Individual traders rules

Theory
07.12.2023
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Individual trader rules are each trader’s personal rules, made based on their style, psychology, risk management, and trading methods. These rules restrict or push the trader into predetermined periods or formations in the market. 

Such rules are usually written down in Google Docs, Word, or if you are old school, notebooks. Individual trader rules play a critical role in market success. They help a trader stay disciplined, and unemotional and avoid rash decisions.

How to develop rules for trading

Personal experience

Such rules are developed after a negative experience — bumps that the market could reward a trader with. To develop rules you should analyze all your trades and see at what moments you showed the best and the worst results. It is important to consider timings, market sentiment, economic dates, etc. 

For example, at the time of the Fed rate release and the subsequent press conference, the market is too volatile and the trader’s positions were often demolished. In this case, you should make it a rule not to trade during the Fed rate. 

The same with IPOs, ICOs, IDOs, etc. All this can be found in your own journal and with proper analytics you can develop your own rules.

Other people’s mistakes

What do you do if the proper experience is not available? For example, this is an unfamiliar market for you, or you haven’t traded at all yet. So you need to study the experience of others. Read books, and articles, watch videos, and communicate in chat rooms. Study the mistakes of others, so that you do not lose your trading capital through their experience. 

Be realistic

The last point is to be realistic about yourself. Very often a trader gives too many “chances” to an asset, pattern, signal from indicators, and so on. Do not blur your perception with banal sympathy. 

Do not be afraid to experiment with different rules and adapt them to your needs. Over time, you will be able to develop a set of rules that will help you succeed in the market. 

Rules for every trading style

You should review what you have written down depending on your trading style, as many scalper’s rules will not work for a long-term trader. Be realistic about your options, and don’t make the rules too rigid.

Scalping, intra-day trading 

There are a lot of trades in high-intensity trading, and it’s easy to make mistakes in it.

  • When opening a position, a trader must know where his entry point, target, stop and position volume are. If you do not know at least one point – do not open a position. 
  • Psychological aspects are also very important. For example, if a short-term trader “missed” the news and the subsequent entry point — do not trade. Often in such moments, FOMO is turned on and the subsequent reckless opening of a position. 
  • Before each trading day, a trader must “tune in” and calm down for 10-15 minutes. It is like meditation. This is what almost all successful short-term traders do and have done: Scott Redler, David Prince, and many others. It is important to stay disciplined and follow your rules, even if the market moves in the opposite direction from your expectations.
  • The next point is risk and management. Based on your personal capital, you need to know how much risk to put in a day and in each individual transaction. For example, the stop for the day is $150, when this limit is reached, the trader does not trade, and the risk for each transaction is no more than $30. 
  • Another useful rule: if a trader loses money for 3 days in a row, then 1 day he does not trade, regardless of the market situation. If this trend continues for the next 3 days, trading stops for 2 days. And so continue until the trader gets into the rhythm of the market. 

The list can go on and on. Some do not trade in the morning, and some do not trade in the evening. One trader performs well during strong volatility, and another trader often loses on it. That is why the rules are called individual. They are designed for one’s own style and skills. 

Swing and medium-term trading

Despite the small number of trades, this style also requires rules. Individual rules from short-term trading will be useful here.

  • The main thing is not to hurry. A trader should always enter a position according to his targets. If you plan to buy VTS at $30,000, then open a position at this price. It is not uncommon for traders to enter at $32,000 or higher, and as a result, all the planned risk management has to be redone on the fly. Always remember that the market will still provide many good opportunities. 
  • Be sure to focus on the technical part. Set targets of 1:5 at least. And if the stop price hits – exit without hesitation. If the asset accelerates and hits your target — exit at 80% of the position, if slow – at 40%. As you can see, in these rules all concentration is on mechanics, like a computer. And no emotions. 

A trader needs to choose the tools that fit his trading strategy. Never trade something you don’t understand. Changing instruments without proper knowledge and limitations is fraught with loss of capital. 

Long-term trading and investing

In this style, you need to combine most of the rules that were described above. 

  • Special attention is paid to the search. The choice of an asset for purchase is made by fundamental analysis. 
  • A trader always opens a position based on facts, not opinions. The Earth is flat – an opinion, the Earth is spherical — a fact. 

All the above rules are not constants. They may not work for someone, but they will be maximally useful for someone else. Behind the development of individual rules is the huge analytical work of each trader. Do not stop only on the described in this article, create your own.

Conclusion

Individual rules are an integral part of any trader’s trading strategy. These rules are mostly based on their experience and are designed to make trading disciplined and unemotional. Using them often, a trader will learn to follow them automatically. This will certainly affect the trading results.

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