After a long time of working with many traders, one discovers that there are certain truths that cannot be denied. There are four things that are done so consistently wrong by new traders, that each of these mistakes results in bad trades 90% of the time for most traders. If traders would simply follow these four rules, they would eliminate most of their losing trades. The fourth rule does not really fall into this “90%” category, but is perhaps the most important.

Here is the first rule, and the subject of this lesson. New traders are so bad at managing trades, that their results would be incredibly improved by not managing at all. If you do not manage, it means you let your trade play out until it hits the target(s), or stops out. Nothing else. This is called ‘All or Nothing’ trading.

We teach three ways to manage trades. Using the eight or twenty period moving average, using pivots, or using bar by bar (when a very close trail is desired). Each of these systems works beautifully. So what is the problem? Traders do NOT follow them. Due to the emotions of trading, traders find excuses to override them. Most new trader’s goals are to lock in small profits to avoid losses at all costs, and they change their management in the middle of the trade.

Do you do this? There is a 90% chance you do. Here is how to find out. Go BACK in your records (do not do this going forward, it will not work) and take your last 20 trades and write down your entry, stop, target, and actual exit. Now go back to the chart, and see what would have happened if you did not manage the trade. Simply see if you hit the stop or the target first. Make a new column on your sheet and write this down. Then figure the profit for the ‘new’ column called AON for 'All or Nothing’. If the trade stopped, you lose your risk amount, what ever it is (hopefully just 1R or One Risk Unit). If you hit a target, you may have a gain that is multiple times your loss. Compare which way you would have made more money, and be sitting down when you do this. Feel free to email your results to services@vcmtrading.com. By the way, if you feel like you really are ‘getting’ the concepts of trading, and you find you have good chart reading abilities and you have more winners that losers, but your account is not growing, you are in this category.

This works, because many good plays get to very nice targets. However, if the trader is not in the trade, they never make the big money. Many traders get in the habit of taking normal losses (they have learned to follow stops) but they take small gains. It is hard to make money like this. Below is the five minute chart of ZQK, with an inset of the daily chart.

On this day, ZQK gapped up on the daily chart, out of a daily VCM buy setup that had pulled back to the daily rising 20 period moving average. The gap almost cleared the ‘half-red’ prior bar. This is a bullish gap, so buying an early morning pullback would make an excellent entry. On the chart above, a five minute VCM buy setup triggered at ‘1’, and was an excellent entry for this play. Many traders have learned how to do plays like this. What separates the pros from the novices if who really takes home serious money from this play.

Since this play was a bullish gap on a bullish daily chart, we know there is potential to move up a significant amount, even on an intraday basis. So we pull out the hourly chart and look for a ‘target area’. This hourly chart is inset in the chart below, and the ‘star’ marks the target. This is the first base we encounter in the general area of a solid day’s move. It is at 2.80 – 2.85. So we are in the play, and have a target area selected. The only variable is management.

Please notice something. If you used the 20 period moving average as your management trail stop, you would have been in this trade to the target of 2.85 (when using the moving average, you don’t ‘exit’ when touching it, you exit when the ‘touching’ bar is traded under). Notice if you used pivots, (if you don’t know what these are, the purple arrows have marked off five or two minute pivots of some kind) you would have achieved the target of 2.85. However, 90% of the traders using these methods don’t hit their targets. All of those purple areas (which coincidentally were a form of a pivot) are areas that traders use as an excuse to exit the trade. Most traders would have exited at the first arrow, for a loss.

If you were to play this all or nothing, you would just set one order as a stop loss around 2.51, and then set another order to sell at 2.85 then walk away for the day, or at least take this off your screen and leave it alone.

The bottom line is very simple. Use an all or nothing method of management UNTIL you prove that you can beat all or nothing with your own management ability. Do not underestimate the power of this lesson, for many traders it is the most important of the four.