The Key Importance Of Being Selective

As I’m progressing with this challenge of switching strategy to focus entirely on the momentum one (you can read more about it here), there are some key concepts that have remained the same or that have gotten even stronger in the way I’m adjusting my trading style.

The first and most important of these habits is understanding the key importance of being selective in day trading. It may seem almost non-sense at a first look but I can affirm that, the less I traded, the better I’ve performed. And if you have some experience into this field I’m sure you’d agree: overtrading is the key leading factor to losing money and, at the end of the day, it may represent the ultimate failure in a trading career.

With that said, I want to focus on what have helped me avoiding this risk. Here is a set of rules I’ve set to be respected in my daily activity:

  • Focus on trading just a single strategy: in this way, I don’t get distracted trying to hunt for many different setups. I know by experience that being great at applying just one proven to be successful strategy will give me better results than trying to mix up many of them in the long run;
  • Trading no more than one stock at a time: especially when applying a strategy where the average holding time is a few minutes (sometimes just as little as a few seconds) the last thing you want to do is trying to trade two or more stocks simultaneously;
  • Stop trading after 11:30AM: momentum in the market is really hot in a specific time of the day only which consists of the first two hours after it opens, that applies even more to small caps, lower priced names (below $10). That’s why I don’t want to trade anything after 11:30AM so that I can focus on reviewing my trades for the day;
  • Taking no more than 5 trades per-day: statistically, I’ve lost much more money when I traded more than 5 times per-day. By applying this simple rule, I will get rid of repeating the pain of my worst days;
  • No trading during pre-market: before the bell rings, it’s the best time to prepare for the trading day. Pre-market trading usually has poor liquidity and this leads to wider spreads and bad fills due to slippage. Moreover, the last thing I want to do is starting my day being already down after rushing into a pre-market trade. This bad habit would have an emotional impact on my ability to pick the best opportunity as the day unfolds;
  • Jumping in “A” quality setups only: once I’ve kept on respecting the rules above, this one will be easier to follow. The bottom line mindset has always to be the this one: every single day you’re not forced to take even a single trade. This approach helped me dramatically in filtering out any setup that doesn’t carry the high potential/small risk ratio required to enter a trade.

I’m sharing this one with you to be a practical guidance in your trading daily routine since it’s working well for mine. Ultimately, every trading day is an exercise of patience. And here is a great quote I love about this matter.

“The stock market is a device for transferring money from the impatient to the patient” -Warren Buffet.

See you in chat-room.

Trade safe,

Roberto Barbaro

Selective, Tips and Tricks, Trading, Roberto’s Blog Posts