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You don't need to follow trading rules

We’ve all heard the proselytizers of trade planning bemoan lesser traders that they need to follow their trade rules. Yet, emotional traders still dominate the retail trading landscape. After hearing about how bad they are for acting as they do, they flagellate themselves for allowing emotion to enter into their trading decisions and re-dedicate themselves to discipline trading without emotions. But who are we to judge why and how someone else trades with their money?

Of all the different types of trading styles, I find the emotional style of trading the most entertaining. It is more human and natural than a game of probability. There is personal stuff at stake. Anyone who preaches to you that you need to stop it and get a plan is really preaching to themselves. They are healing a wound, or trying to convince themselves that they no longer participate in the egregious activity of trading without one. They are essentially scared of their emotions.

You cannot detach yourself from your emotions. If you want to trade based on emotions, I support your decision. After all, it’s your money and it’s not my place to tell you what to do with it.

Rules. We think of them as ‘made to be broken’ for a good reason. Rules are limiting and suffocating. Yes, we need some basic ones in our lives, but as soon as a method of trading is defined as a rule, the inner workings of the imagination begins the task of find ways around it. It’s only natural. Our total human experience cannot be contained with stupid rules. And who is making these rules anyway? Why are they valid? We all know that rules are put in place because we basically don’t trust someone (maybe ourselves) to do the right thing when the time comes. (more…)

Respect the Pattern

Our view is that we need to respect the spirit of any pattern and not worry too much about the letter of the law, so to speak. Opens and closes on doji candles need not be exactly the same. Island gaps reversals (abandoned babies) need not have actual gaps. Why? Because 24-hour trading, decimalization, derivatives, etc… have changed the landscape and what constitutes an open and a close is now a very fuzzy proposition.

The financial markets are radically different than they were last century, last decade and even last year. The spirit of the tools still works because humans do the same old dumb (and occasionally) smart things over and over. It is the actual rules of the analysis that are questionable so keep it simple and you should be fine.

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