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Day Trading Success-the Key Is Survival
A lot of traders, especially new traders, are looking for a listof simple trading rules to follow. "Rules-based trading" isbetter than an undisciplined approach, that's for sure. Butsimple mechanical rules have not worked for me. Like everysuccessful discretionary trader, I've learned to recognize agroup of high-probability situations (or setups) that put theodds on my side. In a way, these setups are "rules", but they areessential.Most new traders tend to focus just about all their time andenergy on finding nearly perfect "setups", but trade setups, evenvery good ones, are *not* the key to successful trading.

It's the*way* you trade your setups that keeps your losses smaller thanyour gains. And this is the single most essential key to tradingsuccess. To me, the process of limiting losses is more than justmoney management...it is survival.I can't give you a list of mechanical survival rules that willtake the place of experience and make you a successful traderovernight, but if you stick to the following principles in yourtrading, you'll be on track. You'll be doing just about theopposite of the crowd, and you'll eventually learn to limit yourlosses. Limiting your losses is the only way I know to make moneyin this business.The following guidelines will sound radical, but they have guidedme in making my living from trading for many years.1.

If a trade doesn't

go your way within the first one to fiveminutes, get out. I usually get out within one or two minutes assoon as my perceived edge is gone.2.If a trade goes against you in the first few seconds, begindrawing in your hard stop and/ or your target, trying to get outof the trade at break even.3. Never let your hard stops get hit. When it happens, you maywant to take a break and get some fresh air.4.Hard stops are adjusted to market conditions. At the moment(July 6,2005) I am using 1.50 point hard stops on the SP futures.5.

Never move your hard stop away from your entry point, hopingthat a bad trade will turn around.6. If you find yourself *hoping* as you trade, it is a clear signthat you are not following good survival (money management)principles.It will be impossible to put these principles together without aset of high-probability setups. Without good setups, trading isjust a flip of the coin..