Do I really need a set of rules? I don think so! What do you think?

Do I really need a set of rules? I don think so!

Hello dear traders!

I’ve been trading currencies for last 2 years or so and I also write a blog about forex. I have learned a lot of basics since I started trading and I even managed to earn over %100 with my $3000 DEMO account in last 6 months. I think that I traded for too long with my DEMO account, so I decided to open a real one, but I need to ask you something first.

Whenever I read some books or watch videos about Forex, people always say that you must have a set of rules when to enter a trade, when to exit the trade etc. I increased my DEMO account by %100 without these rules. I only had rules when NOT to enter a trade because I simply can’t say “OK, I will enter a EUR/USD trade on a daily chart when 20 EMA crosses over 50 EMA and I will put my S/L 50 pips below and my T/P 100 pips above” because every chart is different. I think Forex is a changing market and you have to look at the chart to see what’s happening. You have to draw support/resistance (they are different every time you draw them) to see where you could put your S/L and T/P, you have to watch Fibonacci levels…Do you agree with me? Do I really must have a set of rules when entering a trade?

yes you must have rules

Looks like you do have rules. Maybe not down on paper, but in your mind. Think about it. Exactly why do you enter a trade? Trending? Thresholds hit? Etc…
Money management. Surely you have something in mind. Trade management. When do you get out?
Your probably more in touch with you memory and don’t need to write things down, like the most of us. (me anyway)

Yes, I do have some kind of rules. I mostly trade price action signals. I look at the chart and draw S/R levels, fib and insert some moving averages, and then I wait for a candlestick signal (pin bars, dojis, engulfing bars or large bars that confirm the change of a recent trend). In the end, I look at my set of indicators that confirm my trade. I put S/L based on S/R levels or Fibonacci lines or moving averages (it depends on the chart) and make sure my risk/reward ratio is at least 1:2. This is how I trade but I don’t have a strict set of rules. Is this OK?

Look up rules in the dictionary, you might want to compare the definition to your original post

lol, good one gp

i admire you self confidence, really.
yet, get prepared to go slightly or much more mad (i.e. mentally ill) if you plan to do the same with real money, even if you don’t need the dough.

trading is chaotic enough on its own for somebody to add over it.

why not taking it easy and adopt some simple set of rules? at least in the beginning and until trading becomes the trader’s nature?

good luck

The number one maxim for every trader should be: “cut losers quickly and maximize winners.” You can’t do that without having a set of risk and trade management rules that are well executed. When it comes to the framework for determining direction or how to handle changes in volatility, I kinda agree with the OP. Instead of hard rules, well thought out guidelines may be a better framework to adapt to changing market behavior. But as a caveat, I think it all depends on your timeframe framework; longer-term traders don’t have to make many directional moves and be more flexible with risk/trade management than short-term traders. My two pips!

By crating your own trading plan and trading strategy in order to become a successful trader you basically set up a set of rules and no matter you want or not you’ll have to follow those in order to succeed.

To get that 100% how much were you risking on each trade?

It seems you do have rules and writing these down will help you follow them when you start trading with real money, as you could trade your ‘rules’ on a demo fine but when money is on the line your logic will get clouded by emotion.

You can give yourself some leeway with your rules but if you decide you have no rules at all that is pretty much asking to wipe your account when you use real money.

If you’re averse to keeping mechanical rules, at a minimum you can employ a great methodology touted by Jason Stapleton called the “if” “then” approach.

Basically, you create a hard line notion in your mind that if scenario A is fulfilled, I will perform execution B.
Pre-trade: “If” we get a D1 close above 1.5 with an oversold stochastic and supporting volume, “then” I will take a long position targeting the next FIB level.

During the trade: “If” price closes below 1.45, “then” I will book for a loss. “If” price closes above 1.55 on supporting volume, “then” I will book half profit and trail my stop to break even targeting the next logical resistance zone.

It’s just a matter of sticking to that basic plan thereafter.
It helps if you write those two sentences down in ink before you trade. It kind of cements it in.

If you don’t have some system of “rules” in place, how do you know what worked and what doesn’t. Its called a business plan.

I agree 100%. Another mistake not only new but some that have been around for awhile make is to say my rules are not hard and fast. If something changes I make a change on the fly. Not following your rules because something changed works every time tile the one time when it doesn’t and you blow your account. The mindset of: oh oh something changed I better counter it; well it’s just got to change let me move my stop, or move my take profit. etc etc.

You make a set of rules based on (or should be based on) a trading method that [B][U]LONG TERM[/U][/B]
based on the probabilities will give you a better chance than average to have a positive result as opposed to a negative one; a money management plan that will [B][U]PROTECT[/U][/B] your account balance as well as build it; and to exercise [B][U]PATIENCE & DISCIPLINE[/U][/B] when executing your trading method and money management plan.

One negative result will not make or break your trading career, no more than 1 positive will. The idea is to apply the method and money management principles over the long term being disciplined and patient. Your entry, stop loss and profit targets are based on your rules which are (or should be) based on the relevant facts, options and evils before you risk your money.

Of course only my opinion
Gp

okay let me speak frankly…in this world of trading even if you got 1000s of working strategy it will definitely fail one or the other day…because we people are different with different thinking…the strategy that works to me may not work to you and the strategy that works to you may not works to me…once imagine if every one in the field of trading makes money easily then no one will come up with a broker site winning and loosing is usual but what you have to do is have same target in your mind for that day achieve it and go enjoy your life its that simple…target means you can’t make $1000 with an account balance of $100…know your ability and be in limits and wanted to tell that trading is not for the person who is greedy…and you know what…trading suits better for old people above 50 years because they will have patience and they won’t be too greedy and got no energy to sit in front of computer all the day…and when it comes to internet it has too much of information about trading, some blogger writes a blog that how helpful is bollinger bands and other guys writes a blog about simple moving averages so you by reading those two will get confused and finally will leave both…but the the fact is both works but seperatly not together …and about me i trade binary options with maintaining an account from upto 7 binary brokers…with my own strategy that came from lot of practice in demo first…and now i do the same thing fix some target in mind achieve that in time what it takes to and forget trading for next 24 hours…

and i’m sorry for this long explanation…

Hey - you dont have to have rules…!!! Only around 5% of traders do use rules…about 95% dont!!!

Looks to me as though you do have a set of rules, you just acknowledging them as such.
Many people write their rules down so that, if a possible trade doesn’t meet all the parameters, they don’t take it. Yours sound a little more relaxed but you are using them just the same.

my thoughts on the original question.

I don’t believe in hard and fast rules but you must have your own technique for technical analysis. A lot of traders trade on only Technical’s. Some institutional investors like Soros have a macro fund they only trade fundamentals but this means you need good information and data analysis.

That said, have what is known as the 3M’s. Method - Mind - Money management, in that order. The last being the most important. Those who see my trade posts will tell you I can be a bit flaky on the Mind and Method side but money management is what defines me. I have excellent runs and terrible runs were I will loose 3 or 4 trades in a row. I am having such a run now loosing 2 trades in a row those trades cost me £50 + commissions (Ouch!), however before this abysmal run I had about 6 consecutive wins of roughly £500 net of commissions. This keeps the account ordered.

My Method - Buy/Sell support and resistance breaks on volume or retests. In trending markets use Fibonacci to Set exit level.

My Mind - Only trade if you are relaxed and have most of the day to watch the market. Never trade on a tip EVER!

Money management - Never risk more than £30 on a trade and break even all trades at 15 pips (A good trade has momentum and should not whipsaw), reduce position size if on a consecutive loosing streak.

That’s it… The rest you make up as you go.

Like any business, you need a basic guide /rules, with the ability to be flexible as the situation warrants. I trade mostly long term/ fundamentals, but occasionally will see a sentiment /technical trade set up. For me, money management is key, having learned the hard way many times over 11 year (the last 3 years have been profitable).

While a demo account is a great way to learn platform and market basics, as well as strategy, nothing teaches like using a real trading account–emotions are fully engaged, which you must master, plus brokers play “broker games”.

Wishing you much success on your trading journey!