What are the rules you should follow while trading?

What are the rules you should follow while trading?

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TRADING RULES

It’s kind of strange in a world with no rules (like trading) that it’s so important to have a specific set of rules that you follow religiously. I mean let’s be honest, trading really doesn’t have any rules. You can get in whenever you want. You can get out whenever you want. You can add and subtract to your existing position, and you can obviously decide simply not to trade. The only thing that could prevent you from participating is the lack of required money to trade. Other than that, you get to decide what you want to do and when you want to do it.

 

There are not to many other businesses that allow for that much freedom. Because there really aren’t any set rules, you’ll need to make your own. Otherwise, you’ll most likely be overwhelmed with all the different possibilities in the market.

 

If you decide to trade without any rules, I promise you will not be successful. Freedom is good, but you need to have what I call a “structured freedom.” Basically, that means you should be able to trade when you want to, but the trades you do need to fall under your set rules. Rules will help you be more consistent with your trading. They’ll help you avoid mental mistakes that can drain your account.

 

About once every six months I write a new set of trading rules for myself. These rules help me to be structured with my trading. And you know, it’s the strangest thing, when I have a bad day, it’s because I didn’t follow one or more of my rules. And, of course, the opposite is usually true. If I’ve had a good day trading, it’s because I did follow my rules.

 

No matter what type of trading you’re doing (swing trading, day trading, long-term trading), you’ll need to come up with your own set of rules to keep your trading structured. The problem is most people don’t want to make up their own rules, because if they did they would have to take responsibility for their results. And, as we all know, most people don’t want to take responsibility for their action. But, as we all know, the only way to be successful in trading is to take 100% responsibility and act in our own best interest.

 

I thought it might help you to see what my rules look like, and I’ll try to give an explanation of each rule as it applies to my trading. These are exactly how my rules look taped up to the side of my computer in my office:

 

RULES FOR TRADING

1) Always use a stop order. (I never put on a trade without a stop order.)

2) After 3 losing trades in one day, Stop Trading! (I want to avoid digging myself in a

huge hole.)

3) If I get 2000 rupees + profit in a trade, I will move my stop to break-even.

(If I get decent money in a trade, I will not allow myself to lose money on that trade.)

4) Only use a signal to get into the market. Don’t just take a shot. (I usually get myself

in trouble if I have a feeling about the market and act on it. I’m much more successful

when I use a chart formation or a technical reason to get into the market.)

5) Do not trade on holiday type volume. Too slow bad opportunities. Go outside,

watch a movie, whatever! (In almost every case, when I trade in these types of markets,

my winning trades are much smaller, and my losers are much bigger. It’s not worth it.)

6) Always act with your best interest in mind. (This is something I try and do with each

and every trade I put on. I realize that only I’m responsible for my results.)

7) Relax with your trades. If it’s not fun and enjoyable, it’s not worth doing.

(This is self-explanatory. If you don’t enjoy it, you won’t be successful.)

8) You don’t have to trade everyday. (Sometimes I’ll just leave the market alone and

forget about it for a day. It usually refreshes me.)

 

 

Those are the exact rules that I use each and everyday, and it’s almost automatic. In addition, I have strategy specific rules as well. After a bad day trading, I will look at my rules and see that I did not follow them like I should have. And again, the opposite is true. After a good day, I’ll look at them and see that I followed them very well.

 

I really believe my ability to follow those exact rules is a direct reflection of how much money I will make with my trading. The more I follow them, the better I trade. I’m quite sure the same thing will happen for you. Although I would say you’ll want to come up with your own set of rules. You can certainly use mine as a guide, but the important thing is you must be comfortable with the rules you come up with. I know that I’m very comfortable with my rules. You’ll need to do that with your rules. If you’re not comfortable, they will be very difficult for you to follow and the odds of you being profitable will be very low.

 

One thing that is common in trading is the temptation to not follow your rules just this one time. This comes from the very real possibility of the exciting results that are possible. This is the trap that many new traders (and some experienced ones too) fall into. This trap is easy to fall into because many people have a terrible fear of missing out on a big move. A good example would be when you see the Index move up 250 points and you feel as though you must find a way to go long even if it breaks many of your rules to do so. Avoid at all costs getting caught in that trap. Doing a trade because you’re afraid of missing out on a big move is not acting in your best interest. I’ve got news for you, there are big moves almost everyday.

 

Besides, most people do not think about missing those big moves in a realistic way. When you’ve missed an opportunity, you have a tendency to think about it unrealistically. You see the bottom and the top of the big move and think to yourself that you would have been able to capture the entire move. I think we all know that isn’t likely to happen. But our mind plays tricks on us and says we shouldn’t have missed out.

 

Again, the market doesn’t stop moving. If you weren’t able to get into the previous opportunity, look for the next one. Don’t let your mind play tricks on you. The more you follow your rules, the more you’ll trust yourself and the better your results will be. Remember, only you are responsible for your trading results, good or bad. Having a set of rules will help you get more good than bad.

 

 

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