Blog

PART 1

(# 1 to #5)

#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 BE DISCIPLINED EVERY DAY, IN EVERY TRADE, AND THE MARKET WILL REWARD YOU. BUT DON’T CLAIM TO BE DISCIPLINED IF YOU ARE

NOT 100 PERCENT OF THE TIME.

Being disciplined is of the utmost importance, but it.s 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 can.t claim to be a disciplined

trader. It is the one undisciplined trade that will really hurt your overall performance for the day. Discipline must be practiced on every trade. When I state that .the market will reward you,. typically it is in recognizing less of a loss on a losing trade than if you were stubborn and held on too long to a bad trade. Thus, if I lose $200 on a trade, but I would have lost $1,000 if I had remained in that losing trade, I can claim that I .saved. myself $800 in additional losses by exiting the bad trade with haste.

# 3 ALWAYS LOWER YOUR TRADE SIZE WHEN YOU’RE 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 I have two losing

trades in a row, I always lower my trade size down to a one lot. If my next two trades are profitable, then I

move my trade size back up to my 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 TURN A WINNER INTO A LOSER.

We have all violated this rule. However, it should be our goal 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. There.s no need to be greedy. It.s only one trade. You.ll 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 for the day. Don.t be greedy.

# 5 YOUR BIGGEST LOSER CAN’T 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. 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.

By : Doug Zalesky is CEO of eLocal, L.L.C., www.elocaltrading.

com. ELocal provides physical and electronic execution,

brokerage and clearing services to all major futures

and equities exchanges. They service electronic Internet

traders, floor traders and institutional trading firms. For

additional information on the firm and Doug.s 25 Rules of

Trading Discipline please contact Doug at

doug.zalesky@elocaltrading.com

SFO

Provided by permission of SFO Magazine February 2003. © 2003 Wasendorf & Associates, Inc. . 3812 Cedar Heights Drive . Cedar Falls, IA 50613