"10 Steps to Professional Day Trading"

"10 Steps to Professional Day Trading"

By Mike Reed

Everyone trades a little differently. The trading method outlined below is MY personal approach to trading. This method has worked for me for the last 26+ years, and has helped me to avoid big draw downs since the mid 1980's. My trading strategy has helped me to make a good living trading.

It takes some time to learn my method of trading because it's based on tape reading and getting a "feel" for the market. This is *not* about a fast, easy formula to "get rich quick" while you sweat out every trade. Instead, this is about developing confidence and trading consistently without fear and without big draw downs.

Here is my 10 Step Approach to Learning My Style of Trading:

1. Practice exiting trades at break-even, using a one-tick target, a two or three tick soft stop (mental stop) and a 1.5 point hard stop. Never allow the market hit your hard stop. Exit by moving your target toward your hard stop, not by moving your hard stop towards your target. With time, all of this must become a reflex. You won't always be able to keep your losses down to 2 ticks, but only on rare occasions should you find yourself letting the market hit your hard stop. ("Rarely" means only about once every 50-100 trades after you get the hang of it.)

Even though your entries won't be good enough in the beginning to make a profit trading these tight soft stops, your entries will gradually improve until you turn the corner and become profitable.

Learn exits and entries separately. Don't let the one influence the other.

Taking losses this way takes dedication and discipline, so stick with it. It's the key to confident trading. If you never take large losses (and rarely medium size ones), the fear of loss pretty much goes away, and your confidence grows. Especially after your entries improve enough to support a "scalping" type exit strategy.

2. Every trade in all market conditions begins as a scalp. Let me clarify this: if you're in a choppy market and you're looking to get small gains, like a point or so, manage your initial hard and soft stops exactly the same way you would in a quick trend or any other type of market. That means keeping losses as close to 2-3 ticks as possible, taking lots of break even trades and exiting every time the market doesn't give you instant gratification (within a minute or so).

No matter what the market is doing, you must demand that it moves in your favor soon after you enter, otherwise you get out as close to break even as possible. This means you'll be closing a lot of trades near break-even within the first minute. This is the foundation of learning to trade for consistent gains.

3. Don't worry about the commissions on break-even trades. If you do, you'll hold on to losing positions, begging them to turn around for you. This is called hoping. In this business, this type of hoping is the kiss of death. Your money-making trades must move your way in a few minutes or less. When trades don't act right in the first minute or so, most of them will hit your hard stops.

So don't get hung up on the fact that your broker loves you. Who cares if he/she makes a living?

Your concern is limiting losses. I care more about this than anything else in trading. (Well-timed entries make my tight soft stops possible, so they're almost as important as the exits.)

4. Practice your entries until your timing is so good that you can reasonably expect the market to go your way immediately, before it goes more than 2-3 ticks against you. This is not easy at first, but if you stick with it, you'll get it.

5. Practice fading the emotional extremes on your entries. (Fading means entering in the opposite direction of the market's last move.) When an extreme NYSE-Tick (often above 1000 or below -1000) occurs at the same time the market accelerates into a support or resistance area, look for a price stall or reversal and fade the move. Fade the emotion.

6. Rarely, if ever, chase the market on your entries. Wait for a pullback to get onboard a trend.

I favor shorts over longs... I can get out of a short position quicker than I can get out of a long position. I don't know why. I like to say that I "see gravity better than helium." In the rare strong-trending markets where I may chase an entry, it's going to be a down trend, not an uptrend. I don't trust up trends enough to chase them. Maybe it's just a personal quirk and maybe not. I honestly don't know.

But it's interesting to note that most (not all) professional traders I've met are Bears and prefer short positions over longs. You should give it some thought and find out which direction works better for you. Are your losses bigger on shorts or longs? Specialize in one direction and trade the other direction only when things are looking real good.

7. Never let a gain turn into a loss. This will mean getting out of most trades a little (or a lot) too soon. You just have to live with it. Swing for home runs (greed) will ruin your trading. There is no mechanical formula that I know of, (such as, "move your stop to break even after you get 3 ticks gain") that will work. You have to develop a feel for how the market is acting at the moment, and use your feel to reduce your target or advance your hard stop. This comes with experience.

8. Develop a feel for the big picture movements of the market, not just the intraday action. Use the end-of-day market internals to analyze the market's mood and develop a daily bias.

9. Practice does not make perfect. Only perfect practice makes perfect. I learned this in my younger years, pursuing a professional baseball career. Perfect practice will keep your losses smaller than your gains in the trading business.

There are a lot of things involved in perfect practice. When you get tired, or when the phone rings, or whatnot, don't trade. Always, always exit trades exactly the way I've outlined above on every trade in every market condition. Always wait for your pitch, the well-timed setup for entering. Don't practice sloppy entries just because you're bored. Only perfect practice will help you. Anything else just amounts to practicing bad habits.

10. Get a mentor. I traded for 6 years before I learned to keep my losses small. My trading turned around immediately after I met my mentor and talked to him on the phone for one week. Is there any serious profession that you can learn without a mentor? Maybe there is, but I don't know of any. It's certainly not trading.

By Mike Reed
This publication's primary focus is trading the index
futures. However, you can also use my nightly updates to
trade the following ETF's (SPY), (QQQQ), (SDS), (QID),
(DIA), and (DOG)

Huge Announcement for Traders!

Hi Everybody,

Big Announcement Here -

Our Next (and probably last) RBI Trading Camp will be held:

DECEMBER 7th - 13th

Please Note: Due to some exciting, but major changes
coming to our service beginning in January (more on this
later); this might just possibly be the LAST camp Mike holds
due to time constraints.

WHAT IS TRADING CAMP?
Mike's week long "RBI Trading Camp" identifies every trick and
technique that has allowed him to gain an almost unfair
advantage in Trading. You as a trader need to know the
secrets Mike reveals during camp in order to compete with the
professional "big" trader's out there who are dominating the
market.

WHERE IS TRADING CAMP?
"RBI Trading Camp" is held in Mike's virtual trading room via
Hotcomm. So, you have no hotel, meal, or travel costs. You
attend trading camp from the comfort of your own home or office.

WHAT WILL TRADING CAMP DO FOR ME?

#1 - Improve my technique.

#2 - Help me to develop a trading plan that works...consistently.

#3 - Teach me to control my "emotional" trading.

#4 - Discover entries and exits that are time tested and
rock solid

#5 - Uncover the secrets of how Mike finds his nightly
support and resistance numbers

#6 - Get access to Mike's spreadsheets with his own personal
indicators...campers are the ONLY traders allowed access to
these!

#7 - Get your own copy of Mike's CD-ROM trading course "Read
the Greed-LIVE!" (if you already have the course, get $900
off camp)

Most times, camp fills up fast. Three smart trader's have
already snatched up their "seats". That means there are only
5 more spots left.

Here's the link, better hurry to reserve your "seat":

http://www.tradestalker.com/RBI-Trading-Camp.htm

Campers receive Mike's course, "Read the Greed-LIVE!" as
part of camp. If you have already purchased "Read the Greed-
LIVE!", please contact us to get the link to register at a
$900 discount!

NOTE: This publication's primary focus is trading the index
futures. However, you can also use my nightly updates to
trade the following ETF's (SPY), (QQQQ), (SDS), (QID),
(DIA), and (DOG).

Hope to "see" you at RBI Trading Camp!

To Your Success,

Julie
TradeStalker.com
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