PERSONAL TRADING RULES

(Dynamic list: continually updated dependant on trading style and experience gained)

Business / Trading Plan - (Plan your trades. Trade your plan)

Executive Summary

 (prepared after all details complete)

Plan Details

 Instrument’s Traded
 Money Management
 Risk
 Asset Allocation
 Position Size
 Entry
 Exit
 Stop Loss
 Stop placement
 Targets
 Patterns Traded
 Trade Set-Ups - (Define)
 Indicators
 Trading Hours
 Trading Journal
 Basic Rules
 Additional Thoughts
o Five Fundamental Truths – Douglas
o Seven Traits for Consistent Winner – Douglas
o Bias
o Patience
o Discipline
o Attitude
o Loss and Failure
Instrument’s Traded

 ES
 NQ
 ER2
 DAX
 ETF’s, QQQQ, SPY, VTI, VWO,VGK,VPL,VNQ

Money management

 #1 Rule, Capital Preservation

 Average up – rules (define)
 Scale out - rules (define)
 Risk to reward ratio
o 3-1 Standard (Swing/short term)
o per specific pattern trade set-up rules
 Keep losses small (reference AHG method)
o Base hits – not home runs
 Never allow a big winning trade to turn into a loser. Stop yourself out if the market moves against you
20% from your peak profit point.
 Maximum daily loss limit = 2% of account balance

 NEVER AVERAGE DOWN - never add to a losing position

 Risk Management at all times

Risk - (define)

 Never risk more than 1-2% of account on any single trade

 Never invest more than 20% of account on any single trade
 Never risk monies which can not afford to be lost
 No overnight Futures positions

Asset allocation

 Pay self; first 20% of earnings may be spent on discretionary items. Family fund.
 80% of portfolio conservative investments, index’s, bonds, trust deeds etc (with stop-loss)
 never more than 20% of portfolio for aggressive investments/trades
 trading account not to exceed 10% of total portfolio
 initial trading account not to exceed $50K 6-months, $100,000 12-months, $200,000 year 2
 Allocate 30% of earnings for taxes
 Minimum of 50% of trading net earnings to be re-invested
 Minimum of 75% of investment net earnings to be re-invested
 College/retirement fund’s to remain in conservative accounts
Position Size

 1 car until consistently profitable (6-months minimum)

 (scaling out) 2 cars until consistently profitable (6-months)
 (averaging up) 1 car with 1 car addition’s until consistently profitable (6-months)
 Double car size allowed every 3 months after initial period

Entry

 Multiple confirmation, confluence of indicators,

 Trend line pierced confirmed by closing bars (not wicks) of support or resistance.
 Dual confirmation of breakout required by confirmation tick past closing bar (magic tick)
 Engulfing paint bars
 Anchor charts for trend confirmation
 Faster charts for precise entry

Exit

 Exit Prior to Major Support/resistance

 Trend reversals
 Modified HA Bars used to time exit for potential runners (exits only)
 Exit trade when reason entered is no longer valid
 Price action
 Tighten trailing stop upon
o Reaching initial target
o Approaching major support/resistance
o Approaching recent swing high/low
o Major Pivot points, Daily, Globex, etc….
o Gaps
Stop Loss

 Initiate protective stop at time of trade # 1 Rule,

o ALWAYS WITHOUT EXCEPTION
 Adjust to break even (BE) to protect capital when trade moves favorably
 Trailing stops adjusted to strategic levels (short term trades)
o Support/resistance
o Swing high/low
o Pivot points
o Gaps
o Etc…
 Trailing stops by percentage or set dollar amount acceptable for (longer term trades)
 Never lower a stop in a long position, or raise a stop in a short position
 Never move stop unless to protect profits
 Never cancel a stop loss order after you have placed it!
 If trade reverses, take small loss and move on

Stop placement

 Entry # 1: place stop 1 tick above/below entry bar’s high/low

 Entry # 2: place stop 1 tick under recent swing high/low
 Entry # 3: Place stop above/below pattern high/low/midpoint per pattern set-up guidelines.
 Adjusted stops 1 tick above/below strategic levels

Targets

 Fibonacci retracement levels for prediction

 Pattern height or mid-points as per specific pattern trade set-up
 Never attempt to call Tops or Bottoms
o Target sweet spot of trade (80% of range)
 Maximum trades per day - (define)
 Do not over trade, be patient and wait for opportunities
 If not 110% confident in trade, sit-out
Patterns traded

 Uptrend / Downtrend lines

 Tops and Bottoms (reversals)
o Double Tops / Double Bottoms
o M-Top / W-Bottom
o W-Top / M-Bottom (rare)
o Crown Patterns
o Adam & Eve
o Triple Top / Triple Bottom
o Island Reversal
 Rectangle / Horizontal breakouts
 Flags
 Triangles
 Failed Head and Shoulders
 Head and Shoulders
 Wedges
 ABC, 123
 Pipe Tops / Bottoms
 Gaps
 Dragons

Trade Set-ups - (define)

 Reference Trade Chart Patterns Like A Pro, Suri Dudella

o Use entry, exit and stops as suggested for longer term trades
o Modify entry, exit and stops per AHG for short term trades (as annotated in set-up log)
 Charting
o ES = 2500/5000 -- 50K/100K (anchor)
o NQ = 1000 -- 10k (anchor),
o ER2 = 750 (610 tick) -- 7500 (anchor)
o DAX = to be determined
o ETF’s = to be determined
Indicators

o Support and Resistance visual aids

o Trend lines
o Horizontal Lines
o Market structure (HH’s, LL’s, HL’s, LH’s)
o Highs and Lows visual aids
o Pivot Points
o Volume based bars, tick based bars
o Time and sales (tape reading)
o Paint bars to accentuate price action
o Candlesticks to find extra confirmations
o Zig Zag indicators to enhance patterns
o Fibonacci Retracement percentages
o AHG E-motion (Dynamic Fib retracement)
o Modified Heiken Ashi Candle sticks bars

Trading Hours

 (US Market) - Regular hours (EST)

o Mornings (9:45-11:45)
o Afternoons (2:00-3:30)
o Last ½ hour only to close positions (NO NEW POSITIONS)
 (US Market) - After hours
o Monitor, only trade high probability, excellent R/R set-ups
 (European Market) - Regular hours (CET)
o 15 minutes after open until 30-minutes before close
o Last ½ hour only to close positions (NO NEW POSITIONS)

Trading Journal

 Maintain daily records of trading activity and results.

 Note reaction to special events, mood, thoughts and questions which arise
 Post daily charts with annotations of Trades taken and trades considered
 Review often
 Learn from mistakes
 Modify Trading Plan accordingly
Basic Rules

 Do not deviate from trading plan

 Paper trade until consistently profitable before risking real money.
 Assimilate a set of personal trading rules that works for you.
 Keep it simple
 Trade with the trend: market, sector and equity
 No countertrend trading during first 6-months
o exception for specific pattern strategies, per trade set-up rules
 Reject buy/sell signals if not consistent with other trends
o never trade a dip without conducting research
o exception for averaging up (per averaging up guidelines)
 be aware of upcoming announcements
o Do not trade FOMC day-first 6 months
 Review positions nightly (swing and longer term)
 Become proficient in current strategies before adding strategies
o initially trade index’s, then sectors, then stocks
o use price action and volume as primary determination
o go for sweet spot, wait for confirmation
 Back test all new trading plans and strategies (1-2-3-5 year periods)
 Paper trade all new strategies
 Only trade long positions with strong fundamentals / short positions with weak fundamentals
(Swing/medium term)
 Continue learning
Additional Thoughts….

Five fundamental truths: (Mark Douglas, Trading in The Zone)

1. Anything can happen

2. You don’t need to know what is going to happen next to make money
3. There is a random distribution between wins and losses for any given set of variables that define an edge
4. An edge is nothing more than an indication of a higher probability of one thing happening over another
5. Every moment in the market is unique

I am a consistent winner because: (Mark Douglas, Trading in The Zone)

 I objectively identify my edges.

 I predefine the risk of every trade.
 I completely accept the risk or I am willing to let go of the trade.
 I act on my edges without reservation or hesitation.
 I pay myself as the market makes money available to me.
 I continually monitor my susceptibility for making errors.
 I understand the absolute necessity of these principles of consistent success and, therefore, I never
violate them.

Bias

 Enter each trade with no Bias

 Trade the facts, remove emotion
 Lose your opinion - not your money.
 Successful traders isolate themselves from the opinions of others.
 In the world of money, which is a world shaped by human behavior; nobody has the foggiest notion of
what will happen in the future. Mark that word - Nobody! Thus the successful trader does not base
moves on what supposedly will happen but reacts instead to what does happen.
 It is better to be more interested in the market's reaction to new information that in the piece of news
itself.

Patience

 Standing aside is a position.

 Continually strive for patience, perseverance, determination, and rational action.
 Never get into the market because you are anxious because of waiting.
 It's much easier to put on a trade than to take it off
 Treat it gently by allowing your equity to grow steadily rather than in bursts.
 Not only is patience required to enter a trade, but imperative for letting good trades do their own work.
Discipline

 100% discipline and consistency

 Always discipline yourself by following a pre - determined set of rules.
 You must have a program, you must know your program, and you must follow your program do not
become complacent
 Never attempt to call Tops or Bottoms
 Avoid getting in or out of the market too often
 Successful traders have a well-scheduled planned time for studying the markets.
 If a market doesn't do what you think it should do, get out.
 When the ship starts to sink, don't pray - jump.
 The difference between winners and losers isn't so much native ability as it is discipline exercised in
avoiding mistakes.

Attitude

 Keep a positive attitude, no matter how much you lose. Another opportunity will present itself.
 Don't take the market home.
 Successful traders are not afraid to buy high and sell low (small stops will protect your)
 Successful traders buy into bad news and sell into good news.
 Beware of large positions that can control your emotions. Don't be overly aggressive with the market.
Only take positions which you are comfortable with and can accept if trade goes south.
 You must believe in yourself and your judgment if you expect to make a living at this game.
 Be humble - on every trade there exists a more experienced trader on other side

Loss and Failure

 Nothing works all the time, small losses are inevitable

 Losses make the trader studious - not profits.
 Take advantage of every loss to improve your knowledge of market action.
 Expect and accept losses gracefully. Those who brood over losses always miss the next opportunity,
which more than likely will be profitable.
 Accept failure as a step towards victory
 Have you taken a loss? Forget it quickly. Have you taken a profit? Forget it even quicker! Don't let ego
and greed inhibit clear thinking and hard work.
 A loss never bothers me after I take it. I forget it overnight. But being wrong and not taking the loss -
that is what does the damage to the pocket book and to the soul.
 One cannot do anything about yesterday. When one door closes, another door opens. The greater
opportunity always lies through the open door.
 Remember that a bear market will give back in one month what a bull market has taken three months to
build.