HOW TO SET RULES FOR PROFITABLE FOREX AND STOCK TRADING

I have always said and will say it again; Trading is about following your rules, everything else is amateur behaviour. This is part of what i train in trader enhancement.

Your rules should protect you from chasing the market ie early or late entries, protect you from over trading and over risking and keep you calm. In a nutshell, Only your rules put odds on your side.

Guess what, trading with no rules is like jumping into a river infested with crocodiles unable to swim and hoping and praying you will get out alive. Well, you may once survive miraculously, but soon the crocodiles' prayers will also be answered and they will have a tasty meal.

Our overall main objective is to become better traders every single week and make money monthly. One of the sure gauging ways is in our discipline and patience i.e the ability to follow our trading rules. Only and only then can we get a growing positive equity curve

Your rules should be as simple and precise as possible. No room for second guessing yourself or your system. So, lets use one of my trading systems: Shock wave trading system, as an example to show and explain how a simple rules check list should look like.

Shock wave trading system checklist

This checklist is the summary of the shock wave trading rules. Of course you can grow the table to fit the trades you take in a week.

So here is the thing, Summarise your trading system into a simple checklist just like one above. One that even a 5 year old can just check through.Very short and precise to help check your discipline and keep you on track weekly.

Let us look at a few rules in detail;

Just as i mentioned before, your rules should protect your acc and also be able to grow it consistently. In the shock wave system above, Maximum risk is 2%, assuming above acc is $1000, maximum risk on any trade is $20 and since minimum risk reward is 1:2, then minimum profit of any trade on the above acc would be $40. You can adjust the figures to match your account size.

 123.., represents the trades taken on a particular day, so every trade, check to see if you followed all the rules.

The entry rule is clear and emphasized with the word 'ONLY'. This is to protect you from entering too early or too late. Trade what you see not what you are thinking.

Stop Loss (SL) must be objective and technical. Shock wave is momentum strategy and its SL is on the previous congestion high(short)/low(buy). All am saying, is you must have a level where the market invalidates your trade and close out your position with your specified dollar risk.

Rules are there to enforce positive habits required for peak performance as trader. Forexample, journaling every trade is must rule and should be done immediately. Keeping records is one of least attended to yet one most important habits for profitable trading. Therefore making it a rule with help you grow it as a habit. The successful trader you want to become is engraved in your ability to set and religiously follow trading rules.

Its normal not be able to follow the rules all at once in the start weeks but with conscious deliberate effort, the boxes will all be checked right.

Aha, So what do you do every week?

• ·  Thank yourself first for the rules you have so far managed to follow consistently.
• ·   Check the rules where you are inconsistent.
• ·  Pick a rule among the inconsistent ones that you will must follow deliberately the next week until you have managed to follow all the rules.

It can take about 20 to 90 days of trading to be consistent depending on your level of commitment

The main aim of this trader enhancement series, Is to make our trading rules a part of us, just like driving or cooking.

The competition in the market arena is fierce, your only competitive edge are your rules.

Happy trading!