Hi Day Traders,

I am a big believer in having a set of rules to trade
by. Not only can they make you a lot of money, they
can keep you out of trouble as well.

My #1 rule is read your rules every day before trading. 
My #2 rule is follow the market; forget what it is
supposed to do or what you expect.

This second rule was a life saver yesterday, 5-5-2000.

The June S&P opened at 1408.00 and rallied quickly.
The market had been selling off the previous three
days and had opened lower.

Once in a while I get a wild hair and do something
stupid. This was to be one of those days. After
rallying more than 10 points and coming into a 
resistance area I shorted this market at 19.40 and
quickly had to exit at about a 4 point loss. 
I don't normally risk that much but it was there
by the time I could get out.

I had violated another of my rules to never fade
strong momentum. 

The market continued to rally hard to 1425.50 before
stalling. The market had told me where it wanted to
go in no uncertain terms, so I entered a buy order
at 1420.60. The low of the pull back was 1420.50,
just barely letting us in. I recommending taking
profits at 1425.50, just wanting to get back my
previous ill-advised loss. So after two trades I
was little better than break even. It came back
to 20.50 again and I knew I should be buying again
but for some reason hesitated just long enough to
miss it. And away it went again straight up. 

I made a couple more trades trying to get long on
pull backs but ended up losing 1 point on the day.

I consoled myself with the fact that this was the
first losing day of the week. It was a good week,
but if I had not taken that first trade against 
my rules, more than likely I would have caught
that second leg up instead of being satisfied with
getting back my losses.

Don't get me wrong, I think it is a very good
strategy to just try to get back your losses when
you have gotten off to a bad start. That strategy
has saved my butt many times. But it is much
sweeter when you get off to a winning start.

Until next week.

Yours for success,
Ellery Coleman

The trades referred to in this article are trades that were sent to our Choice Day Trades subscribers as they happened. We have no way to verify whether or not all or any of these trades were taken in real time since we did not take them in our account. Therefore they should all be considered hypothetical.

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