make per day – 1-4 trade only trades that make sense where the highest probability of success are on your side. Use higher time frames 60mn weekly and monthly charts signals to filter the noise and avoid HFT games. Patience is key, stalk trades. Manage winner and loses all the time watch your greeks if you are an option trader for portfolio management, with an eye on delta, theta and vega.
- On any one day stop trading when losses hit 5-10% of your total account capital, which is recoverable, and indicates you are reading the market wrong, so stop, evaluate your errors and record them in your Trading Journal.
- Keep a Trading Journal listing all your trades - Over time the mind dismisses bad trades and habits. Include annotated charts, and notes about your emotions. Key things to note:
- Are you trading your account and not the charts, taking desperate trades having made a couple of losers, rather than treating each trade uniquely?
- Are you taking negligible signals because you have missed a good move, resulting in chasing a trade which you are stopped out of on a minor retrace, or you opt for a counter-trend trade purely on the thought “it can’t possibly go any higher”?
- Base your stop loss and target strategically from the charts, not an arbitrary number of points - For example use price zone levels at double tops, swing highs and lows, or pull backs to moving averages. Then you can place tighter stops and take higher profit to risk ratio trades by keeping your focus on the chart, trading what you see, not what you think or feel.
- Be patient between one support and resistance ZONE, EMA, or pivot - This is one of the hardest things to master. Always keep 30% of your winners running to the next target, your results will amaze you.
- Most importantly with your short term profits make contributions to tax deferred retirement accounts IRA,SEP, solo 401k, and Defined benefit plans. Last but not least always protect your net worth by being knowledgeable about asset protection and wealth building…