20 Rules for Effective Trade Management
Managing open positions is the most
difficult task the trader faces.
1. Decide in advance how actively you should manage open positions. The pros watch every tick and act on short-term swings. Part-timers read the morning paper and learn everything they need to know. Your own efforts need to fall somewhere in between.
2. Choose your playing field wisely. Track
the weekly price bars if you invest; the
daily bars if you're a swing trader; and the
60-minute bars if you play hard in the
3. Outline a specific strategy to deal with
overnight positions. Learn when to stay put
and when to jump ship ahead of key reports
4. Set aside time and capital for unexpected
opportunities. Fresh ideas show up all the
time and demand your attention. Build a
routine that filters these prospects quickly
5. Align your positions to current market
conditions. Overall sentiment, external
shocks and volatility affect the success or
failure of your trades.
6. Trade with the buy- or sell-swing within
the market. Most of the time this tracks a
three-day cycle for swing traders and a
21-day cycle for position traders. Find your
place in the swing and take advantage of
those who execute against nature.
7. Have a proactive plan for the first and
last hours of the trading day. Newer traders
should sit on their hands during this time,
but the pros can use it for most of their
8. Become a student of time-of-day
tendencies. Markets tend to trend within
narrow time windows, while fake-outs take
control for the rest of the day.
9. Choose a set of averages and indicators
you're comfortable with, and then leave them
alone. Learn to interpret conflicting
information rather than searching for the
10. Track the Tick indicator closely and
watch its short-term cycles. The Tick has a
life of its own, and it will save your neck
if you let it.
11. Keep one eye on your positions and the
other on the indices. When a stock moves
more sharply than an underlying index, it
should continue to do so. This becomes very
important when the index starts to move.
12. Follow round numbers on everything in
the market. Watch how your positions react
to 10, 20 and 30. Round-number support and
resistance can be greater than old highs or
13. Look for breakouts and breakdowns of the
two-day range. This will tell you if your
stock is trending, or running in place.
14. Become a student of price gaps and
categorize each one. Then tell yourself what
you'll do the next time your trade hits one.
15. Recognize when you're wrong and need to
get out. Find the price that ruins the
trade, and don't outthink the market when it
gets hit. The move could be a fake-out or
the start of something big.
16. Don't overanalyze your positions. Let
each one speak for itself. If it has little
to say, get out and move on to the next
17. Become a tape reader. Look for early
warning signs of a move against your
position or confirmation you did the right
18. Trade small if you're new at the game.
This will teach you important lessons at a
very low price when you make a mistake.
Neophytes should concentrate on learning how
to trade and not worry about making money.
19. Increase position size during winning
streaks because your performance suggests
reduced risk. Reduce position size during
drawdowns and wait for the clouds to pass.
20. Build a contrary relationship with the
crowd. Your profit rarely follows the
direction of the herd, so stand against it