Trading Rules
- The purpose– a good set of trading rules promote growth they do not create limitations. Not trading during x period of time is not a rule, it is a limitation. Do not get me wrong there are times when you need to limit yourself but that is not all times. If you have a plan, you will be able to understand when you are most at risk of trading poorly. Eventually, you can work through it. Sometimes all it takes is being aware of it.
- Simple-They need to be simple. They need to hang over and direct all of your actions. The only way you are going to remember and use them to your fullest ability is if you can understand them. Rules are more simple than limitations.
- Must apply– Rules or a trading plan are only as good as your ability to apply them. Once again, you have to believe in them, you have to make them your own.
- Cohesive- All rules needs to eventually act as one. Each rule dependent on another. This will make it easier to follow and understand which one you are breaking. This also makes the application easier.
Strategy
- Adaptable- a strategy must be able to adapt to a changing market. It must also be able to adapt to your internal changes. If nothing changes there would be limited chances for profit. Every trader must root for changes but it does not matter if you cannot adapt.
- Definable- there are times when you need to override your strategy but that happens for less frequently than we think. A majority of your trades you should have a definite reason for a action.
- Quickly explainable– if you can’t explain your strategy or reason for a trade in a minute or less it is probably too complicated. Until you fully understand your strategy a majority of your “indicators” are just putting a band-aid over a gaping wound that is your lack of understanding.
- Personal- You are an input into the way you execute. You cannot be something you are not. Do not get me wrong there are things about yourself that you need to bend to trading but strategy should not be that one. It is hard to fake being tall and expensive to be a type of trader you are not.