5 keys to a trader’s survival, in one handwritten note
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The past week has been a stomach-in-mouth ride for those navigating the trading pits.
Volatility VIX, -5.50% on Friday spiked to levels not seen in five years, with Brexit fears sending stocks reeling over a gruesome two-session period. The carnage didn’t last long, however, as the market rebounded this week to push major indexes back into the green for the year.
While some surely cashed in on these swings, others are undoubtedly wondering where it all went wrong.
This is where Steve Burns comes in. The author and longtime trader runs a blog aimed at “helping new traders survive.” Like he’s done in the past, Burns took the recent turbulence as an opportunity to tweet out this timely reminder of rules traders should be following:
1. When losing in trade after trade, lower your trading size by 50%. Trade smaller until a winning streak begins. Go even smaller if needed or even take a break from trading.
2. Only risk 1% of your capital per trade. While this is standard, you must avoid the temptation to trade big to make up your losses. This usually compounds the problem because the market is not cooperative with your style during a down trend.
3. Stay disciplined with your entries and exits. Do not get sloppy.
4. Do not abandon your method, you have to stay the course so when your method comes back in favor you will start winning again.
5. Do not take losses personally. It is not your fault that the market is not conducive to profits if you are trading your proven system.
6. Do not fall into the temptation to let losers run. Cut your losses at predetermined stops regardless of the pain.
7. Do not stop tracking your watch list for the markets you trade, be ready to take the right entry when it presents itself. Many traders get so beat up on a string of losses that they stop focusing on their watch list and stop taking high probability entries. You have to be ready to jump back on the boat when it is ready to sail again, just don’t drown while your waiting on the shore.