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When in doubt, stay out

ВрThe old expression "when in doubt, stay out" is particularly 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 relaВэtively clear and free from the erratic influence of news or other fundaВэmental events.

14. Do your homework. It never ceases to amaze me how few traders consistently do their market homework. Even though they have develВэoped good market indicators and effective trading techniques, they fail to consistently keep up to date on the markets and allow a good methodology to turn into a bad one, by virtue of their laziness. This makes no sense to me whatsoever. The fact is that if you develop someВэthing which works, and if it is making money for you or facilitating your ability to make money, then by all means you ought to continue with it.

Too many traders become complacent about their market studies, fail to do their homework, and then wonder why they lose money. If you intend to succeed, then you must do your homework no matter how simple or complex it may be.

Perhaps you have developed a trading system which requires no homework. This is certainly possible. A number of the techniques described in this book do not require homework. However, you will still need to work on your trading diary, and you will still need to keep in close touch with trading opportunities which may develop during the next trading day. The only way to do this is to study the markets. This is what I mean by homework, and this is why it must be done.

15. Monitor your performance. Some traders refuse to monitor their trading results as a form of defense against being distressed by bad results. This is neurotic behavior and should not be engaged in. Always keep close track of your results on a trade-by-trade and day-by-day basis. Know where you stand at all times in order to acquire effective feedback about the techniques you are using. Unless you know where you stand, you will not have sufficient information about how well or how poorly your methods are performing. I suggest you use one of the many computerized accounting programs to keep track of your results, or, at the very minimum, a spreadsheet which is updated manually will certainly do the job. Pay especially close attention to your average winВэning trade and your average losing trade. Your average winners should be consistently larger than your average losers. If they are not, then you are risking too much and getting too little for your efforts. This is an indication that change is necessary.

Another good reason for keeping track of all your trades and their results is for determining if and when your trading technique, system, or indicators have deteriorated and are in need of change or review. Unless you check your performance you will not be cognizant that change is necessary, other than perhaps a vague feeling that all is not going well.