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 intraday markets.
3. Outline a specific strategy to deal with overnight positions. Learn when to stay put and when to jump ship ahead of key reports and news.
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 and efficiently.
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 decisions.
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 perfect indicator.
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 lows.
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 trade.
17. Become a tape reader. Look for early warning signs of a move against your position or confirmation you did the right thing.
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 whenever possible.