Do you really need trading rules to succeed in the trading game?

When we observe the laws of nature, science has proven there are certain outcomes that we can expect when following these laws.

When a plan is devised according to these laws, and executed to perfection, you can be absolutely certain that it will work.

For example, throw a ball into the air, and you can be certain that gravity will pull it back down to the earth. That’s the law of gravity.

Even on space missions, the exact landing times, fuel required, speed and so on can be planned down almost to the dot, because these are based on laws of nature.

Trading Rules

However, when playing the trading game, realize that the markets move because people cause them to move. Traders are the ones who decide when to buy, how much to buy, when to sell and how much to sell.

People don’t always act the way they “should”

When it comes to people, while the herds may be predictable at times, there is always the element of uncertainty. People don’t always act the way they “should”.

In the course of trading, even though you may have a trade set-up that signals a long trade, a major news release may cause the market to drop instead. Or it may not. This is an element of trading that many traders cannot accept and understand, because they want perfect, unbreakable trading rules that they can follow.

The nature of the trading game is such that history only repeats itself when it does, and the herds only behave the way they should when they do.

Once you can understand and accept this fact of the trading game, you’re way ahead of the trading masses.

Conclusion

With so much said about the uncertainty of trading, does it make sense to have trading rules?

When you have a trading system and rules that you can trade with confidence, knowing that over a series of trades you should end up profitable, following the rules removes the emotional decision-making characterized by so many losing traders.

You really don’t want to change your plan of action in the middle of a trade, and then realize that if you had followed your rules over a series of trades, you would have ended up profitable. The emotional effect on your trading psyche may cause you to become frustrated and unbalanced, moving you further away from ‘trading in the zone’.

It’s usually best to review and adjust your trading plan with a cool head

If you do need to change or adjust your trading plan, then it’s usually best to do it when you have closed out your positions. With no money in the market, there is no risk of loss or the heady anticipation of gain. You’ll be able to review and adjust your trading plan with a cool head.

In the end, trading is about making your best educated guess and living with the results. That’s why time and again, I emphasize so strongly on risk & money management. With proper money management, even when the results aren’t what you expect, they won’t be so bad to force you out of the trading game entirely.