Don't run with the masses. When all the news is bullish on a market and analysts are following each other like sheep with buy recommendations -- quietly head for the exit with your profits.

- Jim Wyckoff

Day Trading Not Your Style? We Can Help! Get a 30-day Trial of our Newsletter Here

Ready to Learn About Option Strategies?

Introduction to Options Trading Strategies, a new COMPLIMENTARY guide from RJO Futures, can help you get started. Featuring easy-to-understand explanations, concise examples and sample charts for basic options strategies, it's a must have tool for any level of trader.

Sign Up for Yours Today.

Hello again Fast Break readers. It's been my privilege through the years to provide you with some of my market analysis and educational features. I am very pleased to be providing Fast Break issues on behalf of the fine folks at RJO Futures. In producing each Fast Break report, it's my mission to ensure that after reading my report you will take away at least one valuable trading "nugget" that will enhance your own trading methodology.

In today's Fast Break issue, I'm going to discuss "10 More Valuable Trading Rules." Many of you have read my "Top 10" Trading rules. (If you have not, just send me an email at jim@jimwyckoff.com and I will email them to you.) Below are 10 more important trading rules that traders can add to their trading toolbox, or to their trading plans of action. These rules are not exclusive ones that I have discovered myself, but ones that I have picked up through the years by talking to successful traders and from reading informative books by successful traders. These rules are in no particular order of importance.

1. Don't trade markets about which you know very little. This is not to imply you have to be a fundamental expert on every market you wish to trade. However, you should know about what fundamentals are impacting, or could impact, a market you are contemplating trading. For example, a person who has only traded grains would not want to jump right into a Treasury Bond futures trade without first doing a bit of homework on how the bond market trades -- in what price increments (dollar amount per tick), trading hours, on what exchange the market trades, etc. A trader could pick up a Wall Street Journal and read the "Credit Markets" section for a week or so to become familiar with fundamental factors that influence the bond market. Also, consider this: Most traders enjoy the process of trading. If they did not, they would likely just hand their money over to a "fund manager" and give the manager discretionary control over their money. Learning and knowing what fundamental factors are impacting or could impact a market a trader is contemplating trading is part of the process (enjoyment) of trading.

2. Don't trade on "tips." I have been involved in the futures industry and trading for around 25 years and have never heard a good trading tip. Reason: There are not any -- at least not any that are any good for "regular guys" like you and me. Markets are way too big and too tightly regulated to be impacted by any tips or inside information. Any legitimate "early information" has almost certainly already been factored into the market price structure by the time off-floor traders could ever benefit from it. Don't confuse tips with rumors. Markets do move on rumors more than just occasionally. Rumors are a part of futures trading, but still fall into the category of "not of much use" to off-floor traders. Besides, many rumors are never confirmed as fact and are often self-serving to those who try to start them. When I was a reporter on the trading floors I would occasionally have traders walk up to me and try to plant a rumor with me, to try to get me to report it on the news wires. It never worked.

3. Don't get too fancy with your market orders. Entering a trade "at the market" with a market order may be the best way to enter a trading position -- especially in markets that are liquid (have high open interest). It's certainly the easiest way to enter. Fiddling around with limit or stop-limit, or other multi-step orders to save a tick or two or three can cost a trader a good entry point or even a missed trade altogether. I must admit that I have been guilty of this offense. I don't mean to imply that limit or stop-limit or other types of orders are not useful in certain circumstances, because indeed they are. However, the majority of entries into trades are best made "at the market." I compare this situation to pitchers in Major League baseball who "nibble" with their pitches around home plate. Most wind up with a walk instead of an out.

4. Don't form a new market opinion during trading hours. This rule goes hand in hand with the rule that says you need to stick to your trading plan of action. Day-to-day market "noise," or the minor up-and-down price fluctuations of a market, can be at least distracting to a trader and at most prompt the trader to make a hasty and not well-founded trading decision.

5. Don't force trades; if you don't see a trade, stand aside. I won't chase a market just to put on a trade. I try to exhibit the patience and discipline in trading. So should you. Patience and discipline have not been easy virtues for me to learn. I fit into the description of a typical futures trader: "Type A" personality, competitive nature, and I hate to wait in lines. (Just ask my wife!) However, I learned early on that if I wanted even a chance at success in this fascinating business, I had to control my impatience. If you happen to miss a trading opportunity because you waited too long, there will be other trading opportunities. Don't chase markets.

6. A good trade is usually profitable right from the beginning. This is more an observation than a rule, but it is still useful. If the market price moves "your way" in the first couple days after you've executed the trade, then odds are significantly higher that your trade will be a winner. This rule reinforces the notion that tight protective stops are an important part of trading success. I wrote a feature a while back entitled, "Don't Hold Your Breath Too Long While Under Water" that also addressed clinging to losing positions. If a straight futures trade is under water after two or three days, more times than not it's prudent to take a small loss and move on.

7. Watch open interest in future contracts, and especially in options. In any futures contract or futures options strike price you are contemplating trading, make sure to first check the open interest for that specific contract or strike price. If a futures contract or options strike price has a low open interest total, it is probably best to seek out a more liquid contract. Fills on both entry and exit can be tough and produce more slippage than is desired. Lumber futures and options have very low open interest totals. The U.S. Dollar Index options market also has low open interest.

8 . Know what you can and cannot control. You can control the market you want to trade. You can control the type of market order you want to give your broker. You can control when you want to enter the market. You can control the amount of contracts you wish to trade, and you can control when you want to exit the market. But you can't control the market. Knowing and prudently managing the market factors you can control and knowing that you cannot control the market gives you a trading edge.

9. Make the market's action confirm your opinions. If you've got a particular market on your "radar screen" for a trade, don't just jump in based on a hunch or a "gut feeling," or because you want to get a fill right away. Make the market first confirm your opinion. Make the market show you some strength if you want to be long, or make it show you some weakness if you want to be short.

10. Do not overtrade. Trying to trade too many markets, or too many contracts in one market, can create problems for a trader. There is no set rule for how many markets one trader should trade at one time. Some traders can trade many markets at one time and not have a problem. But if a trader is feeling stress or can't keep up with what's going on in all the markets he or she is trading, then the trader is likely over-trading. For those traders who are really not sure how many markets to trade at one time, or how many contracts to trade for each position, it's always better to take a conservative approach.

That's it for now. Next time I'll examine another important topic on your road to more trading success.

The risk of loss in trading commodity futures and options can be substantial. Before trading, you should carefully consider your financial position to determine if futures trading is appropriate. When trading futures and/or options, it is possible to lose more than the full value of your account. All funds committed should be risk capital. Past performance is not necessarily indicative of future results.

Jim Wyckoff is a contributing analyst for RJO Futures . He has spent nearly 25 years involved with the stock, financial and commodity markets. He was a financial journalist with what is now the Dow Jones Newswires service for many years, including stints as a reporter on the rough-and-tumble commodity futures trading floors in Chicago and New York. As a journalist, he has covered every futures market traded in the U.S., at one time or another. Not long after he began his career in financial/commodity market journalism, Jim began studying technical analysis. By studying chart patterns and other technical indicators, Jim realized the playing field could be leveled between the "professional insiders" in the markets and traders/analysts like him.

Ready to Learn About Option Strategies?

Introduction to Options Trading Strategies, a new COMPLIMENTARY guide from RJO Futures, can help you get started. Featuring easy-to-understand explanations, concise examples and sample charts for basic options strategies, it's a must have tool for any level of trader.

Sign Up for Yours Today.