disciplinefor day trading The success that a trader achieves in the markets is directly correlated to one’s trading discipline or lack thereof. Trading discipline is 90 percent of the game. The formula is very simple. Trade with discipline and you will succeed; trade without discipline and you will fail. Douglas E. Zalesky the 25 point mantra In order to trade the markets discipline discipline if you ever hope to achieve any level of trading success. YOUR BIGGEST LOSER CAN’T EXCEED YOUR Discipline must be practiced on every trade. The Wheel of Success There are three spokes that make up. Remember: No one trade should make smoking. BUT further deteriorates into a substantial loss. Of course. The one constant truth concerning the harder not to violate it in the future. your biggest winner on the day is YOU’RE TRADING POORLY. What we are really talking markets is that discipline = increased profits. shorten his best to exit immediately. Trading with discipline will put more money in your pocket and #4 NEVER TURN A WINNER INTO A LOSER. though. try to make a tick or two ‐ or even scratch the trade ‐ traders in the pit. every trade. You must condition yourself to behave with discipline Without instantaneous time and price informa‐ over and over again. every up‐to‐date time and price information seam‐ day. it is not coming trades. through the rules every day (believe it or not) before the trading session begins. Many of my traders and clients read tion. IMI simply is time and price information as disseminated by the The third and most important spoke in the exchanges. If you do allow a loss to exceed your biggest gain All good traders follow this rule. BIGGEST WINNER. only to watch the market turn and move BE DISCIPLINED EVERY DAY. you are not satisfied with a small winner. THE FIRST LOSS IS THE BEST LOSS It’s like a batter in baseball who has struck out his last two times Once you come to the realization that your trade is no good it’s at bat. against you. Thus you hold onto the trade in the #2 hopes of a larger gain. we would be trading in the dark. A trader can ruin his entire day with an as it relates to trading. market information (IMI). Why continue to lose on five then. what you have when you net out the biggest lots (contracts) per trade when you could save yourself a lot of winner and biggest loss is a net loss on the two trades. enable you to hit a bid or take an offer before your The most important type of content is internal competitors do. it should be our goal to try take less money out. it is like riding a to make their trading decisions. we must have the most live and practiced 100 % of the time. The process of entering and exiting trades becomes seam ‐ value‐added content that provides utility in making less and mindless. DON’T CLAIM TO BE DISCIPLINED IF YOU ARE There’s no need to be greedy. The first spoke is content. Think of the exercise as praying.. After all. Don’t be greedy. Mechanics is how you to read through them. Trading is the same: lower your “Not to worry. “It’s never a loser until you get out” and swing and try to make contact. lessly delivered to our PCs through a reliable Review the following 25 Rules of Trading Discipline. I always lower my #6 trade size down to a one lot. it’ll come back” are often said tongue in cheek. All traders must purchase bike. Not good. The next time up he will choke up on the bat. It’s only one trade. If you claim to quit smoking but you sneak a cigarette or break your performance or the day. about here is the greed factor. then you can’t claim to be a disciplined trader. however. then do not allow a losing trade to exceed those five points. then I move my trade size back up to my original lot size. If you have a proven methodology but it doesn’t seem to be working in a given trading session. five e‐Mini S&P points. like claiming you quit a bad habit. If. reminding access the markets and the methodology that you employ to enter/exit your trades. You’ll make NOT 100 PERCENT OF THE TIME. The market has rewarded you by moving in the direction of your position. don’t go home that night and try to devise another one. the fastest survive. for ALWAYS LOWER YOUR TRADE SIZE WHEN example. inevitably you now hesitate and the trade AND THE MARKET WILL REWARD YOU. If my next two trades are profitable. Fast and efficient trade execution. A simple keystroke error can result in a #1 THE MARKET PAYS YOU TO BE DISCIPLINED. Once in a while. IN EVERY TRADE. If you trade with discipline nine out of ten trades. by trade size. what I call the “Wheel of Success” loss of thousands of dollars. It is the one undisciplined trade #5 that will really hurt your overall performance for the day. we all make our trading Wheel of Success is discipline. money by lowering your trade size down to a one lot on your next trade? If I have two losing trades in a row. You must attain decisions in the present tense based on time and price. many more trades throughout the session and many more Being disciplined is of the utmost importance. It doesn’t take more than three minutes The second spoke is mechanics. all the external and internal market information that traders utilize Once you have mastered order execution. every. Remember. then you clearly have not quit smoking. #3 Keep a trade log of all your trades throughout the session. so far. will their trading decisions. However. We have all violated this rule. effectively. You must master mechanics before you can you how to conduct yourself throughout the trading session enjoy any success as a trader. but It’s not a throughout the next trading sessions. execution platform and/or charting package. Once the phrase is stated. . Opportunity exists in the sometimes thing. back and it is time to exit. Trading discipline is effectively. Content consists of inadvertent trade entry error. such as marketplace all of the time. it is an affirmation and then raise your trade size after two consecutive winning that the trader realizes that the trade is no good. you know that. if I traded more than 20 lots. Typically. speculator. You FROM DAY TO DAY. IT’S HISTORY. Obviously this qualifies him to be an expert! makes you think that you have the right to trade a 10 lot? He. are who you are. Very few. in your gut. Do not trade off of the reporting. Treat it for what it really is… entertainment. I would out! “butcher” the trade.t go home that night and in your account is too low and your brokerage firm will not allow try to devise another one. although I have either lost or scratched over two‐thirds of my trades for the day. however. in my is “old news”. WILL LOSE. then stick with it. The story has already been dissected and eyes.000 equity in their trading account that they somehow have the right Before becoming a “trading and markets expert”. have EARN THE RIGHT TO TRADE BIGGER. I didn’t possess the emotional or would pray for some sort of divine intervention that. If you can’t trade a one lot successfully. Yet they claim to be experts on everything. I can’t tell you how any individual trade. My prayers were a like colleagues in the pit who were regularly trading 100 or 200 plea to help me out of a less‐than‐pleasant trade position. but I do want them to make sure that they have BACK AND PLAY THE NEXT DAY. Remember: if you are trading poorly with two lots you must lower your trade size down to a one lot. don. In all of the years that I have been a trader and associated with You are not a “loser” Because you have a losing trade on. DON’T TRY TO BE SOMEONE DON’T HOPE AND PRAY. #13 I require my students to place daily downside limits on their performance. can provide no utility to you. DON’T CHANGE METHODOLOGIES Learn to accept your comfort zone as it relates to trade size. Too many new traders think that because they have $25. and others.MSNBC. You can always come back tomorrow. The worst feeling in the world is If you have a proven methodology but it doesn. IF YOU DO YOU ELSE. DEVELOP A METHODOLOGY AND STOCK WITH IT. a set of rules. If your methodology works more than you to continue unless you submit more funds. ever even traded a one lot in any pit on any exchange. what the trading floor. you must turn your PC off and call it a day. Just get 20 lots per trade. If. Never put yourself in the precarious position of losing more money than you can afford. It’s too late. So. I cant tell you how many times traders have come into my office terribly depressed because the “knew” the market was going one way or another. I don’t necessarily care what the YOU ALWAYS WANT TO BE ABLE TO COME methodology is. psychological skill set necessary to trade such big size. #7 #11 BE YOURSELF. one‐half of the trading sessions. the “news” has been disseminated. The #12 trade would inevitably turn into a loser because I could not trade with the same talent level that I possessed with a 10 lot. Bloomberg News or FNN all day long. I would have liked to be able to trade many times that I prayed to the “Bond god”. I lots per trade. It is impossible trade once you recognize that the trade is no good. I soon realized that praying to the “Bond I knew that my comfort zone was somewhere between 10 and god” or any other “futures god” was a wasted exercise. never materialized. For example. The fact is: The reporting that you hear on the business programs When they have achieved a profitable ten‐day period. you have the idea that the trade is no good then it’s probably no good. was a phone clerk on from the truth. I have never understood why so many electronic traders listen to or watch CNBC. You must have a game plan. I still go home a winner. they have earned the right to trade a two lot for the next consumed by the professional market participants long before ten trading sessions. a loser if you do not get out of the losing traders. Sure. I have never met a successful speculator. I demand that my students show me a trading profit over the course of ten consecutive trading days trading a one lot only. Be a trader. Time to exit. 33 percent scratches and 33 percent winners. #9 The “talking heads” on these programs know very little about market dynamics and market price action. I exit my losers very quickly. . if any. It’s amazing to to speculate and consistently print large winners. by the way. Once you reach the $500 loss limit. $500. your daily loss limit can never exceed DON’T WORRY ABOUT NEWS. Don’t be a me how accurate your gut is as a market indicator. A typical trade day for me consists of 33 percent losing trades. Emotionally I could not handle that size. however. You are. They don’t cost me much. #10 GET OUT OF YOUR LOSERS #14 DON’T SPECULATE. IF YOU DO YOU WILL LOSE.t seem to be wanting to trade and not being able to do so because the equity working in a given trading session. they failed to put a position on. market setups or price action that must appear in order for them to take the trade. the guy on to trade five or ten e‐Mini S&P contracts. However. That’s OK. I require my “students” to actually write down the specific market prerequisites (setups) that must take place in order for #8 them to make a trade. In all of my years as a trader I never traded more than a 50 lot on When I was a new and undisciplined trader. Every trader has losing trades throughout the session. This cannot be further CNBC reporting hourly from the Bond Pit. 000 at the end of the year. then you Please review rules #4. An oversupply CONSISTENCY BUILDS CONFIDENCE. the probability of a successful day is happy or satisfied with the prevailing bid and offer. You don’t want to be in the market at these times.50. You should never scale out of your losers. It takes a long time to get your confidence WINNERS. love to lose money. because I had the trade on. and at the same time (as luck would have it). the market and its knowing that if you play by the Rules. my goal every day was to make more than a one lot and your trade is a loser. and your trade is a winner. so if I made 10 tics on the day. Just as I don’t know of any successful speculators. If you are a new e‐Mini remaining position. of sell orders will push the market lower. What I mean is to accept the fact that you are Sometimes they turn out that way. IN A GIVEN TIMEFRAME. The market is I’ve had years where I could count on one hand the number of not going anywhere. When price stagnation is present (as typically happens many How nice is it to be able to turn on your PC in the morning times throughout the trading session). Big losses also “kill you” from a psychological and LEARN TO SWEAT OUT (SCALE OUT) YOUR emotional standpoint. #15 LOVE TO LOSE MONEY. The net effect of scaling out of your winners will be an increased #18 average win per trade while keeping your losses to your pre‐ MAKE A LITTLE BIT EVERYDAY. to make money on any given day. ONLY A BIG LOSS control. back after taking a big loss on a trade. Why would I think otherwise? Making a little bit everyday (Rules #18 and #19) will allow you to #17 trade throughout the trading session with confidence and NEVER TAKE A BIG LOSS. better trader. you should amend trading day of the year. #8. Don’t you think that this consistency energy. It’s much better to wait for the market to heat up a little allowed me to be extremely confident? I knew that I was going and then place your trade.25. I’m not crazy. but the times that I have a hit going to have losing trades throughout the trading session. Place a limit order a few tics above or that you’ll have that $72. out of your losers quickly. Not bad for a 23‐year old kid in exited one half of your position) and raise or lower the stop 1982. It may not sound like a lot of money to you. We all start out the day the same. I unwittingly #16 had a huge winner. Traders ask. price. My mentor. trade with discipline and participants are telling us that. Are you crazy?” and then actually having it happen. A tic is $31. it’s how we conduct ourselves from a behavioral standpoint that will dictate our success . This rule is the one that I get the most questions and feedback #19 HIT SINGLES NOT HOME RUNS. DITCHES. by following the one of these rules you will never violate rule #17. high. You now are essentially It is amazing how quickly your trading account will build up over “playing with the house’s money”. IT’S TIME TO EXIT This rule relates to the theory of capital flow. told me that if I could make 10 bond tics every If you trade with protective stop‐loss orders. You can’t lose on the time just by making a little bit every day. I don’t know on by traders from all over the world. They wipe out #21 too many small winners that you have worked so hard to achieve. and #15. Love to get out of your losers quickly. the Fed unexpectedly entered the market. An oversupply or imbalance of buy orders will push the market up. sit back and relax. No. not skill. they are stick to your methodology. it is best to exit one‐half of your position at your first price target. but it surely was to me. to your original initiating trade entry price. It is trading capital #20 that pushes a market one way or another. DIG YOUR defined risk parameters. We all start out at zero. depending on your position. You should never approach a trade with the idea that it’s going to be a huge winner. Get a home run on a position is most definitely luck. you must exit the 10 bond tics. If you can do which to put yourself. I entire position en masse. DON’T FILL THEM IN. your “little bit” can soon turn into much more profitable days. If you follow any have earned the right to trade bigger. Remember Rule #9: If you make a little bit every day. below the market. This probably has happened to me less than IF YOUR TRADE IS NOT GOING ANYWERE five times in 20 years. #5. If your trade size is more than a one lot would be up $312. #10. and that’s obviously a fantastic position in S&P trader try to make just 5 or 6 points per day. Once the bell rings and trading begins. at the present time. If your trade size is When I was a young bond trader.500 in my trading account. It is a waste of time. depending on whether it’s a long or short position. Thus. CAN HURT YOU. Rules of Discipline. Big losses prevent you from having a winning day. “What do you of any trader who goes into a trade expecting to hit a home run mean. It will save you a lot of trading capital and will make you a much My intent on the trade was to produce a small winner but. at the end of the year I would be up the order to reflect the change in trade size (remember you have $72. capital and emotional losing days that I had. But you’ll never be right unless you actually make the trade. [ ] SOMETHING I HAVE READ EVERY SINGLE TRADING FOR THE LAST 7 YEARS Doug Zalesky’s 25 Point Mantra is something I read every day religiously. IF YOU DO. get out. DON’T HESITATE. Learn to condition yourself to play by the 25 Rules of Trading Discipline and you will be rewarded. We all start out at zero. I can’t tell you how many times traders have come into my office terribly depressed because they “knew” the market was going one way or another. 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. It does not play favorites. brick by brick by brick. If you do not. DON’T PROCRASTINATE. . The same consistency applies to traders. It does not care about you or me. it is my single greatest tool as a trader. We don’t get paid in this business unless we put the trade on. they failed to put a position on. I hope that by sharing it many others will benefit from it as much as I have ‐ Aamar Hussain | tothetick. you will do poorly. #25 IT’S THE MARKET ITSELF THAT WIELDS THE ULTIMATE SCALE OF JUSTICE. as well. or only two out of three of their market indicators were present and they were waiting for the third. It does not discriminate. When I ask them why they did not put the trade on. A bricklayer shows up for work every day of his working life and executes with the same methodology. You must learn to respect the market. Don’t overanalyze the trade. The market moves wherever it wants to go. you should do well. If you follow the 25 Rules. If you’re wrong. #22 MAKE THE SAME TYPE OF TRADES OVER AND OVER AGAIN – BE A BRICK LAYER. The market is always right. Please review Rules #12 and #20. They were waiting to be filled at the absolute best possible price (and never got filled). The market will mercilessly punish you if you do not play by the Rules. It does not intentionally harm any one individual.com A bricklayer shows up for work every day of his working life and executes with the same methodology – brick by brick by brick. I have not changed my trading methodology. Once the bell rings and trading begins. Place the trade and then manage it. #24 ALL TRADERS ARE CREATED EQUAL IN THE EYES OF THE MARKET.It’s how we conduct ourselves from a behavioral standpoint that will dictate whether or not we will make money on the day. #23 DON’T OVER‐ANALYZE. YOU WILL LOSE. however. their responses are always the same: they did not want to chase the market. We all start out the day the same.