Common Mistakes: Not Following Rules

In this Article I would like to pick up where I left off regarding discipline. The two go hand in hand because now we are simply talking about the discipline to follow your rules, you know, the rules that make up your trading plan that you spent all that time on. Having a good solid trading plan that is based on plenty of research is useless if you don’t follow it, let’s take a look at what can happen.

So.. you sat down and you created the perfect trading plan, you defined your entry triggers, risk reward, trade management and money management. You spent a ton of time back testing and forward testing; you fine-tuned and made sure that these rules tip the scales in your favor and have a win rate of anywhere above 60%. You have a perfect trading plan and are ready to go, you start trading and experience your plan working, your confidence builds, your heart rate stops speeding up as you enter real money trades, and you are on your path to financial freedom. Sounds great right? So it should, after all that is what you should do and if you considered all the necessary points when creating your trading plan, you only had to follow it and enjoy the results.

Unfortunately it is quite common for traders not to follow their rules and it can take you down an ugly path. Let’s consider what can happen if you don’t follow your rules and win, what effect can that have? Simply put; you are now building confidence in not following your rules. If you haven’t put in the study time on these new conditions you are entering on, you have no idea what the win/loss ratio is. Your trading plan is now all over the place and you are essentially gambling. How can you analyze these loses, or even the wins, as part of your overall trading plan results?

The other scenario would be of course when you don’t follow your rules and lose. Getting emotional and angry is now much more likely because you know you didn’t follow your rules, you may convince yourself that you need to ”˜get it back’ right away so you can get back to your rules again. Unfortunately you will probably not follow your rules whilst trying because patience has likely left the building. Just another vicious circle from these ”˜common mistakes’ articles I have written. I’m sure you get the picture and I won’t insult your intelligence by going on and on. This article should serve as a reminder of this seemingly simple part of trading that is easy to forget

Just remember to create a solid trading plan before you start. Then follow your rules!