Trading rules if you’re starting today

So I got a nice email from someone asking me, what would my trading rules look like if I was starting today? And they might surprise you. So I wrote a few of them down. If I was starting today, what kind of advice would I want to help manage? The confusion in the cacophony of bullshit that’s out there that overwhelms your senses and tries to convince you that you’re somehow inadequate without participating with some type of premium service.

So couple of things would be don’t day trade. Nothing shorter than daily timeframe. No intraday bars, no penny stocks or anything under $5. Limit yourself to two trades a day trade, one asset class, trade one strategy. Do your own research and don’t join any chat rooms or subscribe to any services. Now granted, that’s a hard ass way of looking at it, but my gut is that you’re trying to be successful at this.

And the more you can do this on your own and the more you can be independent, the better you’re better off you’re going to be when you actually sit and create your goals and kind of connect who you are and your emotional constitution, your psychology with what you learn and what you know how to do. The other thing I’ll say is be prepared for anywhere from who knows, 6 months to 4 years of grinding it out and making attempts to figure out where your edge is. Because in order to do this, you need to have a trading edge that you replicate as frequently as you possibly can in order to create that abundance. I have found that the more frequently people trade and the more they look at real time date, oh that’s another one. Don’t have real time quotes. Real time quotes during the day creates an illusion that you should be doing something.

And what happens is, especially if you find yourself looking at shorter term timeframes, like intra day bars, you can get faked out because you’ll see random things occur in the marketplace that you might attach significance to. And the pros know that short term data is completely random and it’s hard to make decisions and it’s bad actually to try to make decisions on random data. You want more material data like daily and certainly weekly timeframes. Those levels are much more material. What’s happening intraday like new intraday highs in a down market. I can’t tell you how many people I hear from are getting blasted because they’re trying to trade the pop what market trends are down. So they’re trying to trade the pops.

Another thing is be diversified. I get an email from someone who, I mean I’m trying to help and he’s like, Well, I’m trading several instruments. And I’m like, Okay, what are they? He’s like the Dow futures, the E mini and the Nasdaq futures. And I’m like, Well those aren’t really different instruments. They’re really one instrument because they’re so highly correlated. So try to think of if you’re in futures, look at stock index futures. Maybe they’re all over the place, they’re like a drunk uncle. I wouldn’t trade them for the life of me. Or look at some like where there’s physical commodities. Look at say the grains and the oil seeds. Look at some of the energies and trade, if you’re going to trade more than one instrument, don’t trade two instruments in the same kind of asset class or grouping. You see now, a lot of people will say some of the penny stocks can grow from $5 to $200. Yes, that’s true, but it’s very rare. And being able to pick that ahead of time is too hard for you at the beginning. You don’t have the skill for it.

If you’re lucky enough and it happens, great, but if you’re a day trader, you’re not going to see the $5 to $200 move anyway. So don’t worry about it. Those stocks are based on rumor and conjecture and I would stay away from that at the beginning. Look at companies that try to trade companies that actually have solid businesses behind them. When you limit yourself also to two trades per day, you put yourself on a diet and that forces you to have stronger conviction about your names. If you don’t have any boundaries with yourself and you just double tapping your fucking hot keys or double clicking your mouse like that teaches you a lot about yourself that anything goes.

And I don’t know, it’s like somebody who overeats it doesn’t typically end well, nor does it look good. You don’t want your gut hanging over your belt as far as trading is concerned. So when you limit yourself to two trades a day, they better be good ones because once you’ve executed those two trades, that’s it. Come back tomorrow. I can’t stress how important that is to do the homework. You don’t want to be sitting there – it stops you from going on tilt. It stops you from taking trades that you have no business being in.

And if you do that within one asset class, that means either equities or futures. Maybe you trade equity options, maybe you trade fixed income, maybe you trade for x, I don’t really care what it is, but get good at one asset class because the characteristics within that asset class are probably more uniform. And that can help you develop a feel and the feel and the tact is what you’re going for here, because that’s what’s going to be key. It’s not what can you pull off, you see? So those are the types of things that I would be looking at is putting strong boundaries around my own behavior and also by limiting my view, by putting blinders on my head to keep me focused.

Because it’s too easy otherwise to become distracted and end up looking at things that might look interesting because of clever copywriting in the marketing. But I can assure you have no necessarily rev relevance in helping you become a better trader, Because that comes down to knack and feel. And that only comes from making attempts by taking two trades a day and limiting yourself to that or better. Even one trade a day. You get to do a lot of reflection and the work that you do on yourself is a thousand times more important than the research in the study that you’re going to put on the very instruments that you’re trading. Anyway, folks, that’s all I have for you today.

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