September 22, 2014

My Trading Rules

Ask the best traders out there about the importance of trading rules and they'll unanimously agree that every trader needs well thought out trading rules.

Trading rules should be crafted to fit your trading style and should emphasize trading the best setups, risk management, trade management, and most importantly, systematic trading.

Systematic trading is the most effective antidote to emotional/unprofitable trading. If you know exactly what to do before you get into a trade, your emotions have a funny tendency of conceding defeat, "Well I want to freak out now, but I think he/she's got this trade under control." And then you evolve into a focused trading machine trained to take money from the volatile market.

Here are my trading rules to give you an idea:

1) Focus on great multiple time frame (MTF) chart patterns, then set a game plan.
2) Identify intraday chart patterns in relation to MTF chart patterns and react.
3) Identify the best with trend entry locations, stop out locations, and targets.
4) Adjust stops as the trade moves along.
5) How do you get back in if you get stopped out?

Based on research that is discussed in Dr. Brett Steenbarger's article about working memory, trading rules need to be short and simple enough for our working memory to handle. Otherwise, we risk undermining our ability to follow these rules in the heat of trading. If we don't follow our rules, we get emotional, over-trade and lose money, plain and simple.

Identify your trading rules for your style/system of trading, condense them as much as possible, apply them, and then analyze your performance. This routine will set up a powerful positive feedback cycle that will incrementally improve trading consistency and profitability.

Take care!
Jory

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