Becoming a disciplined trader

Wednesday, 1st April 2009
Lessons

The winning trader is the disciplined trader. Disciplined traders devise very detailed trading plans. And they use them to the very T. Being discipline in your trades separates you from the herd.


The reason being is you are responsible for your own success and no one else. You need to understand yourself thoroughly from your flaws to your strengths. To achieve true success you must understand the market is not responsible, you are. There is no one to blame or compliment but yourself when it comes to trading.

Being discipline helps you understand your fear when you put on a trade. Fear is a natural reaction when we perceive a trade as threat. To get our heads in the right place before we feel any emotional or psychological crunch we need to have a set of trading rules before we trade.

Here are my set of trading rules that guides me as i walk through the fearful path that i take everyday:

  1. Backtest, Backtest, Backtest
    Know the characteristics of every single stocks in my watchlist. I keep a watchlist of 22 stocks that i would backtest at every opportunity i can. By characteristics i would mean by the behavior of the stock. Where is the support and resistance for the stock. Where is the selling and buying zone for the stocks. Which are the profitable quarters if i were to undertake a certain strategy for the stock.
  2. Money Management
    I never expose more than 50% of my capital to a trade. My trading allocation per trade is 5% of my capital size with a minimal stop loss settings of 5% max from the Stock price movement. What does this equate to? e.g if I have a capital size of $10,000, per trade allotment is 5% which is $500. And my stop loss would be as tight as 5% of the stock price which would be $25 loss if i trade stocks and ranges from $25 - $150 for options trading. I would only go into a trade with such loss allowance, if a trade is perceive a unfavorable i would seat out and wait for a trade to fall into this category.
  3. Never look at the market as i put on a trade
    A trading plan is devise everyday from profit protection to new trades. This plan would be drawn out before trading hours and will be executed before trading hours.
  4. Trade in allotments of 3
    My trading allotment will be divisible by 3 so at any one time i will be able to set different profit taking levels if my initial stop loss isn’t triggered. 1/3 of the allotment will cover slippage and commissions for the trade, the second 1/3 would be purely for profit taking and the last 1/3 will be trading without fear and see how far it can go before any sign of reversals.
  5. Drawdown
    I only allow myself 10% of drawdown at every point of my trading cycle. If my drawdown level is triggered, i would step back and not trade and reflect on the previous trades that i put on. I would usually use paper money from this period until i can keep a consistent profitable trade before going live again.

As you can see the rules are simple yet restrictive, come up with Trading rules for yourself and i assure you that you are one step closer to success. Remember the winning trader is the discipline trader.




Other people also liked the following articles: Related Posts Related Websites
  • Digg
  • Del.icio.us
  • StumbleUpon
  • Reddit

2 Comments

  1. MX says:
    April 14, 2009 at 4:06 am

    This is just what I need.. thank you so much Imral. I’m amazed to hear that you backtest at every possible opportunity, that shows true passion indeed! Setting a limit on drawdown is something new to me, but it makes so much sense that i wonder why something so important never occurred to me before? Thanks for sharing once again!

  2. Imral Sanjiman says:
    April 14, 2009 at 6:41 am

    I hope it helps you grow into a more discipline trader :)

Leave a Reply