One-Trade-Per-Day rule

Sometimes, the most simple and basic ideas can lead to better performance in trading. As we know, trading is a lot about having rules and obeying them. Maybe, when those rules are complex or can be bent, it's more likely that they will be broken. A simple rule has, therefore a good chance of being applied in a very rigid and disciplined way. In this article, I will share a very basic and easy rule that I use and have used for quite some time now. I call it the One-Trade-Per-Day rule. As you can guess from the name, that doesn't sound like a very ingenious idea. And it isn't, but it works.

Let's first start with some well-known observations. The fastest and surest way to blow up a trading account and lose all your funds is to start day trading without a long and proven track record. Day trading may seem easy and exciting, but in fact, it is the exact opposite. When you're engaged in the game of day trading, you are competing with some of the smartest, most hardworking, mentally toughest, and most competitive people in the world! Entering a battlefield unarmed and unprepared with such opponents leaves you no chance at all to be successful.

It may seem tempting to get up in the morning at a very comfortable time, boot the computer, log in to your trading account, start the day without any trading ideas, and 'shoot from the hip', based on some gut feeling. Often a gut feeling is simply created by the latest 'breaking' news item or comments on chat forums and social media. All that stuff gets in your brain and does weird things to your judgment. Repeat this 'shooting from the hip' type of trading several times a day, and before you know it, the account is down a significant percentage. Even more devastating is this: initial success with this type of trading. That will further feed the idea that day trading is indeed easy and exciting, resulting in bigger trades, ignoring risk, and then.... losing it all in the end even much faster.

Overtrading, revenge trading, chasing, moving stops and targets, are some of the biggest sins in trading. Applying the One-Trade-Per-Day rule, all of this has almost no chance. As a positive side effect, the trading screen can be turned off during the session, thus leaving time to do more useful things than to look at flashing numbers that make you nervous.

The One-Trade-Per-Day rule in general means that after the (daily) analysis is done, all trade parameters are entered into the account. So the night before the next session, the analysis has determined which side to take (long or short), at which price to get in, where to put a stop loss, and where to put the profit target. The rule is to never ever touch that order again, with only one exception: to cancel the order if it didn't get filled in the intended session. And now we wait.... That's the only disciplined action we have to execute, just to wait. If during the trading session, the position gets stopped out or target is reached, we still wait for the end of the session. Not doing anything after a stop is probably one of the hardest things in trading, but it is also an absolute necessity in this rule. Wait until the session is over, analyze the new situation, and repeat the previous steps.

There are possibilities to fine-tune the order. For instance, the stop loss could be made a trailing stop. Once the trade has gone positive, this will reduce risk and narrow the working area of the trade. So eventually price will either hit target price or stop price. Another thing to consider is stop loss size versus take profit size. This is directly related to the percentage of trades that work out right. A third order type that could be added is the so-called 'market on close' order. When the trading session is about to end, this order type will close the position as close as possible to the end of the session. As a result, the position will run only one session maximum. Another refinement could be to split the trade into smaller parts, each having its own entry and exit. This is really more of the same, as all setups anticipate the same kind of market movement. 

It may very well happen that the order is filled, but not closed in the same session (no moc order type used). The rule says to let the position run until it is closed by target or stopped. Wait for that to happen before entering a new order, or otherwise different orders may interfere with each other and cause confusion. Also, doing analysis while being in a position probably makes the analysis biased towards the current position.

As mentioned before, the trading screen can be turned off until the end of the session to check the current status. The rest of the day can be used to do trading research and work on analysis methods in complete calmness. Sounds boring? It should ;-)

Let's finish this article with a quote from someone who wasn't a trader, but probably the greatest scientist ever, Albert Einstein: "Things should be made as simple as possible, but not simpler."