Thursday October 2, 2025

Q: What specific advice is given for managing short trades, particularly concerning profit-taking and expectations?

All short trades at this time need to be treated like a 'microwave trade,' meaning the trader should 'see money, take money' and not expect follow-through. Shorts are considered extremely counter. If a trader uses the three-contract system and keeps a runner, they should make sure they are capturing part of the move. For those using one micro, options include following the trade at 50% and getting out, or allowing the stop to create a buffer the further the trade runs.

In an industry where instinct often leads to poor decisions, professional traders succeed by following counter-intuitive rules that prioritize discipline over ego. This article outlines four foundational principles from a seasoned futures trader, including the "Two-Loss Rule" and the importance of trade invalidation. These rules shift focus from prediction to process, urging traders to align with market structure rather than fight it. By building trading on a foundation of stewardship and clarity, traders gain not only profitability but long-term resilience.

☀️ AM BRIEFING

Introduction: The Hidden Rules of Trading

For many aspiring traders, the market feels like a constant battle. You feel like you're perpetually on the wrong side of a trend, fighting overwhelming momentum, or letting ego drive costly decisions. It's a frustrating cycle of taking one step forward and two steps back, leading to a drained account and diminished confidence.

This experience often stems from following common instincts that, while seemingly logical, are the exact opposite of what works.

Professional traders, in contrast, operate on a set of core principles that often seem counterintuitive to the novice. They have developed a psychological framework that prioritizes capital preservation and objectivity over the need to be "right." They understand that the real edge isn't found in a secret indicator but in unwavering discipline and a structured approach to managing both wins and losses.

This article distills four impactful, mindset-shifting rules from a professional trader's AM Briefing. These principles are designed to help you stop fighting the market, protect your capital, and trade with the clarity and conviction of a seasoned professional.

Rule #1: Your Second Loss Isn't a Mistake, It's a Message

Taking a loss is part of trading. Taking two consecutive losses while trying to trade in the same direction, however, is not a signal to try a third time. It's a critical message from the market that demands a systematic review, not an emotional reaction. The "Two-Loss Rule" provides a simple diagnostic process to follow.

First, check your mechanics. Was the trade based on a real, valid price level? Was your stop loss placed correctly according to your strategy? If you find a mechanical error, the problem is with execution. But if you can confirm that your mechanics were sound—that the level was valid and the stop was appropriate—you must move to the second step.

Second, question your bias. If your execution was correct but the trades still failed, the market is telling you that you are likely on the wrong side of the price action. The prevailing trend is moving against you, and your market thesis is probably wrong.

This rule is powerful because it replaces emotional responses like revenge trading with a logical, systematic review. It forces you to detach from your ego and confront objective market feedback.

"I took two losses in a row. Were they legit? Did I have a legit stop loss? Am I just on the wrong side of price action? Admit when you're wrong, make a change and get with the train or just remove yourself from the chart."

Rule #2: It’s Not About Being Right, It’s About Being Wrong Correctly

One of the most significant psychological shifts a trader can make is to reframe what a losing trade means. Instead of thinking "I am wrong," successful traders think, "The trade idea has been invalidated." This subtle change in language removes your ego from the equation and transforms a personal failure into an objective market event.

Every trade should be a hypothesis with a defined invalidation point. Before entering a position, the most important question is not "How much can I make?" but "At what price is this trade idea no longer valid?" When the market reaches that price, your hypothesis has been disproven. It's not a reflection of your intelligence or worth; it's simply data.

When a trade idea is invalidated, there is only one correct action: exit the position immediately. There is no hoping, waiting, or adjusting the stop. This mindset is the firewall between a manageable loss and a catastrophic one, protecting both your capital and your psychological well-being from the destructive need to be right.

"What's the most important thing about taking a trade? Where is the trade idea invalidated? It doesn't mean you are wrong. It's not about you being wrong or you being right. It's about was the trade idea valid. Where does it invalidate? When the trade proves to be invalidated you have to get out."

Rule #3: You Don’t Have to Be the First Seller

Imagine a market in a powerful, persistent uptrend. Price keeps climbing, pulling back briefly only to surge to new highs. In this environment, sellers seem to have vanished. A common and costly mistake for developing traders is to try to short this market, convinced that they can be the one to catch the exact top of the move.

The professional principle is simple: respect the dominant market force. In a strong trend, constantly fighting it by trying to be the "first seller" is a low-probability, high-risk endeavor. This doesn't mean a professional never takes a counter-trend trade, but they don't do it blindly.

Instead of guessing where the top might be, they wait for the market to provide objective evidence that the momentum may be shifting.

Micros Trader outlines exactly what this evidence looks like: a clear break of structure. Before even considering a short, he would need to see the price break a key trendline and move decisively to the downside. A professional doesn't fight the trend; they wait for a signal that the trend might be failing.

Until that signal appears, any counter-trend trades must be treated as extremely risky and short-lived "microwave trades"—get in, see a little money, and get out, without expecting any significant follow-through.

"There are no sellers guys. There are no sellers. You don't need to be the first seller."

Rule #4: Build Your Trading on a Sure Foundation

What is your trading truly built on? Is it a complex strategy, a new indicator, or the latest market chatter?

A professional trader understands that a successful career must be built on something more stable: a "sure foundation" of unshakable core principles. This concept draws a parallel between trading and building on a "precious cornerstone"—something that will not be shaken when tested.

This foundation isn't just about market tactics; it's about a disciplined philosophy that guides every decision. For Micros Trader, this foundation is comprised of several key tenets that serve as a constant guide regardless of market conditions.

Protecting capital above all else.
Being a good steward of the resources entrusted to you.
Trading only at "real," significant price levels.
Knowing which side of the price action to be on and having the discipline to stay there.

This reframing transforms trading from a purely financial gamble into an act of disciplined stewardship. The principles become practical tools: "being a good steward" translates directly to prudent risk management and avoiding excessive leverage. "Trading only at 'real' levels" instills the patience to wait for high-probability setups, which is the best defense against impulsive decisions when markets are volatile.

When your resolve is tested, returning to this solid foundation provides the clarity needed to navigate uncertainty.

Conclusion: The Real Edge

The path to consistent trading is paved not with complex indicators, but with a robust psychological framework. The real edge is found in discipline, radical self-awareness, and relentless risk management.

The "Two-Loss Rule" is the emergency brake that forces you to check your bias, while respecting the trend prevents you from needing that brake in the first place. Both are built on the ego-less principle of invalidation and are sustained by a commitment to stewardship.

By internalizing these seemingly counter-intuitive ideas, you can shift from fighting the market to trading in harmony with it. The ultimate goal is not just to be profitable, but to be resilient.

So, as you move forward in your trading journey, ask yourself this one question:

"What is the unshakable foundation your own trading is built on?"

❓ FREQUENTLY ASKED QUESTIONS

FREQUENTLY ASKED QUESTIONS – TRADING STRATEGY INSIGHTS

Question: If a trader takes two consecutive losses going in the same direction, what steps should they take to evaluate their position?

Answer: If a trader takes two losses going the same direction, they need to first ask if they had the proper mechanics, if their stop loss was in the correct location, and if the level traded was a real level. If these criteria were met, the trader must then move on to their bias, questioning why they keep countering the move, and admit if they are simply on the wrong side of price action. The advice is to either make a change and get with the prevailing trend or remove oneself from the chart.

Question: What specific advice is given for managing short trades, particularly concerning profit-taking and expectations?

Answer: All short trades at this time need to be treated like a "microwave trade," meaning the trader should "see money, take money" and not expect follow-through. Shorts are considered extremely counter. If a trader uses the three-contract system and keeps a runner, they should make sure they are capturing part of the move. For those using one micro, options include following the trade at 50% and getting out, or allowing the stop to create a buffer the further the trade runs.

Question: What are the news drivers for the trading day and the important market event scheduled for the following day?

Answer: Today's news drivers include unemployment claims. Additionally, the trading day is the day before non-farm payroll, which is described as a Level 10 event. The following day is non-farm payroll.