Which One Trading Rule Has Saved You the Most Money?

[TheNegotiator 13]

So we all have rules to adhere to when we trade whether we realise it or not. If not, I think we can all agree the likelihood of remaining in the black is low to zero. But is there one particular rule which for you personally, has made a BIG difference to your account size(%-wise)?

 

For me personally, it's not trading NFP. I always traded news very actively in the past and did extremely well from it as I had a newswire and a fast connection to the exchange, but more importantly I have a good feel for how the market might react in particular big economic releases. "Great!" you might say. But come non-farm payrolls, I seemingly turn into a rabbit in headlights. I can never really work out the flow or the reasoning. I reckon it's probably because so many people trade it aggressively that actually that 'flow' tends to not show itself to a high degree in the initial trading post release. I know that there are traders who love NFP day. But hey, one thing I'm sure of is that when I stopped trading NFP I saved myself time, stress and most importantly, MONEY!!

 

What's your golden rule?

[zdo 20]

The rule that has saved me the most money = take small losses.

(ie the rule that has cost me the most accounts = don’t take small losses)

Breaking the phrase up:

The ‘take’ part means getting to a place where taking any loss (in all but a few cases) does not move any of my biometric or subjective (SUD) measures at all. When individual losses do finally become truly da nada / meaningless – whole new opportunity horizons open up in the game.

The most obvious application of the ‘small losses’ part in most systems is never hanging on for a loser to come back. Set a dropdead out point. If it passes that point, eat it gratefully and gracefully.

Generally the best, but certainly not easy, way to apply this rule is researching and testing the very best type of loss levels to take for each individual system. For each system there is a best near or far, dynamic or fixed, single or arrayed, etc or etc. stop that needs to obliterate any and all ‘comfort level’ urges, impulses, tendencies, whatnot!

Further developing the concept (in some systems) means getting enough experience to be able to call a loser by its activity instead of its price level and exit before stop is hit. In one of my edges, since the profits take care of themselves, getting out and cancelling the stops before they are hit is actually the main focus of each trade in that system…

[SIUYA 11]

along with zdo, reducing my losses has helped saved me money, but definitely for me, I know the thing that costs me the most money when I break it is not having enough patience.

Going too early on a trade, (or not sitting in a winner long enough - though this is not about saving money) I would have to say lack of patience is my biggest killer.

When I wait, for just the right setup it seems so much easier.

[Mysticforex 13]

My #1 Rule, never enter a trade unless/until I have been awake for at least 1 hour.

[TheNegotiator 13]

Taking small stop outs is a good one although somewhat subjective. If you lose focus on your system and start changing your targets, you can trick yourself into thinking it's a small risk at the time.

 

I can definitely relate to you on being wide awake for trading Mystic! When I first started I had a bit of a trek to get into work, which was actually a good thing. After that I got a place right near the office and really just rolling out of bed into trading is not good for me!

[zdo 20]

TN,

re; "Taking small stop outs is a good one although somewhat subjective. If you lose focus on your system and start changing your targets..." If you inferred that from my post, then I need to work on my 'communication' skills far more than did the feral child ...

[TheNegotiator 13]

Lol. No, merely a thought on the pros and cons of the rules!

[SIUYA 11]

actually - I try not to relate my stops too much to my targets. I try and look more at the bigger picture context, get the timing right with tight stops and then manage the trade after that. for me the whole 1r:4r risk to target mindset is merely historical measurement.

In short, maybe its against the grain but by focusing on my bigger context allows me to run tight stops without worrying too much about the targets - I let the market decide those.

[MadMarketScientist 11]

"Bulls Make Money Bears Make Money Pigs Get Slaughtered" ... this has saved me lots of money e.g. this made me sell half my position in silver at before the current meltdown

 

MMS

[TheNegotiator 13]

Mad, I think this is a very useful rule when applied to heavily trending markets. However, I would also add that when a market is not trending at all and this happens much of the time short term, reversion traders who fade the market are the ones who are cleaning up. So it really depends on your timeframe I think. Long term trading I think that the rule makes more sense.

[TheNegotiator 13]

Hmm, I see the benefits of what you are saying here Siuya. However, I also see an issue for at least for my way of thinking. If you keep the stops small and the market starts giving you smaller profits on winners and your loss percentage increases, you end up getting stuffed! So presumably you would want to have an overall profit target threshold for a particular strategy to be employed, which would likely be a combination of win:loss ratio and risk:reward ratio. So really, there is a minimum profit target as otherwise the method would fail. So the way I see it is coupled with a money management strategy, stops and profit targets must be related.

[SIUYA 11]

I know what you are saying Neg. My point is along the lines combining the bigger picture context, looking to get good entries, so that you can move to BE quickly - hence minimising the losses, yet when you actually get on something, you have to let it ride...... when it comes to stocks, there are often those things that are ten baggers that pay for lots of small losses. eg; apply this in simple maths to FX. Lets say you apply this and get it wrong 10 ten times, and loose .10 of a cent each time. You only need to get it right once to cover that - if you can get those 10 losses mainly to break even quickly then this increases your odds. However the next trick is to then run those winning trades.

Admittedly this works best for me as I have multiple instruments, and enough money to run opens. This also requires a way in which to keep putting on trades, building positions and being able to keep taking the opps when they occur.....this has been a bug bear for ages and ages for me. Trying to cover too many positions, ideas and trades requires computers - or lots of focus.

These methods all stem from my days as an option market maker who trades long volatility - every day you would have your time decay to cover, you would trade around trying to get this to break even (ie; covering your costs) and then every now and again trends would develop OR a big move would occur that made you money.

 

But I think this also can apply to many who trade shorter term as well. It seems there is always that trade off between entry timing, missing opportunities and how big a stop should be......and then relating this to a target adds a whole other dimension, and my thoughts on the matter (and I think that its possibly also the fact that I am terrible at expressing these thoughts on paper) is that the best thing to control is your intitial entry and exit, and then why add the extra element of something you have no control over, is a best guess (possibly based on past stats maybe - or back testing). I would rather give myself the opportunity, than limit myself.

(thats also not to say that you cant run profit taking systems in conjunction)

[GCB 10]

1. No contest. Cut your losses short. You have to learn the right way to lose before you can learn to win.
    
   
2. Second would be follow your plan, and it's complement, no impulse trades.
    
   
3. Third would be don't chase, wait for pullbacks.
   

[tradeemini500 10]

2 trading rules have saved me the most money:

 

1) Only trade when the edge is present

2) Once the edge is present, stick to the trading plan

Edited May 15, 2011 by TheNegotiator

[TheNegotiator 13]

GCB, the simple ones are always the best! But the simpler they are, the harder some people find they are to follow. You have to see and understand why they are important rules. Essential rules in fact.

 

Siuya, I agree and you are pretty clear with your posts btw! I guess it just depends on what your style is as to how your profits relate to either each trade or your account.