The 25 Laws of Day Trading

By Jean-Michel Bell

Ever feel like the market's just out to get you? Like you're one step behind, missing out on those big moves you see everyone else catching? It's not just you. The 25 Laws of Day Trading is your guide out of that rut, your roadmap to not just surviving the markets but thriving in them.

Jean-Michel Bell, your expert guide through the highs and lows of trading, has laid out a blueprint for success that goes beyond just strategies. This book is about transforming YOU, turning you into a disciplined, insightful trader who understands the ebb and flow of the market like the back of their hand.

 

Dive into the laws that have shaped the careers of countless successful traders:

• Law 1 - Honor Your Stop-Loss: The foundation of risk management. It's about limiting losses and preserving your trading capital for the next opportunity.
• Law 5 - Avoid Strategy-Hopping Syndrome: Consistency is your greatest ally. Dive deep into strategies that resonate with you, rather than skimming the surface of many.
• Law 10 - Purge Your Indicators: Simplify your trading by cutting down on cluttered indicators.
• Law 13 - Change with the Market: The only constant in trading is change. By tuning into the market's rhythms, traders can move with agility, capturing opportunities across the spectrum of market moods.
• Law 23 - Fear Nothing but FOMO: The fear of missing out is the only fear to fear. Learn to distinguish between a genuine opportunity and the siren call leading to ruin.

Whether you're just starting out, hitting a plateau, or looking to take day trading to the highest level, these laws are your building blocks to achieving consistently outstanding results.

 

So, are you ready to transform your trading and yourself? Internalize these laws, embrace the journey, and let's turn those trading dreams into reality. Your path to financial freedom, personal growth, and professional mastery starts here.

• Language: English
• Publisher: Olive Group
• Release date: Feb 25, 2024
• ISBN: 9798224784011

Book preview

AUTHOR’S NOTE

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Trading in financial markets involves inherent risks, and there are no guarantees of profits. The content provided in this book is for educational and informational purposes only and should not be considered as financial or investment advice.

This book offers principles and insights drawn from extensive research and experience. However, bear in mind that past performance in the markets is not a reliable indicator of future results. Market conditions are inherently unpredictable, and numerous uncontrollable factors can affect prices and outcomes.

Every individual's financial situation, risk tolerance, and investment goals are unique. Therefore, it’s essential to conduct thorough research, seek professional guidance, and carefully consider your personal circumstances before making any trading decisions. Do not solely rely on the information provided in this book. Consult with a qualified financial advisor or professional who can assess your specific needs and objectives.

INTRODUCTION

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Welcome to The 25 Laws of Day Trading, a definitive guide crafted for those who aspire to be profitable day traders. Here, success is not just about knowing the ins and outs of a winning strategy; it's about mastering your own mind in order to pull money out of the markets. I delve into how traders can learn from setbacks in a way that is accessible and relatable. Think of it as evolving through experience, turning challenges into stepping stones for improvement.

In this book, I clarify common misconceptions, like the idea that retail traders are always battling against the market. Instead, I help you understand how the market works in simple terms, equipping you with the knowledge to interact with it effectively and make informed decisions. Some of these laws may be familiar to you. Some may shock you. But they all have weathered the test of time. And if studied and followed diligently, these laws will unlock the opportunity for you to seize profits in a condensed timeframe and generate consistent, abundant returns for the rest of your life.

Structured for flexibility, The 25 Laws of Day Trading doesn't require a front-to-back read. Feel free to jump to the laws that resonate with you at any given time. Whether you're in the midst of a trading day or planning your strategy after markets close, these laws are designed to be your companion in overcoming psychological barriers and adapting to ever-changing market conditions.

Day trading is not for the timid. It’s also not for thrill-seekers or degenerates looking to get rich overnight. This book is for serious thinkers seeking the ability to react to price action without fear or greed. This book is for old and new traders searching for solid pillars to govern behavior on the path to financial freedom.

These texts were originally written for myself, in the form of a trading journal with over a thousand pages. This structured edition that you’re reading now is a condensed version of that journal, the result of combing through the most influential wisdom I’ve discovered and internalized over a decade of day trading.

Your path to not just financial freedom, but also to personal and professional growth, begins within these pages. Your motivation could range from a simple desire to escape the 9-to-5 rat race, to a lofty goal of becoming a millionaire trader over the course of multiple wins and losses. Both are possible, but only through the mastery of the laws laid forth in this book and the wisdom to apply them daily.

Best Regards,

Jean-Michel Bell

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The person you are right now is as transient, as fleeting and as temporary as all the people you’ve ever been.

—Daniel Gilbert

LAW 1: HONOR YOUR STOP-LOSS

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You're sitting in front of your screens, a typical day of trading ahead. With a well-thought-out strategy, you confidently enter a trade. It feels right. The analysis backs it up. But then the numbers start to dance. Price slides, not in your favor. Your heart races. It’s just a temporary dip, you assure yourself. Yet, the downward trend persists. Now, you're faced with a decision that pits your strategy against your instinct. Your stop-loss is about to get hit, a floor you set earlier to protect your capital. But there's a voice in your head, urging you to wait it out, to not give in to this temporary setback. Against your better judgment, you cancel the stop-loss, convinced the market will swing back. Minutes pass. The loss, once a small setback, has grown out of control, eating into your trading account. You scream at the price action, Go back up! Then the pain of the loss becomes so unbearable that you finally close the position.

Has this ever happened to you?

One of the primary reasons, perhaps the most significant, that retail traders face failure in day trading, is their reluctance to honor their stop-loss. A stop-loss isn't just a suggestion; it's a risk management tool designed to cap potential losses. When a stop-loss order is activated, it serves as an automatic exit from your position at a predefined price, safeguarding you from escalating negative risk. It's meant to prevent catastrophic financial losses when market movements aren't in your favor.

But if stop-losses are so important, why do many traders choose to ignore them? The answer lies not in the markets but within the traders themselves.

The Fragile Ego

Being right is often attributed to someone with intellect and good judgement, someone who is competent and successful. Therefore, being wrong can activate the opposite feelings—I’m stupid, I’m simple-minded, I lack foresight. So when a trade moves against you, it conjures up feelings that move against your ego. Novice traders see losing trades as a failure, a sign that their inadequate. This compels them to resist taking their pre-defined loss, and thus moving their stop-loss further down (or up in the case of short-selling), in hopes that price will turn around and move in their favor. This is always a fatal mistake. Moving your stop-loss may work once or twice, but building the habit of moving it indiscriminately will ultimately lead to a blown account.

Dishonoring your stop-loss is an attempt to save the ego. In day trading, the only thing worth saving is your capital. Bond trader Tom Baldwin had this to say about the ego: The best traders have no ego. You have to swallow your pride and get out of the losses.

Fear of Judgement

There’s a certain prestige in telling people that you day trade the markets. So if you lose money—even once—you could find yourself imagining others ridiculing you for taking on this profession to start with. No one wants to be judged unfavorably. And taking a loss, or having a string of losing trades, can lead one to believe that their losing credibility as a trader. The fear of social rejection can cause you to prolong a trade that should have been cut a long time ago. The fear of judgement, ironically, blurs your own judgement.

Price and Prejudice

Your greatest adversary can often be your own mind, specifically when it succumbs to confirmation bias. This bias occurs when you seek and interpret market data in a way that aligns with your existing beliefs, creating a dangerous prejudice against any contradictory information.

Let's say you place a trade, firmly believing that the price action will move in your favor. But when the market takes an unexpected turn, instead of reassessing your position, discomfort sets in. It's challenging to accept that your initial analysis might not pan out like you thought. This discomfort can lead you down a risky path, where you overlook new market signals that contradict your expectations. The price movements are there, telling their story, but your bias blinds you.

It's a common tendency for people to favor actions that support their preconceived notions while attempting to fix or ignore evidence that doesn't. This psychological rigidity makes it hard for traders to admit they're wrong. You might start seeing the price on the chart as incorrect, waiting for the market to correct itself to align with your belief. Sadly, many traders don't realize the folly of this approach until it's too late.

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The markets have no ego, and they have no fear of judgement. The only confirmation the market gives you is in the form of your account balance. Sticking to your stop-loss can preserve your account and grant you the much-needed time to learn from your mistakes and hone your judgement-making abilities.

A stop-loss can also help with time management. Constantly monitoring a position, or multiple positions, can be draining to your mental capital. An automated stop-loss, or hard stop, eliminates the need for constant monitoring. Traders can set their stop-loss orders and have peace of