I have recently been thinking about what my solid rules for exiting a trade. When should I realize a losing trade? When do I call it quits for the day? I was talking to my dad the other day about trading and told him of my new blog that I was thinking about writing. I told him the title and immediately he broke into the Kenny Rogers song of “The Gambler” so I’m sorry if that song is stuck in your head for the rest of the blog. Go on I will give you a minute to sing it…OK, lets move on!

I thought of this topic not when I was trading, but actually when I was playing cards with my friends a couple of weeks ago. We were playing Texas Hold’em. Now when you are playing you have to work off other peoples reactions. You also have to think about what type of player they are, are they just learning, have they played for a while, do they know what the best hands to play with are. All of these things come into play before you even take a glance at your cards. I was playing with two guys that had just learned how to play, another had played here and there, and the other had been playing for a while. I my self love to play, I play online and sometimes just practice by dealing out a couple of hands and thinking what would I do if I had that hand.

 So the game went on through out the night and I’ve came to a point where I had invested quite a few chips into the middle, (to be honest I was bluffing my hand because I was going against one of the new guys!) It got to the point where there were just too many hands that could beat me. So I took my loss and waited for the next hand. If you are a poker player you know that something like this just kills you because you want to know if you made a good choice and you are dying to see the other guy’s hand. Typically in poker, if you’re smart, you don’t show!

I got to thinking about this in my trading. How many times have I put in quite a few chips and try to talk myself into why I’m right and the market is wrong? I’ve been there a couple of times. In trading there is no bluffing! You can’t read the other players in the market. You have to go off of your hand only and know that you have the best hand and play accordingly. So when do I know when to Hold’em and Fold’em? Going back to my poker playing, I practice by laying out hands and deciding what I would do. Same thing in trading, you have instant replay or streaming replay to go back and practice trades and decide what you would do. A great example of when to ditch your trade might be when the MACD flattens out and the Bollinger Bands come under your market in a down trend, you know that the momentum is dying out. Fold’em! The great thing about the market is you get to see the other player’s hand which gives you instant feed back if what you did was right or if you folded your trade too fast. I learned all of these things by testing out the live markets daily and through back testing my new ideas.

Holding on to a losing trade is like holding on to that hand in poker when you know you can’t win. Sure you could try to talk the markets into going back to your profit target or at least break even, but you can’t talk to or read the other players in the game. A simple formula that I recently got from my dad for success may help you understand this a little better.

            Knowledge + Confidence = Success

Think about that for a second. I had to read it a couple of times for it to really sink in. If you break it up and start with Knowledge, what do you think of? How have you gained that knowledge? What can I do to gain more knowledge? Do you ever stop gaining knowledge? These are questions I asked myself and I was glad I did. We have given you the tools to find the proper knowledge of how to day trade. I follow the same rules that Rockwell has taught you. Engulf yourself with the markets they can teach you a lot!

 If we look at Confidence, what do you think of? What gives you that confidence? I thought about my trading naturally. I feel very comfortable trading when I sit down at my computer. I feel that my KNOWLEDGE and testing has helped me gain the confidence I need in my trading. What is my end result? Success with trading! Sure you can add a couple of things to the equation like experience, time, practice, money, and the list could go on and on. When you think about it, it all ends up coming back to knowledge or confidence.*

When we have the knowledge and confidence in trading you will know when to hold on to the trades that follow your rules and fold the ones that aren’t going in your favor. In the chat room we have talked about the five stages of a loss. I highly suggest looking that up and see where you might fall within those stages. Once you are able to clear yourself of those feelings you will be able to trade with confidence. I wish I could tell you that I have never lost a trade or had a stupid trade, but I have. It helps me to know what not to do next time and trust my rules. Stick to your rules and practice them regularly and you will find the knowledge and confidence you need to become a successful trader.

* If you need some help on confidence check out my last blog, “Knowing My Perfect Trade.”