The Magic Numbers

Let me ask you an extremely important question. What is the optimum

number of trades that exhibit the highest probability of success

during a day, week, month, or year on a given security? The answer to this question may profoundly alter the way you currently

trade. Traders trade because they want to compound money over

the shortest period of time. In many cases, this leads to overtrading,

and some traders actually begin to gamble. This is particularly

true for scalpers, who typically make a large number of trades on

any given day. In training day traders who trade electronically, I

have found one of the biggest obstacles they need to overcome is

their compulsion to overtrade. For some, it's truly an addiction. If

not addressed, this addiction can lead to a painful withdrawal from

your trading account and ultimately end your life as a trader. You

know you have what I term traders addiction when you start rationalizing

reasons to make trade after trade. When you start finding

good reasons to make bad decisions, and when you can't sit at your

trading desk without clicking off 30 trades or more, you have

traders addiction. The ultimate disaster is trying to trade your way

out of a series of losing trades. If you do all of these things, then you

are an addict. Traders addiction is exacerbated by trading techniques

and strategies that are usually taught by electronic trading

firms. Overtrading is never in your best interest. Enter a trade only

when the probability and profitably is in your favor. Your goal is to

find a strategy and a methodology that fit your trading style and

benefit you. A good electronic trading firm should care about your

success and accommodate you.

What is the optimum number of trades that exhibit the highest

profitability and probability of success during a day, week, month,

or year on a given security? After years of trading experience and indepth

computer analysis, I have found the answer: three to five.

These are the magic numbers every trader should keep in mind

when trading. These magic numbers have a time-cycle correlation

associated with them. The first two hours of the trading day and the

last two and a half hours are the optimum times for the trader to

achieve the highest probability and profitability outcome. Make

only three to five trades per trading vehicle and try to limit your trading

to the first two hours and the last two hours of the trading day. By

following this approach you will be making the maximum number of

high-probability trades per trading vehicle during those times when

market volatility is in your favor and trend is usually obvious. If you trade in the middle of the day, you enter what is known as the

grinder, whereby you "grind away" most of your morning's profits in

increments of 1/8 or 1/4 point. Most traders who overtrade are addicted

to the action and find themselves in the grinder every day. Don't

overtrade, and remember the old adage, "There is a time and a

place for everything." Let's take a closer look at the numbers and

what they mean for the trader.

Let me ask you an extremely important question. What is the optimum

number of trades that exhibit the highest probability of success

during a day, week, month, or year on a given security? The answer to this question may profoundly alter the way you currently

trade. Traders trade because they want to compound money over

the shortest period of time. In many cases, this leads to overtrading,

and some traders actually begin to gamble. This is particularly

true for scalpers, who typically make a large number of trades on

any given day. In training day traders who trade electronically, I

have found one of the biggest obstacles they need to overcome is

their compulsion to overtrade. For some, it's truly an addiction. If

not addressed, this addiction can lead to a painful withdrawal from

your trading account and ultimately end your life as a trader. You

know you have what I term traders addiction when you start rationalizing

reasons to make trade after trade. When you start finding

good reasons to make bad decisions, and when you can't sit at your

trading desk without clicking off 30 trades or more, you have

traders addiction. The ultimate disaster is trying to trade your way

out of a series of losing trades. If you do all of these things, then you

are an addict. Traders addiction is exacerbated by trading techniques

and strategies that are usually taught by electronic trading

firms. Overtrading is never in your best interest. Enter a trade only

when the probability and profitably is in your favor. Your goal is to

find a strategy and a methodology that fit your trading style and

benefit you. A good electronic trading firm should care about your

success and accommodate you.

What is the optimum number of trades that exhibit the highest

profitability and probability of success during a day, week, month,

or year on a given security? After years of trading experience and indepth

computer analysis, I have found the answer: three to five.

These are the magic numbers every trader should keep in mind

when trading. These magic numbers have a time-cycle correlation

associated with them. The first two hours of the trading day and the

last two and a half hours are the optimum times for the trader to

achieve the highest probability and profitability outcome. Make

only three to five trades per trading vehicle and try to limit your trading

to the first two hours and the last two hours of the trading day. By

following this approach you will be making the maximum number of

high-probability trades per trading vehicle during those times when

market volatility is in your favor and trend is usually obvious. If you trade in the middle of the day, you enter what is known as the

grinder, whereby you "grind away" most of your morning's profits in

increments of 1/8 or 1/4 point. Most traders who overtrade are addicted

to the action and find themselves in the grinder every day. Don't

overtrade, and remember the old adage, "There is a time and a

place for everything." Let's take a closer look at the numbers and

what they mean for the trader.