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Keep a Record of Your Trades - the Good, the Bad, and the Ugly

I pointed out earlier in this book - in fact, I noted a number of times - that every loss you take is an important learning experience. But a loss can be of no value unless you know why you took the loss and what you will do in the future to avoid making the same mistake. Clearly not all losses are a result of breaking rules. Many losses are a simple result of your system being wrong. But you must know when your system was wrong and when you were wrong. There is a significant difference between the two.

Therefore, I urge you to keep a log or a diary of your trades, noting each trade with a brief commentary as to whether the trade was a profit or a loss due to following your system or due to breaking your rules. A profit that resulted from breaking your rules will teach you something wrong. A loss that has occurred as a result of breaking your rules may be very instructive. A diary should not only be kept, but it should also be referred to both at the end of each trading day and at the beginning of the new day. Refer to everything you did the day before and learn from it.

Don't Day Trade Unless You're Properly Informed

Some of the techniques I have discussed in this book are almost entirely mechanical. In order to trade them, your presence is not required and live price quotes are unnecessary. In most cases a broker can actually do the trades for you, depending upon the ground rules and understandings you have established with that broker. Other methods, however, require your presence and close attention. If a situation arises during the day that requires you to leave your quote system, then either close out your positions immediately or give your broker stop close only or market-on-close orders. Do not attempt to keep in touch with the markets by calling frequently for quotes or by using a portable quotation system. This is not a good way to operate.

And this brings me to the question of whether a trader should attempt to trade when on vacation or when separated from his or her quotation system or computer. Clearly, my reply is no, unless you have a partner or broker who can follow the trades for you.

When in Doubt, Stay Out

The old expression "when in doubt, stay out" is especially appropriate for the day trader. Not all indicators or signals will be completely clear all the time. Furthermore, some other developments such as news, reports, or short-term fundamentals make signals unclear or market response uncertain. In such cases my best advice is to stay out; do not trade. There will always be plenty of trades, and there is no need to enter a trade unless its potential outcome is relatively clear and free from the erratic influence of news or other fundamental events.