Other Trading Strategies
You have now read briefly about my trading strategy. You may be wondering what other traders do. As I mentioned before, there are unlimited numbers of trading strategies that individuals have developed for themselves. Traders often choose their strategies based on such factors as account size, amount of time that can be dedicated to trading, trading experience, personality and risk tolerance.
You should develop your own strategy. A trading strategy is very personalized to each individual. My risk tolerance and psychology are most likely different from yours and from those of other traders. I might not be comfortable with a $500 loss, but someone who has a large account can easily hold onto the loss and eventually make profit out of a losing trade. You cannot mirror-trade anyone else; you must develop your own risk management method and strategy.
Some traders focus heavily on technical indicators like the RSI, the moving average convergence divergence (also known as the MACD), or the moving average crossover. There are hundreds, if not thousands, of sophisticated technical indicators out there. Some traders believe they have found the Holy Grail of technical indicators, and it might be a combination of RSI or the moving average crossover. I don't believe in any of them. I don’t think that they work for day trading, especially over the long term.
Some of my day trader colleagues may disagree with me, but my personal experience is that you cannot enter a trade with a systemic approach and then let indicators dictate your entry and exit. That is my next rule:
Rule 10: Indicators only indicate; they should not be allowed to dictate.
Computers are trading all of the time. When you set up a system for trading that has no input or requires no decisions by the trader, then you are entering the world of algorithmic trading, and you will lose trades to investment banks that have million-dollar algorithms and billions of dollars in cash for trading.
Of course, I use the RSI in my scanner for some of my trading strategies, and in particular for reversal trading. Obviously, I have scanners that rely on a high or low RSI, but those are more conditioned to find stocks at extremes. This is not by any means a buy or sell indicator.
Develop Your Own Strategy
You must still find your own place in the market. I may be a 1-minute or a 5-minute trader; you may be a 60-minute trader. Some may be daily or weekly traders (swing traders). There’s a place in the market for everyone. Consider what you are learning in this book as pieces of a puzzle that together make up the bigger picture of trading. You're going to acquire some pieces here, you’re going to pick up pieces on your own from your own reading and research, and, overall, you will create a puzzle that will develop into your own unique trading strategy. I don't expect everything I do to work exactly the same for you. I'm happy to help you develop a strategy that is going to work for you, your personality, your account size and your risk tolerance.
The key for now is that you master one strategy. Once you can tread water in the market with your one strategy, you can be a trader without blowing up your account. This is simply a matter of spending time in the chair. The more time you spend watching your charts, the more you will learn. This is a job where you survive until you can make it. You can start casting out later, but first you need to master just one strategy. It can be the VWAP trade, it can be a Bull Flag Momentum Strategy, it can be a Reversal Strategy, or you can create a strategy of your own. Narrow the choices down, develop that area of strength into a workable strategy, and then use that strategy to survive until you are able to develop others.
It is absolutely critical for every trader to be trading a strategy. Plan a trade, and trade the plan. I wish someone had said to me when I first started training, “Andrew, you need to trade a strategy. If you're trading with real money, you must be trading a written strategy, and it must have historical data to verify that it’s worth trading with real money.” You cannot change your plan when you have already entered the trade and have an open position.
The truth about traders is that they fail. They lose money, and a large percentage of those traders are not getting the education that you are receiving from this book. They're going to be using live trading strategies that are not even hammered out, they will just be haphazardly trading a little of this and a little of that until their account is gone, and then they will wonder what happened. You don’t want to live trade a new strategy until you’ve proven that it’s worth investing in. You may practice three months on a simulator, and then trade small size with real money for one month, and then go back to the simulator to work on your mistakes or practice new strategies for another three months. There is no shame in going back to a simulator at any stage of your day trading career. Even experienced and professional traders, when they want to develop a new strategy, test it out on a live simulator first.
Your focus while reading this book and practicing in simulated accounts should be to develop a strategy worth trading, and it’s my pleasure to assist you with that process. Remember, the market is always going to be there. You don't need to rush this. A day trading career is a marathon and not a sprint. It's not about making $50,000 by the end of next week. It’s about developing a set of skills that will last a lifetime.