My 6 Most Important Rules For Trading Success

September 3, 2002
Dave Floyd

As a trader, most of us break the year into two
distinct periods, post Labor Day and post Jan. 1 trading. The four
months that follow each of these dates are typically the most active and
lucrative from a trading standpoint.Â The summers, with the exception of
1998 and 2002, are typically a wash, lots of work for little return relative to
the September/January periods.Â

So, here we are, right at the gates of what will surely be a very pivotal
time for the markets. The epic battle between bulls and bears will likely be
borne out in the weeks to come. Who will win? I have my hunch, but it is really
not important. Traders need to focus on the “what is happening right
now” in order to be successful. Naturally, having an opinion or theory so
you can properly position your longer-term investments is prudent. This
impending tug of war will likely result in some excellent trading opportunities
intraday.Â

Larry Connors highlighted
some of the most important bullet points that traders of all levels need to
know/review from time to time. As noted, very few books delve into them,
however, if you read any of the “Market Wizards” editions, those same
themes will be constant throughout. Consistently profitable traders are that way
for those very same reasons.Â Â

My mother in-law was in town this weekend, she is a wonderful person, and as
a result, we had a great time. The other reason it was nice to have her in town,
unbeknownst at the time, was that she gave me a topic to embellish on here in
the column. Saturday night over dinner and drinks the topic of her 401(k) — now
officially a 201.5(k) — came up. To make a long story short, she basically
threw her hands up and said, “The whole investing thing is just a matter of
luck anyways!” Needless to say, the conversation got interesting from
there. The point, as most of us know, is that there is no such thing as luck.
Luck is simply preparation meeting opportunity.Â

So as we embark on the second half of 2002 in terms of a trader’s year, keep
these simple, yet effective, bullet points taped to your monitor. I practice
these day in and day out. They are not infallible, and sometimes they will put
you on the wrong side of a trade, but as I go into the second half of my ninth
year trading, I think it is safe to say they have served me well and they have
certainly taken the “luck” element out of my trading.

Always, always trade with the trend. For me, that is not based on the net
change on the stock, index, daily chart trend, etc. It is simply and only
what is the slope of the moving average on the one-minute S&P 500
futures chart and the stock I am trading.

Depending on the slope, I am either:
a. Buying pullbacks in uptrends.

b. Selling short rallies in downtrends…period.
Always letting the S&P and Nasdaq futures be my leading indicator, not
the chart pattern of the stock

Cut the trade, winner or loser, the moment it stops working (i.e., the
futures are no longer going in the direction you anticipated they would go).

Take a break during the 11:30 – 2:00 trading. There is no reason to trade
during that time, volume is light and the moves erratic. I have never met an
individual who can trade that time with any consistency. Secondly, given
that it is so erratic, you will be wiped out mentally when the good trading
rolls around in the afternoon.

Never be afraid of taking time off. This, for most traders including
myself, is tough to come to terms with. We are so conditioned that working
hard is the way to success, and while that it true, even in trading, there
is this element of our brain that cannot trade properly without periodic
breaks.

Contrary to what many of you may believe/envision about my office and what
the traders in it do on a day-to-day basis, most of you would be surprised to
find that it is very quiet and not the mad flurry of keyboard tapping and
“gun slinging” (read Todd
Gordon’s piece from the weekend). Sure, we do a lot of trades on any
given day, but our extreme selectivity on a per-trade basis gives the observer
the feeling of being in some snooty wine tasting in the Hamptons. If the trade
isn’t just so, we simply do not take it.

So, with these thoughts in mind, let’s look ahead to today’s session. As of
5:00 AM PST, the futures are not only affirming what many “skeptics”
(myself included) have thought about the recent rally, but also indicating that
intraday trading, HVT, is set to be
excellent. Naturally, opening reversals will be one way to play the opening, as
well as taking your cues from the 10:00 AM EST release of the ISM
report. A major deviation up or down from consensus will allow me to step up and
trade very assertively off that release. The volatility spike will reward those
who are quick on the keyboard.

Intraday Setups:

Longs:

Shorts:

Key Technical
Numbers (futures):

S&Ps	Nasdaq
932	966-67
925-26	959
917	950-51
912	942
907-09	934-35
903-04	922
897	909
893	900
887 (critical level)
872

For those of you who participate in TradersWire,
I wanted to let you know about a couple of changes. As of today, I have an
assistant who will be corresponding in TW under my screen name. This will
allow me to be more proactive in the room without distracting me from my
trading. So, for now, let Matt get up to speed and just remember that for the
most part you will be relaying questions and comments to him, so if there is a
bit of a delay/confusion early on, bear that in mind. As always, feel free to
send me your comments and questions.

Dave

My 6 Most Important Rules For Trading Success

BUY THE FEAR, SELL THE GREED

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