“Use risk guidelines but don’t believe in rules” – Colm O’Shea

“Every market has a rhythm, and our job as traders is to get in sync with that rhythm.” – Anonymous, Market Wizard

Traders tend to look for a simple set of rules to guide their trading decisions.

This is the mythical search for the Holy Grail. It’s not real, and even if it were, your time spent searching for it can be employed more fruitfully elsewhere.

It’s not helpful to project your hopes and desires onto a set of “fool-proof” rules that don’t really exist. Instead of believing in rules, believe in:

  1. Processes. Daily or weekly processes that keep you in sync and allow you to take the correct approach for what is going on at this very moment. To get better at trading, improve your processes not your rules.
  2. Risk guidelines and objectives. Use a carefully crafted set of objectives and position sizing strategies. You should absolutely control the amount and size of your positions so they achieve your goals.
  3. Principles. When faced with decisions, refer to your principles and your model of the market. Is what you are doing right now blindly following a rule, or is it aligned with the timeless principles of trading success?

The point isn’t to throw away your own rulebook and forsake all discipline. The point is to realise that your rulebook won’t always work, and develop the skills and confidence to bend your rules on the fly based on what simply makes sense.

Once you come to appreciate the market for the adapt-or-die environment that it is, you will be astonished you ever tried to trade a rigid set of rules.

When you are truly in sync with the market, you are trading towards your objectives and making decisions based on timeless principles. This is a much better framework than buying because a back-tested indicator combo tells you to.



About the Author

Sam Eder is a currency trader and author of the Definitive Guide to Developing a Winning Forex Trading System and the Advanced Forex Course for Smart Traders (get free access). He is the owner of a provider of Forex signals from ex-bank and hedge fund traders (get a free trial). If you like Sam’s writing you can subscribe to his newsletter.