After reading Attitude Trader’s recent posts, I realized that tracking my paper profits was not providing me the most important information I need to improve my trading performance. Reflecting on my non successful trades over the last couple months, I came up with three main themes in my failures:
1) Exiting trades way too soon, not letting winners run.
2) Not entering trades, despite obvious indicators, in stocks that made big moves after I passed on them.
3) Forcing trades with marginal set ups often because I felt I missed out on earlier plays.
So instead of asking, “Did I make paper money today?” – the real questions for me are: did I stay in my trades until I got exit confirmation, did I enter every single good setup I saw, and did I avoid entering marginal trades? If I do that, the money will follow.
It’s like training for a foot race. You don’t focus on being fast and winning, rather you pinpoint key skill areas to work on, try to perfect your form and strengthen yourself physically and mentally.
To track my compliance following my rules, I’m going to use the “Don’t Break the Chain” behavioral modification concept attributed to Jerry Seinfeld. Once you start a continuous chain following the habit, the more ingrained it becomes.
So the next question then – what are my rules? I made the following checklist in Word that I am going to fill out with every potential set-up and trade during the day. These rules will likely change over time, but the goal right now is to follow them each and every time!
Overall Market
__ Wait until 9:45am to enter positions
__ Green market – trade long
Red market – trade short
Channeling market – long on bottom / short on top of range
__ Trade with stock’s sector direction
Entry Signals
__ Solid tall candle under or above 10 SMA on 5-minute chart
__ Alternative setup: Long – steep “drop & bounce” or short – “rocket spikes” charts for reversal scalps
Rule-Out Confirmations
__ Do not enter long near resistance unless breakout above
Do not enter short new support unless breakout under
__ Do not enter if ADR price swing expended unless breakout past R/S
Entry Confirmations (at least three to make trade)
__ Former Runner
__ Pre-market Mover
__ High of Day / Low of Day
__ Green to Red / Green to Red
__ 10/60 SMA Cross on 5-minute chart
__ Cross of $1 or .50 price threshold
__ Long tested support / short tested resistance
__ Significant change in volume
__ Higher, highs / lower, lows on shorter time-frame
__ News fueled momentum
__ Sector / peer stocks running
Exit Criteria
__ Full bar outside of 10 SMA on five minute chart confirmed by 10/60 SMA cross on one
minute chart except on alternative set-up scalps OR by end of day unless overnight short
