Trading Rule #2

Rule #2:  Never cost-average your position unless the signal is at least as strong as your previous entry.

Which would you rather trade?

For your interest, I have computed the 1-min Green/Red bars transition matrices for NDX & RUT.  The result is:

RUT

R G

R 67% 33%

G 26% 74%

NDX

R     G

R 48% 52%

G 44% 56%

For RUT, if the current bar is red, it is about 2/3 of the chance the next bar will be red as well, green to green about 3/4.  The trend is much stronger than NDX where the transition matrix has entries basically random.

My Trading Rules

From time to time you get burnt because you have no tight risk management and your greed and fear take over.  After so much suffering, you establish some solid rules and try to force yourself to listen when the greed and fear are taking over.  Most traders have common rules for themselves to follow, I am no exception.

Rule #1:  Trade with the trend, at least 1 to 2 timeframes above should point to the same direction you are trading.  If I am trading the 1-min time frame, I should look at the 3-min, 5-min, 15-min for example