Wisdom From Various Classic Books

[idaxtrader]

When judging the market action after entry compare it to the ideal, early entry with immediate profit and persistent follow through thereafter. Action that varies from the ideal is suspect.

The ORB can be utilized as a general indicator of bias everyday.

Whichever side of the stretch is traded first will indicate bias in that direction for the next two to three hours of the session.

If nothing else this information alone will keep you out of trouble.

Multiple contracts can be used when entering on an ORB or ORBP. This allows for some profit-taking as the move continues guaranteeing at least some profit in the case of a pullback to break-even stop.

In summary, the open is a market primary. Without an understanding of its importance and the market action around it, its difficult to come to correct conclusions about market direction.

On any day that such a breakout occurs within the first ten minutes of trade, the information is overwhelmingly in favor of a continuation of that move.


Early Entry (EE) is defined as a large price movement in one direction within the first five minutes after the open of the daily session. This is ideal price action when using an ORB for entry. The open should act as one extreme.


The characteristics of a Type 1 EE are as follows. The first five minute unit has a larger range than normal (norm is roughly defined as the average of the preceding ten days (first five-minute ranges). Open of the day is on one extreme of the five minute bar and the close of the five minute bar is on the opposite extreme. The second five minutes shows an equal thrust in the direction of the first five minute period.


A Type 2 EE is extremely powerful and is characterized by an excessively large range in the first five minutes, quite possibly bigger than the previous twenty day's first five minute periods. An equal thrust in the next period is difficult to manage but a general drift in the direction of the first five minutes is likely with an acceleration after further accumulation has occurred.

An open outside the previous day's high or low sets up an intraday Upthrust or Spring in most cases.

The most important types of price action have been described already and occur in the first 5-10 minutes of trade, but there are times when even with a defined thrust the market will not follow through, and in fact, will sometimes reverse completely.This is defined as EE Failure and is associated with a momentum increase in 'the opposite direction of EE.

An increased range relative to the previous unit and units shows an increase in momentum. Ideally, this should not happen, and when it does it usually indicates an EE failure is occurring. As a rule, no counter move five minute unit (bar) should have a range larger than the first five minute bar.


In fact, any 5-minute bar against EE that is relatively large compared to previous bars that confirmed EE, will imply a shift in momentum and possibly EE failure. Neutral or confirming price action is crucial just after the EE indication. When Entry is taken on a pullback, narrow range bars should be present on the retracement. A counter move with a momentum increase is a warning that failure is occurring.

Profits should be taken after an ORB entry when recognizable shifts in momentum occur like that at.

Price action should not fall back into the first 5-minute bar as quickly as it did here.

The type of price action that takes place on EE shows that participants are urgent about entering the market.

A clear EE and an ORB should not be faded and suggests that a one directional move is coming up.

Absence of EE without clear getaway on an ORB calls for trading range action with a market generally unable to trend. When trading is defined one can anticipate reversals throughout the session.

I have found that these measured moves off the open set the tone for the rest of the day.

These are very high percentages and suggest that after a bull move of this magnitude (off the open) you should look to buy a break.

The tests support an important conclusion about the market's nature. That is, the market's tendency to carry in the direction of a defined move off the open.
The market shows a tendency to trend in the direction of a move off the open. Sell a low momentum rally after the initial decline.

Supports the conclusion that the market has a tendency to trend after some definition of direction. Buy low momentum breaks after the initial rally off the open.

The move off the open by the predetermined amount usually was profitable if followed in that direction. In other words, buys were profitable when taken after a move above the open and sales were profitable when taken after a move below the open.

NR4: The narrowest daily range relative to the previous three days daily ranges compared individually.

NR7: The narrowest daily range relative to the previous six days daily ranges compared individually.

The suggestion from these results is that one should be looking to go with a forceful move off the open after a contraction and not willing to do so after an expansion. In fact fading price action off the open, with trend, after an expansion is a consideration.

If nothing else, one should be aware of the dangers of ORB trades the day after a big directional day. Caution is necessary after expansions.

WS4: Is a day with a daily range that is larger than any of the previous three days ranges.


WS7: Is a day with a daily range that is larger than any of the previous six days ranges.

Computer studies suggest that Inside Days (ID) provide very reliable entries in the S+P market.

Inside day is defined as a narrow range day that has its daily range completely within the previous days range.

A doji line is then defined as a day that shows the difference between the open and closing prices to be very small.

The strategy is to look closely at the movements that follow the doji line and be ready to enter the market aggressively once subsequent price action gives a clear indication of the markets direction. Logically, the opening range breakout technique would seem a valid means of determining the direction of price after a doji.

Results were impressive and confirmed the conclusion that a doji line precedes reversal action or trend type action.

[idaxtrader]

A trade taken at a predetermined amount above or below the open of a given day is called an opening range breakout.

The hypothesis is that the NR 4 tends to precede trend day activity and consequently successful opening range breakouts.

The comparison of NR4 with any day shows a general increase in reliability for ORB after the NR4.

Percentages definitely suggest trending is taking place after a Doji that is also a NR4 day.

The hypothesis is that an Inside day (ID) that is also a NR4 tends to precede Trend Day activity. The assumption was made that the two patterns combined, which were both successful individually, would tend to produce even clearer indication.

All percentages were higher for the ORB after an NR7 than an ORB taken on any day.

Specifically, 2 Bar NR is defined as the narrowest two day range relative to any two day range within the previous twenty market days.

Three bar NR is defined as the narrowest three day range relative to any two day range within the previous twenty market days.

That there is a marked tendency for the market to trend intraday the day after the pattern has formed.

The bigger the gap, the more likely the market is to go in the direction of the gap. An ORB in the opposite direction of the gap becomes less profitable and eventually unprofitable the bigger the gap.

If the gap is not filled or if the market on the day of a gap cannot return to previous days range by mid session, the chance for continuation are high. Obviously, the larger the gap the more likely for this to occur. On a large gap ignore ORB against the gap unless it is occurring within the first 5-7 minutes.

As a rule, trades taken in the direction of gaps should be done cautiously and in coordination with other information.

Evidence clearly suggests that Opening Range Breakout trades are not something that should be taken every day.

Bear hook is defined as a day in which the open is below the previous days low and the close is above the previous days close with a narrow range relative to the previous day. As implied by the name there is a tendency for the price action following a bear hook to move to the downside.

Bear hook days have provided clearer indications than bull hook days in general.

Bull hook is defined as a day in which the open is above the previous days high and the close is below the previous days close with a narrow range relative to the previous day. As implied by the name there is a tendency for the price action following a bull hook to move to the upside.

[idaxtrader]

Since I'm on the topic of Opening Range tactics I thought I would post my notes from The Logical Trader.


In trading, as in life you need a plan. This plan includes not only the micro- a strategy for each trade you make- but also the macro- meaning why you trade, how you intend to reach that goal, and what you'll do as an alternative if that doesn't work out.

I've observed that very few people operate according to a plan. In a micro sense, to many traders are undisciplined in their trading. They try to pick tops only to have the market keep rallying, or they buy what they think is a dip, only to have the market fall some more.

Rather what matters most is a plan- your plan- to get where you want to go, with a back-up in case that doesn't work out.

If the ACD is the one missing indicator, then there is no trade.

ACD starts with the concept of the opening range.

If you a short term trader you may decide that the opening range you'll use is five minutes. The key is to define the time period for the opening range and then be consistent when you trade using that time period.

Based on the opening range, the A point to enter a long or short position is plotted above or below the opening range,based on set variables.If the market were to immediately trade above or below the opening range and reach the price level and trade there for a period of time equivalent to half the opening range time frame.The market has established an A up or A down

There is only one A per day. That means, once an A up is established, there can be no A down for that trading day. Or, id an A down is established, there can be no A up for that trading day.

Once you have established a A- up or down- your stop for getting out of an unprofitable trade is B. The B level, where you would be bias neutral, is delineated by the opening range.

In a A up your stop to exit the trade would be at the lowest end of the opening range.

Point C is the crossover point at which your bias shifts from bullish to bearish, or vice versa.

If you have a C down, the stop- known as point D- would be 1 tick above the top of the opening range. (If you have a C up, the point D stop would be 1 tick below the bottom of the opening range.)

I'm here to state that time is the most important factor in trading. If the scenario you've envisioned doesn't materialize within a certain time frame (20-30 minutes) then just move on and look for the next trade.

As a minimum the market must trade at a certain level for a time period equivalent to half the opening range.As a maximum if the market has not acted the way you expected within a time get out.

If your day trading and have an opening range of 5 minutes, then the market must spend at least 2 ½ minutes at your A level.

At this point, with a failed A down. Your risk of establishing a long position after the snap back is small, as long as you know where you'd get out if you're wrong- the A down target.

Establishing a short position on a failed A up or long position on a failed A down provides the potential to make a profit that far outweighs the risk.

An A up was established and now the market is back below the A up point. You should be waiting for a point of reference to initiate a long position.

A rubber band trade is made when the market approaches or just touches a target and snaps back. In that instance, you would go short just below the A up or go long just above the A down. Your stop on the trade would be the A up/down price point. Or, you'd exit the trade if the market didn't move in the direction you anticipated within your time frame.

Whats important to note is that this system is comprised of price reference points.

Points of reference in ACD give you something to lean against as you make traded. At all times, you know where your getting out if your wrong. The result is confidence ti trade.

Using the rationale that you always know where to get out if your wrong, you can use the ACD systém to do other types of trades such as buying dips and selling rallies, with ACD points as references.

According to the ACD systém, once an A is established, your bias has to reflect the markets relation to the opening range- long above it and short below it.

Lets say the market makes an A up. You exit at a profit. Now the market trades lower and goes below the point A. But its still above the bottom of the opening range. You still bias the upside and decide to buy the dip. Your stop point- where your bias turns from bullish to neutral -would be the bottom of the opening range.

Once the A up or the A down is established you retain a bullish bias above the opening range and a bearish one below.

Using the reference points of the systém you'll be able to draft your strategy- always knowing where you'll get out if your wrong.

1.Plot point A's and C's as points of reference.
2.Lean against these reference points as you execute your trades
3.At all times minimize your risk
4.Know where you are getting out if your wrong
5.If you can answer 4 you will trade with confidence


Now lets say it makes an A up and trades higher, then starts to sell off. It approaches your C down price level. But instead of trading at that price and then going lower it behaves like a rubber band traded higher. That is a classic failed C down. After the bounce off C you get long. Your stop would be point C at which you'd have to abandon your upward bias.

Now what was the rule he forgot? He didn't know where he was getting out when he was obviously wrong.

The pivot range is where the market is likely to find support or meet resistance. If it manages to break through the pivot range, the market would likely make a significant move in that direction.

Daily Pivot Number: H+L+C/3

Second Number: H+L/2

Daily Pivot Differential: Difference between daily pivot price and second number

Daily Pivot Range: Daily Pivot number plus or minus the daily pivot differential.

Where the market closes in relation to the pivot range gives an indication of sentiment

If the market breaks through the pivot range you could expect a significant move in that direction.

In this example with a long position bias initiated above the pivot range, your stop would be the other side of the pivot range, at which your bias would shift to neutral.

At this point you are watching to see if the stock does indeed trade below the pivot range. If does you have a bear bias. Your stop would be the top of the pivot range.

[idaxtrader]

The first combo strategy is a Point A through the Piovt. (called A through the pivot)

At first glance, you know that sets up a bearish tone for the next day since the settlement was below the pivot range. Assume that the market does trade higher,easily penetrating the lower end of the pivot range and trades all the way to the other side of the pivot range which is where it also make an A up. At this point the market has made an A up and has traded through the pivot.

The stop for a simple A up is point B, which is just below the bottom of the opening range. However, going long with an A up through the pivot, your stop would be just below the bottom of the pivot range.

Going long at a Point A up after the market trades through the entire pivot range increases your confidence to make a trade. Putting your stop just below the bottom of the pivot range minimizes risk.

In other words, if the pivot is sitting above an A up or below an A down you might as well wait for the market to take out the pivot and confirm the A is really valid.

Going short after the market makes an A down through the pivot increases your confidence in the trade. Minimize the risk by putting your stop just above the top of the pivot range.

A failed A occurs when the market touches or approaches an A up or A down, but doesn't spend enough time there to validate the point. Or, it approaches an A up or an A down , but snaps back, which we called a rubber band trade. No if the situations occur with a failed A in the pivot range- meaning the market just barely makes it into the pivot range but snaps back before the point A your conviction to trade the signal increases.

The failed A coupled with a failure within the pivot range increase the likelihood of the market reversing to the downside. You'd have a stop one tick above the pivot range.

Good A up through the pivot range: Buy the A up through the pivot. Put stop just below bottom of pivot range or use a time stop.

Good A down through the pivot range: Sell the A down through the pivot. Put stop just above top of pivot range or use a time stop.

Failed A down against the pivot: Buy the failed A down through or against the pivot, as the market snaps back. Put stop just below the bottom of pivot range.

Failed A up against the pivot: Sell the failed A up through or against the pivot, as the market snaps back. Put stop just above the top of pivot range.

If the market, makes an A down early in the day, then rallies through the opening range and through the pivot range to make a point C on the upside. Place stop just below the bottom of the pivot range. (Point C through the pivot)

If the market, makes an A up early in the day, then sells through the opening range and through the pivot range to make a point C on the downside. Place stop just above the top of the pivot range. (Point C through the pivot)

[idaxtrader]

After reading Mark Fishers book it created an interest in me to fiddle around with modified pivots and similar concepts. I will post some of the easier to find formulas right here.

PIVOT POINT:
1. (H+L+C) /3
2. (H+L+O) /3
3. (H+L+C+O) /4

PIVOT RANGE:

Daily Pivot Number: H+L+C/3

Second Number: H+L/2

Daily Pivot Differential: Difference between daily pivot number and second number

Daily Pivot Range: Daily Pivot number plus or minus the daily pivot differential.


R1:
1. 2 X PP-L

R2:
1. PP+ range

R3:
1. H + 2x (PP-L)
2. PP+ range x 2

R4:
1. PP+ range x 3


S1:
1. 2 X PP-H

S2:
1. PP - range

S3:
1. L-2 x (H-PP)
2. PP - range x 2

S4:
1. PP - range x 3

[idaxtrader]

There are two distinct schools of thought regarding trading. Scaling in or to Scale out. There are professionals that I respect that are successful from both schools of thought. I have decided I want to give a full fledged effort into making a scaling in method work for me.

I have decided to post my notes from a non conventional book but a great piece of work. Phantom of The Pits. POP advocates strongly a scaling in method rather than a scaling out method. Neither way is right or wrong. Some people find averaging into a winning position to be more profitable in the long run. A averaging up method is also less ego involved and more business like compared to a scaling out. Which is much more competitive and ego involved



The ability to change behavior is the most important part of successful trading.

Correct knowledge without behavior modification projects improper execution of an otherwise perfect trading plan.

Trading is not as we all thought.

It has taken years to understand that being wrong is what trading is all about.

Behavior modification, without doubt, is the key to trading success -- not only in how we think but also how we act in certain situations. We must adapt to changing situations over which we have no control. We must change the situations over which we do have control.

Losing never stopped her from staying with her plan as she knew how to lose small and go with her program.

I also learned to not stake it all on one price.

I actually was doing them a favor in telling them to take their losses. To this day, I call this out to myself when the market isn't working my position correctly -- the big start of my behavior modification, I suppose.

A trained trader understands success as "You lose good and you're wrong small." Trading is called coming out on the small losers' side and being rewarded with knowing how good you have been wrong.

The message of importance is to be in control of your positions and not delegate it to the markets.

It is important to acknowledge the reason for trading, regardless of your situation or reason. Thirty years ago I would have thought it very strange to take these steps.

You need to acknowledge your reason for trading each day.

On bad days, instead of coulda-woulda-shoulda, you must expel your feelings of defeat as soon as possible because, if you don't, it will affect your next day's trading. Read that book if just for 10 minutes. Make it a routine.

[idaxtrader]

I am going to express the importance of doing the right thing from the beginning of a trade and at the right time.

Everything they did was based on their thoughts of how much they could take out of the market today. Their trades are designed to lose but not because of the good traders or the way the market works but by their own hand.

Why does it happen? Mostly because a trader's plan doesn't consider, "What if I am wrong?" Their thoughts are always expecting to be right.

Most traders plan only for the probability side and that, to them, is always what they consider the winning side. This is the biggest mistake you can make in trading. Instead, you must plan for the losing side.

The big mistake made by traders is thinking and expecting trading to be a favorable game.

The market spends much time in an unpredictable mode.

The correct way to control positions is to only hold them once they prove to be correct. Let the market tell you your position is proven correct, but never let the market tell you that your position is wrong. You, as a good trader, must always be in command of knowing and telling yourself when your position is bad.

The market will tell you when your position is a good one to hold. Most traders do the opposite of what is correct by removing positions only when proven wrong. Think about that. Your exposure and risk is much higher if you let the market prove you wrong instead of your actions removing positions systematically unless or until the market proves your position correct.

If that position did not prove you correct, you must remove it to reduce your risk. You decide what is correct
according to your plan. Your exit is a better exit when you exit right away when the market tells you the position is wrong instead of waiting to be confirmed that it was wrong.

When you remove the position because the market proved you wrong, it is always a higher loss, and with stops it also is usually with higher slippage.

By making the market prove you correct in order to hold a position is acknowledging that trading is a losers'
game and not a winners' game. If you only remove your position because the market proves you wrong, you are acknowledging that trading is a winners' game.

In a losing game such as trading, we shall start against the majority and assume we are wrong until
proven correct! (We do not assume we are correct until proven that we are correct.) Positions established must be removed if the situation becomes foggy! (We allow the market to verify correct positions.)

It is important to understand that we are saying the one criteria for removing a position is because it has not been proven correct. We at no time use as criteria for removing a position the fact that the market proved the position incorrect. (don't wait for a stop out také preemptive action)

There is a big difference here as to how we treat all positions from what most traders use. If the market does not prove the position correct, it is still possible the market has not proven the position wrong. If you wait until the market proves the position wrong, you are wasting time, money and effort in continuing to hope it is correct when it isn't.

What makes this strategy more comfortable is that you must take action without exception if the market does not prove the position correct. Most traders do it the opposite by doing nothing unless they get stopped out, and then it isn't their decision to get out at all -- it is the market's decision to get you out.

Most traders keep their position until it proves to be wrong for them. I say don't keep any position unless it proves to be correct.

My Rule Number 1 is to address the swiftness needed in keeping your losses as small and quick as possible. It won't always prove to be correct, but you will stay in the game this way.

He who loses best will win in the end!

I was staying in not because the price action "confirmed" my position but because the price action did not "confirm" my stop-loss chart signal. I was thinking this is what Phantom means. I have to tell you that with this strategy I was keeping my losses small, just by the nature of my plan. But I was unwittingly violating Phantom's Rule Number 1. I thought I had modified my behavior but, in reality, I was "behaving" incorrectly. It's a very subtle thing, I believe.

Then I realized that is what Phantom means. My position was not confirmed in those first 15 minutes! It wasn't violated according to the nuances of my plan, but it also was NOT confirmed. Get out.

The theorem now is to assume your position is wrong until the market proves what you positioned is correct. Keep your losses quick and small. Don't ever let the market tell you you're wrong. Always let the market tell you when your position is correct.

It is your job to know you are wrong and not the market's job.

The other side of the coin is that you will get positions that are correct. You must be bigger at that time. This will require a Rule Number 2, which is designed around adding to winners in an unfavorable game to come out ahead in the long run. When you are correct, you must continue to use Rule 1 to keep losses small. It's okay to be wrong small but never okay to be wrong big if you expect to trade in the long run.

[idaxtrader]

Press your winners correctly without exception.

Without a correct method to press your correct positions, you will never recover much beyond your losses. You need rule two to ensure you have a larger position when you are correct. You always want a larger position when you get a great move or trending market than when your position isn't correct.

"Correctly" in Rule 2 means you must have a qualified plan of adding to your position once a trend has established itself.

Rule 2 is important for it keeps you in a good position as well as impresses upon your own thinking about having a correct position nitially. Most traders are conditioned to want to take a profit to prove to themselves that they are right. Being right does not, in itself, make the most amount of profit.

Also a good reason for adding to a winner is because traders usually tend to doubt the position unless they reinforce the correctness of that position. Adding to the position correctly best does this.

The other good reason is that you must be larger when correct on a position than when your position is wrong.

Correctly adding to a proven position must be done so that a pyramid isn't established that will hurt the trader in a minor reversal. Each add onto an original position should be done in smaller and smaller steps.

This is a 1:3:2:1 ratio in establishing three levels of positioning. Initial=1 unit Add1= 3 units Add2= 2 units Add 3: 1 unit

At all times during the trade it is important that Rule 1 be in your plan. This includes when you are adding to your positions to protect your trade from any major reversals, which often happen.

Without exception the rule indicates it is not an arbitrary decision on the trader's part whether to add.

Reviewing Rule 2, it states only that you must add to correct (proven) positions and that it must be done correctly. The rule does not tell you how to add, as this is your requirement in the trade plan you develop. The rule makes no exception on adding to correct positions. The intent of Rule 2 is twofold: Reinforce your correct position both mentally in your thinking and your execution and increasing the size of your position.

One correct way for a day-trader is to see that the position is proven correct and then add at a proper retracement. This will not be the case for a trend trader. A trend trader would most likely have at least one add at a breakout.

Day-traders will have a problem with Rule 2 unless they position properly and understand that their adds must only be made correctly.

Adding correctly regardless of your time period is useful in making bigger gains in the long run.

I use to watch a very good trader put a big position on and take it off until it proved to be correct. He made good trades and ended up with bigger gains by doing it that way than by adding after being proven right.
The drawback is that you are larger when you are wrong, too, but it's still a protected position if you use Rule 1 properly. It is acceptable but, again, I must remind you that Rule 1 is critical here. It looks like a modified Rule 2, but as I stated, your trade plan determines your method of adding. It is understood that you want to
have a larger position when correct. This is a way to do a trade when you don't have an established trend and the probabilities are lower.

You must start your trade plan with rules created to protect your equity. I am presenting those rules to incorporate into your plan. Experience has proven these rules a necessity in survival and reaching your objective of making the most return with the least amount of risk.

Why is it that Rule 2 doesn't seem to work for most of the traders? One simple fact! That fact is they are putting their entire position on at their entry into a market. This is not Rule 2's intent. A total position is a series of positions until the complete expected position is established. They should only have their entire position established upon getting the move as expected. Rule 2 addresses this expectation.

The nature of trading is that more often you see a negative effect from what you have just done. Seldom do you see or remember the good effects from the proper trading as often as the negative. This will leave a plan to add to winners on the back burner when it is time to add unless you fully understand the need for this rule.

Any time you plan a trade program, you must consider what size position you are looking to establish. If your position, as mine often is, is that you will have a total of six units upon completion of your position entering, you can have a better idea of what you must fund. You need to be able to fund the position properly from the start.

I believe most traders want to have a certain size position, and that is the position they place from the start. This is not a correct way to allow you to use Rule 1 and definitely Rule 2 properly. When you see an expected move from the start of trading, your thinking is counter to ever adding in the first place.

I want the traders to ask themselves two questions: "Do you put only part of your expected position on from the initial entry? "Are you planning for adds prior to your initial trade?" If the answer to either of these questions is no, then you must go back and rethink your trading program. I have said it before. If you can think it, you can do it. Perhaps the traders aren't thinking it to begin with because it certainly is not expected thinking without the proper planning.

The fact that reinforcing a correct position actually keeps you thinking correctly is one of the important reasons for Rule 2. Another aspect is that, of course, you will be with a larger position when you are correct.

By incorporating Rule 2 in your game plan from the start, you will be eliminating the desire to be proud when the market moves your way and want to take profits to show that you are right. Traders love to be right.

This is your enemy . . . to love to be right. Your motivation must be to love to do the right thing in trading by either reinforcing correctly your position or removing it should it not prove to be correct.

You will become the best trader you can be by being wrong small, not right small! Get that in your mind now. You are going to have to press your winners if you really consider yourself to have the ability to make a living or extra income from trading. Otherwise, face the truth that you are only playing to break even.

My point was that you must make bigger money on your good days and not just the same amount of money you lose on your bad days.

You must understand that you are not the one who will determine your market position size. It is going to be the market and must always be the market. Rule 2 is going to tell you to put a complete plan into effect before taking the initial position.

You must at all times be able to put only a portion of your expected position on at entry and be able to at least double your size somewhere along the route of an expected move.

You have all heard that you should not add to a loser! Well, Rule 2 takes care of that from the start by keeping you with a smaller entry position in the first place. You never have your entire position until you are getting the move you had expected.

I am giving you a rule that not only makes you larger when you are right but keeps you smaller when you are wrong from the start of a position. I am also giving you a way to not over-trade. It is up to you to make sure you are properly funded to make this step an important one in your favor.

What I want them to understand about that point is that they will only get bigger when their criteria in their
trading program tells them it is time to add. They will not add just because the initial position has been proven correct. When they have completed their adding of additional positions, then and only then should they have their entire expected position established.

Most of the time a trader does not think about the reason for adding because they have their initial position on from the start. This is their maximum risk from the start. That is never what you want in trading. You must take some risk but never your maximum. That is exactly what they are doing if they cannot plan for added positions along the way.

To want to have a correct position from the start is over-trading when you place an entire position. Traders don't add because they have their position. The big drawdown is that when that original initial position is wrong, their losses are as large as their gains seem to be if they were right. We don't want that.

[idaxtrader]

The rules bring you to a no judgment type approach. You design your trade program and approach to trading by keeping the major choice of positions within your program while keeping the confirmation to the market. Your only job is to follow your trade program while obeying Rules 1 and 2.

The rules take away the need to decide while the market is open what to do during the trade day. You will have a good idea what you expect of yourself at all times rather than guessing what is actually going to take place with your positions. You will either be proven correct with your positions or you simply get out of the positions. You don't stick around to get hurt with exposure if the market is not proving you correct.

You must research your trade program well enough to be able to not enter at bad entry levels. Even if you make a simple mistake such as chasing markets, Rule 1 will still keep you from excessive drawdown during your trading career.

If you keep a trade that never proves to be correct within your program of time element, you will never be able to correct a bad situation but only be able to remove that bad situation. Your mental well-being is worth a lot in trading. You can trade well when you are thinking well

While it is true that being in control of your position in the market rather than the market being in control of what you are going to think about your position next simplifies your trading life, it also greatly enhances your ability to make good trades. The main reason is that you know what to expect and have those expectations up front from the entry of your trades.

Still, at any time the prior work finished could create a problem. Let's say the foundation settles and cracks the sewer pipe. Would you continue on the house? Of course, you wouldn't. Well, no way will you continue with a trade that proved correct but now shows problems.

You can never let your guard down in trading. You must always know what the next step is for you in any situation. You rehearse your criteria of a trade, and it becomes second nature -- just like driving a car becomes a subconscious effort for you when you are proficient at it.

You are expecting a big reward and fail to see the big risk that faces you at first. Somewhere along the way you must face the situation for what it is. Trading is a loser's game. You must learn how to lose.

You are expecting a big reward and fail to see the big risk that faces you at first. Somewhere along the way you must face the situation for what it is. Trading is a loser's game. You must learn how to lose.

With Rule 1 you are freeing yourself from having to feel bad. You put the trade on based on the trade plan. The market either confirms and you now have a good position, or it doesn't confirm and you are not okay with the position and you get out.

Simple! Only a big deal if you don't get out when it isn't confirmed as a good position. No need to ever feel bad. Most of your trades that don't confirm within a logical time frame are usually going to look bad sooner or later. Why not take the sooner?