Golden Rules For Traders

In my overall plan for a new Forex life, I actually wrote down a list of “fifty golden rules for traders” in an Appendix to the written plan, and decided that when I have finished my plan, each and every one of these “requirements” will be evident or implied. If not, my plan is incomplete. Same applies to plan analysis and continuous improvement.
Good luck with your trading journey.

Rule Description Evidence in Plan (RTM1)
R1 Follow the trends The title of the Plan is: “Trend following Plan”
R2 Know why you are in the markets See goals quantitative statement
R3 Use a system, any system, and stick to it. Algorithm system
R4 Apply money management techniques to your trading. See Money Management section
R5 Do not overtrade Max 2%, max concurrent 5 trades
R6 Take a position only when you know where your profit goal is and where you are going to get out if the market goes against you See Entry criteria
R7 Trade with the trends, rather than trying to pick tops and bottoms See Strategy and Plan
R8 Don’t trade many markets with little capital Start with Forex Prime pairs
R9 Don’t just trade the volatile contracts Validate with Plan
R10 Calculate the risk/reward ratio before putting a trade on, then guard against holding it too long See Entry, management and exit criteria
R11 Establish your trading plans before the market opening to eliminate emotional reactions. Decide on entry points, exit points, and objectives. Subject your decisions to only minor changes during the session. Profits are for those who act, not react. Don’t change during the session unless you have a very good reason See trade journal cell content
R12 Follow your plan. Once a position is established and stops are selected, do not get out unless the stop is reached or the fundamental reason for taking the position changes See entry, management and exit criteria
R13 Use technical signals (charts) to maintain discipline. The vast majority of traders are not emotionally equipped to stay disciplined without some technical tools Challenge this in approach 99%/1% fundamental and sentiment analyses
R14 Have a disciplined, detailed trading plan for each trade. i.e., entry, objective, exit, with no changes unless hard data changes. Disciplined money management means intelligent trading allocation and risk management. The overall objective is end-of-year bottom line, not each individual trade Validate in the trading strategy and plan content
R15 When you have a successful trade, fight the natural tendency to give some of it back Validate in the trading strategy and plan
R16 Use a disciplined trade selection system…an organized, systematic process to eliminate impulse or emotional trading Validate in set up and entry criteria
R17 Trade with a plan-not with hope, greed, or fear. Plan where you will get in the market, how much you will risk on the trade, and where you will take your profits Validate in the entry criteria and journal
R18 Now to the ‘letting profits run’ side of the equation. This is even harder because who knows when those profits will stop running? Well, of course, no one does, but there are some things to consider. First of all, be aware that there is an urge in all of us to want to win…even if it’s only by a narrow margin. Most of us were raised that way. Win-even if it’s only by one touchdown, one point, or one run. Following that philosophy almost assures you of losing in the futures markets because the nature of trading futures usually means that there are more losers than winners. The winners are often big, big, big winners, not ‘one run’ winners. Here again, you have to fight human nature. Let’s say you’ve had several losses (like most traders), and now one of your positions is developing into a pretty good winner. The temptation to close it out is universally overwhelming. You’re sick about all those losses, and here’s a chance to cash in on a pretty good winner. You don’t want it to get away. Besides, it gives you a nice warm feeling to close out a winning position and tell yourself (and maybe even your friends) how smart you were (particularly if you’re beginning to doubt yourself because of all those past losers). That kind of reasoning and emotionalism have no place in futures trading; therefore, the next time you are about to close out a winning position, ask yourself why. If the cold, calculating, sound reasons you used to put on the position are still there, you should strongly consider staying. Of course, you can use trailing stops to protect your profits, but if you are exiting a winning position out of fear…don’t; out of greed…don’t; out of ego… don’t; out of impatience…don’t; out of anxiety…don’t; out of sound fundamental and/or technical reasoning…do Validate in the entry criteria and journal
R19 You can avoid the emotionalism, the second guessing, the wondering, the agonizing, if you have a sound trading plan (including price objectives, entry points, exit points, risk-reward ratios, stops, information about historical price levels, seasonal influences, government reports, prices of related markets, chart analysis, etc.) and follow it. Most traders don’t want to bother, they like to ‘wing it.’ Perhaps they think a plan might take the fun out of it for them. If you’re like that and trade futures for the fun of it, fine. If you’re trying to make money without a plan-forget it. Trading a sound, smart plan is the answer to cutting your losses short and letting your profits run Validate in the entry criteria and journal
R20 Do not overstay a good market. If you do, you are bound to overstay a bad one also Clarify
R21 Take your lumps, just be sure they are little lumps. Very successful traders generally have more losing trades than winning trades. They don’t have any hang-ups about admitting they’re wrong, and have the ability to close out losing positions quickly Philosophy of 99% / 1% algorithm
R22 Trade all positions in futures on a performance basis. The position must give a profit by the end of the third day after the position is taken, or else get out Applicable to swing trading. Build into management criteria
R23 Program your mind to accept many small losses. Program your mind to ‘sit still’ for a few large gains Validate in trade management plan
R24 Most people would rather own something (go long) than owe something (go short). Markets can (and should) also be traded from the short side Validate in entry criteria
R25 Watch for divergences in related markets-is one market making a new high and another not following? Clarify
R26 Recognize that fear, greed. ignorance, generosity, stupidity, impatience. self-delusion, etc., can cost you a lot more money than the market(s) going against you, and that there is no fundamental method to recognize these factors Risk management plan
R27 Don’t blindly follow computer trading. A computer trading plan is only as good as the program. As the old saying goes, 'Garbage in, garbage out. Applicable to EA development. Include in trade management plan
R28 Learn the basics of futures trading. It’s amazing how many people simply don’t know what they’re doing. They’re bound to lose, unless they have a strong broker to guide them and keep them out of trouble Understand value of underlying when trading and leverage for each trade
R29 Standing aside is a position In trading plan, set up, recognise that the “do nothing” option will often arise. So do not trade
R30 Client and broker must have rapport. Chemistry between account executive and client is very important; the odds of picking the right AE the first time are remote. Pick a broker who will protect you from yourself…greed, ego, fear, subconscious desire to lose (actually true with some traders). Ask someone who trades if they know a good futures broker. If you find one who has room for you, give him your account. Not applicable to Forex trading in 21st century, but ask Manchester Trading Club or other trusted traders for help here. SuperTraders.
R31 Sometimes, when things aren’t going well and you’re thinking about changing brokerage firms, think about just changing AEs instead. Phone the manager of the local office, let him describe some of the other AEs in the office, and see if any of them seem right enough to have a first meeting with. Don’t worry about getting your account executive in trouble; the office certainly would rather have you switch AEs than to lose your business altogether. Not applicable to Forex trading in 21st century, but ask Manchester Trading Club or other trusted traders for help here. SuperTraders.
R32 Broker/client psychology must be in tune, or else the broker and client should part company early in the program. Client and broker should be in touch repeatedly, so when the time comes, both parties are mentally programmed to take the necessary action without delay. Not applicable to Forex trading in 21st century, but ask Manchester Trading Club or other trusted traders for help here. SuperTraders.
R33 Most people do not have the time or the experience to trade futures profitably, so choosing a broker is the most important step to profitable futures trading. Not applicable to Forex trading in 21st century, but ask Manchester Trading Club or other trusted traders for help here. SuperTraders.
R34 When you go stale, get out of the markets for a while. Trading futures is demanding, and can be draining-especially when you’re losing. Step back; get away from it all to recharge your batteries. Backtest plans for last 3 months. If market has changed, you need another plan or type of plan. Validate confirmation indicators are still valid
R35 If you’re in futures simply for the thrill of gambling, you’ll probably lose because, chances are, the money does not mean as much to you as the excitement. Just knowing this about yourself may cause you to be more prudent, which could improve your trading record. Have a business-like approach to the markets. Anyone who is inclined to speculate in futures should look at speculation as a business, and treat it as such. Do not regard it as a pure gamble, as so many people do. If speculation is a business, anyone in that business should learn and understand it to the best of his/her ability. Continuously evaluate and quantify trading edge as “expectancy”. Use Tharp books and relearn Sharpe ratio.
R36 When you open an account with a broker, don’t just decide on the amount of money, decide on the length of time you should trade. This approach helps you conserve your equity, and helps avoid the Las Vegas approach of ‘Well, I’ll trade till my stake runs out.’ Experience shows that many who have been at it over a long period of time end up making money. Validate with money management plan
R37 Don’t trade on rumors. If you have, ask yourself this: ‘Over the long run, have I made money or lost money trading on rumors?’ O.K. then, stop it. Journal analysis of setup, entry, management and exit if trades are unsuccessful. Identify weaknesses and correct by adjusting trade plan setup and entry criteria
R38 Beware of all tips and inside information. Wait for the market’s action to tell you if the information you’ve obtained is accurate, then take a position with the developing trend. Backtest any and all systems. Use the six element Algorithm for all systems.
R39 Don’t trade unless you’re well financed…so that market action, not financial condition, dictates your entry and exit from the market. If you don’t start with enough money, you may not be able to hang in there if the market temporarily turns against you. Initial account is < £500. Create plan similar to that of Crypto that has funds increasing in three major, twelve minor increments that depend on positive account profit each step. Fund from precious metals
R40 Be more careful if you’re extra smart. Smart people very often put on a position a little too early. They see the potential for a price movement before it becomes actual. They become worn out or ‘tapped out,’ and aren’t around when a big move finally gets underway. They were too busy trading to make money. Identify entry candidates within trade plan. Stick to plan.
R41 Stay out of trouble, your first loss is your smallest loss. Stick to trade plan
R42 Analyze your losses. Learn from your losses. They’re expensive lessons; you paid for them. Most traders don’t learn from their mistakes because they don’t like to think about them. Trade journal, diary on entry, during trade management and on exit. Did this go according to plan?
R43 Survive! In futures trading, the ones who stay around long enough to be there when those ‘big moves’ come along are often successful. Monthly account balance review, does it match backtesting. Is it good enough?
R44 If you’re just getting into the markets, be a small trader for at least a year, then analyze your good trades and your bad ones. You can really learn more from your bad ones. Trade plan – does it have continuous improvement built in?
R45 Carry a notebook with you, and jot down interesting market information. Write down the market openings, price ranges, your fills, stop orders, and your own personal observations. Re-read your notes from time to time; use them to help analyze your performance. Maintain trade journal to a template. Test the template during demo trading and back testing.
R46 ‘Rome was not built in a day,’ and no real movement of importance takes place in one day. A speculator should have enough excess margin in his account to provide staying power so he can participate in big moves. Maintain 2% per trade for trade plan
R47 Take windfall profits (profits that have no sound reasons for occurring). Identify as such in trade journal
R48 Periodically redefine the kind of capital you have in the markets. If your personal financial situation changes and the risk capital becomes necessary capital, don’t wait for ‘just one more day’ or ‘one more price tick,’ get out right away. If you don’t, you’ll most likely start trading with your heart instead of your head, and then you’ll surely lose. In first year plan, protect independence of risk capital as 1%, then 2% of assets.
R49 Always use stop orders, always…always…always. Validate in entry criteria of trade plan
R50 Don’t use the markets to feed your need for excitement. Validate in algorithm and market entry criteria
11 Likes

@Mondeoman

Great list of observations - my concern is that having to memorize (let alone internalise) them all is a huge task…

I’ll give you mine, which enforces pretty much all of them.

Always assume your trade will be a loser!

It’s sound negative but the last thing we want is seat of your pants trading. By assuming every trade is a loser you’ll never stray far from the correct path

6 Likes

Even God himself only needed 10!!! This would need to be seriously shortened, given that this is mainly a forum for beginners. Any beginner reading this would throw up their hands in despair! Also somewhat undermines the idea of ‘golden’, in that these should be inviolable rules, and 50 would prove pretty much impossible to run together and not violate at some point. Perhaps having 5 ‘golden rules’ that you MUST stick to and then others that can be used as needed would be a much better approach?

1 Like

Each to his own. At work I am used to writing such stuff. It is normally waffled on about in “contracts” then some poor sod needs to write all this stuff up to ensure a customer has obtained “everything that has been promised”. I do not agree that each and every of these 50 things needs to be either memorized, or documented in a written plan. Many are implicit in the way in which either a Strategy or a Plan are put together. Anyway, we are encouraged to write our own, to be unique in our approach, at least to recognize that the market is in constant change, and that no one plan can ever expected to weather the test of time as the market changes (and spends most of its time moving sideways). I have just posted the first 10 days results of my live testing on something relatively simple that has helped me immensely in my progress. Over forty trades that took only ten days, I identified three “mistakes” and was able to quantify what that cost was and how it related to overall progress including mistakes, and what progress would have been without mistakes. Five years ago, that would never have entered my mind to take such action. Works for me.

2 Likes

Great. But I am not sure how to remember all that. It may be good to check all before making a trade or decision, but time will fail me.

I think you are right. It would be helpful if you could perhaps identify the main rules you feel would most help beginners avoid key mistakes and build their plans on a solid foundation.

Hi NickQ,
I will identify and republish a shorter list. May take a few days and a bit of grey matter

Hi Nick,
Surprisingly this only took me about 20 minutes, and it has helped me refocus on my own plan too, so thank you. I have changed some text in the third column, more as an aide memoir to myself.

Rule Description Evidence in Plan (RTM1)
1 R3 Use a system, any system, and stick to it. Algorithm system
2 R5 Do not overtrade Max 2%, max concurrent 5 trades
3 R6 Take a position only when you know where your profit goal is and where you are going to get out if the market goes against you See Entry criteria
4 R7 Trade with the trends, rather than trying to pick tops and bottoms See Strategy and Plan, which is a Trend Following Plan
5 R14 Have a disciplined, detailed trading plan for each trade. i.e., entry, objective, exit, with no changes unless hard data changes. Disciplined money management means intelligent trading allocation and risk management. The overall objective is end-of-year bottom line, not each individual trade Validate in the trading strategy and plan content
6 R23 Program your mind to accept many small losses. Program your mind to ‘sit still’ for a few large gains Validate in trade management plan
7 R29 Standing aside is a position In trading plan, set up, recognise that the “do nothing” option will often arise. So do not trade
8 R39 Don’t trade unless you’re well financed…so that market action, not financial condition, dictates your entry and exit from the market. If you don’t start with enough money, you may not be able to hang in there if the market temporarily turns against you. Initial account is < £500. Create plan similar to that of Crypto that has funds increasing in three major, twelve minor increments that depend on positive account profit each step. Fund from other investments or from savings on a regular basis.
9 R42 Analyze your losses. Learn from your losses. They’re expensive lessons; you paid for them. Most traders don’t learn from their mistakes because they don’t like to think about them. Trade journal, diary on entry, during trade management and on exit. Did this go according to plan? See BP post on trial analysis of Mistakes two weeks after live trading a proof of concept using templates set up to identify and analyze mistakes
10 R48 Periodically redefine the kind of capital you have in the markets. If your personal financial situation changes and the risk capital becomes necessary capital, don’t wait for ‘just one more day’ or ‘one more price tick,’ get out right away. If you don’t, you’ll most likely start trading with your heart instead of your head, and then you’ll surely lose. In first year plan, protect independence of risk capital as x%, then y% of assets, x and y being small numbers between 1% (mature adults) and 10% (younger adults). Plan to use a proportion of your savings to fund this. If you cannot make any savings regularly, ask yourself if you should be trading? If you want it badly enough, forego some other interest to fund it regularly, like anything else that is important to you.
6 Likes

I think that would be a great help! Thank you

Wow, this is great. R42, that’s a really good one. 49 should be higher up, at least for newbies to know. in bold, haha. Bookmarking this. No need to shorten at all!

1 Like

thanks man. for your great effort

Brilliant, this is a much more user friendly list! You even got it to 10!! :grinning: Thanks for this!

Hi NickQ,
I am about to set up some manual backtesting, and will create a journal before I start. I shall check the journal against this list of 10 (and also against the list of 50) to determine whether those golden rules are implicit within the trade journal, or if any need to be called out specifically (eg. “check the daily news for scheduled events, and the morning finance news for unscheduled events that may discourage me from entering a trade. Does that news impact my chosen currency pair? If not, don’t trade”.)

I will share any thing useful in the appropriate discussion forum

Sounds good, I think it’s important to keep the plan under review, but to have a core set of rules that don’t change!

Thank you. This will be a whole lot easier to remember.

Stick to a plan, that’ll help you be more disciplined. Most important, do not be greedy and do not over trade. Those are two things that can cost you too high.