I was tidying up some files on my PC this week, when I came across a very early draft of some trading “rules” I set myself at the start of my career, in fact I jotted most of these down after just a few weeks of trading full time. I think all traders need to have a written trading plan, a blueprint for the way they trade, and this early list of rules eventually evolved and was incorporated into my own full trading plan.
A proper trading plan should not only contain a list of “do’s” and “do nots”, but should detail every single aspect of a traders day – their routine, the way they identify what they will be trading, how they determine where to enter and exit, where they will stop trading for the day, or week, or month, money management criteria, and so on. Every setup traded should be detailed, preferably with textbook examples. In this way, when a trader takes a loss they can look back at the trading plan and easily see if the loss was due to not trading correctly or simply a good trade that went against them. The more detail included in the trading plan, the more rigid a structure it imposes, the less room there is for emotion to enter the trading session along with all the irrational effects that has on ones judgement.
make a point of reading my plan at least once a week, and if I change it then I read it every day before I trade, until it is committed to memory.
Here are some of the bullet points from those old rules I found. They are all still in my current full trading plan in one form or another, perhaps you have some of them in yours too.
- Keep the chart simple. No matter how tempting it is to add new indicators, experience shows they always end up getting removed, so save the hassle and keep them out.
- There is ALWAYS another trade, don’t get impatient and jump into an almost-trade.
- If in doubt, get out. It’s easier to get back in, than to get out.
- Always take a break after two losing trades, or at any time when not feeling 100% focused.
- Never change strategy mid trade!
- Never move a stop back
- Never move a target forward – a moving target is hard to hit
- Don’t be greedy, take what a trade will give, but no more
- Keep an open mind, don’t make assumptions about what is going to happen next. (“The market can remain irrational longer than most people can remain solvent”).
- Keep away from distractions
- Never break the rules
- Know when to break the rules
- Never enter a trade that is not planned and in which I know where I will exit, whichever way it goes
Harvey can be contacted via his website, where you can also read about his day trading course