A few weeks ago, I gave you the Top 10 Rules to Incorporate into your trading plan. If you missed it, you can read about that here. Today I’ll provide you with 5 more rules that you can use to help you stay disciplined in your trading. You see, it is important to have rules to protect yourself from yourself. In the long run, trading is a statistics-based business. To survive in this game and become a great trader, adherence to a trading plan is vital. Only with consistent trading and execution will a trader see consistent results and outcomes.

1. Keep It Simple

A lot of new traders begin by trading with a bunch of technical indicators. Their charts are messy, and they get confused when the different indicators they have do not line up on different timeframes. Trading is a function of supply and demand. It’s that simple. In fact, a lot of pro traders I know only have VWAP (Volume Average Price) as their sole indicator along with volume. I like to use moving averages as well to give me an indication of the direction of the trend. My chart setup is very simple, I have the same indicators and trade-off the same timeframe. The complicated part of trading is analyzing companies, managing emotions, and finding the right stocks to trade. The trading setups I trade are very simple. As Leonardo DaVinci once said, simplicity is the ultimate sophistication.

2. Sometimes Trade Time Not Price

In order to make great trades you usually have to buy low and sell high or vice versa. At other times you have to buy high and sell higher if using a momentum breakout strategy for example. Traders can sometimes struggle with holding their winners longer. They struggle with the emotions of giving back profits and get uncomfortable seeing a profitable trade go back to where it came from. One way to overcome this is to strictly become a scalper, being in the market for seconds at a time. Many professional traders make a living trading this way.

However, if you want to become a swing trader and hold your trades for a bigger move, a great technique is to focus on trading time, not price. You see, the best trades will move the entire day, closing on the highs. Sometimes they will run for weeks. To capture a bigger piece of the move, you must focus on time, not the price of the stock. Have a stop in place, but let the trade work for hours or a couple of days based on the setup. Decide to do this before your trade, and then trade your plan. Slowly you will get used to the gyrations in stock price because you are trading time, not price!

3. Be Self Aware

Understanding yourself is a huge part of being a great trader. Not only are there patterns that repeat in the market, but there are behavioral patterns that repeat in a trader due to psychology. For example, I know that after I’ve had a great run of trades, that is when I can become complacent and have my worst trade ever. This used to happen as I started to trade bigger when I was doing well, but not being used to having had bad trades for a while, I would lose my discipline only to see a bad trade snowball out of control. This is why I keep a detailed trading journal, and when things are going well, I visualize making a bad trade to make sure I cut it fast so that it does not snowball. I don’t worry about a losing trade anymore, I am self-aware and worry about losing my trading discipline.

4. Trade What the Market Is Doing, Not What You Think it Should Do

A huge part of my trading strategy is analyzing stocks and coming up with a thesis, that is, a reason why a stock might continue higher or should pull back. After trading for a long time, I have seen a lot of crazy things happen in the market. The market can remain irrational longer than I can remain solvent. That is why when I am coming up with trade ideas, I make sure that I am not fighting the market.  

I prefer to trade with the trend. If I think a stock should go higher and the market is telling me it looks like it should go higher as well, that’s what I look for. I do not fight the market if I am wrong, I cut the trade and move on to the next trade. I rarely fade stocks and trade against the trend. And when I do, I make sure to be completely focused on risk management because I know stocks can go way further than I or anyone else thinks. As soon as I get emotional and feel uncomfortable that the market is wrong or a stock is up too much, I get the F out and wait for the market to give me a signal!

5. Keep Trading In Perspective

At the end of the day, trading is just a silly game we play. It is just a job, and there is way more to life than the stock market. This is the kind of perspective more experienced traders adopt because they have been through the wars. Traders that are around long enough all experience some huge setbacks that can be very painful. But they pick themselves up, dust themselves off and keep on moving.

Experienced traders understand that, over the long run, trading is just a numbers game. They have confidence in their trading setups and ability to adapt to changing market conditions. This knowledge gives them confidence in knowing that any setback can be overcome as it is just a matter of time. They focus on the process, day after day, not on outcomes out of their control.

Bottom Line

It is important to have rules to protect yourself from yourself. Emotions can get in the way of making logical decisions. Over the long run, trading is just a numbers game; that’s why experienced traders armed with great trading setups can overcome any setback. It is important to keep your trading simple and not overcomplicate things; patience is key. Trading time instead of price can help you hold your best trades for longer. Being self-aware will help you avoid repeating old habits detrimental to your trading over and over again. Trading what the market is doing instead of what you think it should do can help stop you from fighting the market and making bad trades worse. Finally, keeping trading in perspective can help you get over bad trades and live a full life that this job will complement and help you thrive instead of causing you pain and stress.

Jeff Bishop

One of the best traders anywhere, over the past 20 years Jeff’s made multi-millions trading stocks, ETFs, and options. He is renowned as an incredible trader with a deep insight and a sensitive pulse on the markets and the economy. Jeff Bishop is CEO and Co-Founder of RagingBull.com.

Even greater than his prowess as a trader is his skill and passion in teaching others how to trade and rake in profits while managing risk.

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