Importance of Trading Rules

By | May 8, 2014

Rules that I can live by: my rules have to be rules that I stand a good chance of keeping, not the kind that I will follow for one day and then give up the next. I’m not the kind of trader that can follow rules mechanically, like if x happens 3 times then do y.

•    Rules that I own: my rules must belong to me. They must be rules that I have adopted out of personal choice after careful thought to understand what exactly they mean to me, not out of a sense of having to follow the ’101 of trading’ or what someone else has told me. Why? Because if my rules do not feel like my rules, I will subconsciously reject them. I may do so anyway, as I have authority issues; but the more I can imbue my rules with a sense of having been chosen by me out of my own free will, the more likely it will be for my subconscious to embrace them.

•    Rules that are integral to my trading approach: my rules should be an integral part of how I trade, not bolted on. They should feel like they are facilitating, not restricting, what I do. A stop, for instance, should be perceived as an opportunity, by getting me out of a losing trade so I can reenter at better prices or as a trading signal indicating that I should reverse my bias. Similarly, a timeout should be perceived as giving the market sufficient time to get to where I think is the best location for a trade.

•    Rules that are tailored to my weaknesses: my rules should help me work around my weaknesses. In particular, they should keep me out of trouble on trend days, as it is on these days that I usually run into problems. They should be preventative rather than reactive, i.e. they should steer me clear of meltdowns, rather than try to guide what I do after I have already gotten into one, by which time it would be too late as I won’t have the composure to follow any rules.

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