Weekly Newsletter   Challenge account   Weekly Newsletter   

TRADING RULES – RULE #2 – Trade often

Trade often means that you are trading as often as possible. You want to be soaked into the market and feel its pulse. You want to be always focused.

But how do you do that to trade often and not to break the rule #1 “Stay small?

This can be a tricky part. First you use the rule #1 to determine what you can afford to trade without over trading or opening too large positions. For example, according to the rule #1 you can risk (or commit) a certain cash amount in your account (maybe representing 20% of all your available cash).

Then, when you choose a few stocks you want to trade options against and find out that you can trade for example total of 20 contracts per each selected stock and you plan on trading options against 3 stocks.

Instead of opening one trade of 20 options contracts, you split the number and open one week (or day, or month) one trade with 3 contracts, next week another trade with 3 contracts, next week another trade with 3 contracts, and so on. And you do it again and again as long as you decide to choose a different stock or add more contracts or run out of money.

Wait, did I just say “run out of money”?

Well, yes, sometimes you may experience a situation that your position gets in the money, you will have to roll, and such rolling trade would continue blocking your money so you won’t be able to open a new trade. You ran out of money.

And then you repeat this process like a Merry-go-round. When the old contracts expire or get closed (bought back) you commit that cash in the next trade. And you rotate the trades forever.

Do not compound your trades. Maybe you want to stay at the same level for the entire year although in November you will be able to trade 30 contracts in lieu of 20 as of January, for example.

Why? Why do you want to keep the exact amount of contracts for the entire year or longer (the period depends on you)?

It is psychological. As your account continues growing it may be very tempting to start compounding your trades by adding new contracts because now you can afford it. It will be very easy to over trade and ruin your confidence. One unfortunate blow and you would ruin months of hard work. With the original size of the contracts, the pain will not be as big and you still would survive.


 · Why do you want to trade often?


It’s like practicing trading. You want to be exposed all the time (or as much as possible as I understand that if you trade a small account it will be difficult to be exposed all the time).

It is like if you tell me, a lazy, couch potato person, to go out and run 5 mile marathon. I would die after 100 yards of a heart attack. Before I would be able to run 5 mile run I would have to practice. I would have to run a few yards every day, do it regularly, and slowly increasing the load and run more and more. But you also do not increase the load on a daily basis. First few months you run 50 yards, then after 6 months you start running 100 yards, then 500 yards and so on until you get to 1760 yards (1 mile).
Same goes with trading. If you want to be a successful trader and have consistent winning results, you have to be like me the practicing runner or you can die of a heart attack.
Start small, small trades, even one contract per trade, but trade as often as possible. Increase the load (number of contracts) only after you master the smaller trades and have enough cushion in your account to do that.

Leave a Reply

Your email address will not be published. Required fields are marked *