Trading System, Trading Rules and the Trading Plan

Today Nifty opened Gap Down and than continued its downtrend till it reached the 4842 levels set up a panic bottom than a pullback and than again a decline before closing hours.How many traders blindly shorted at open levels and end up in losses and How many must be averaging there longs at 5100-5000 levels only based on there emotions and intuition. As a Trader you should always trade on your trading system not with your emotions.

Buy and Sell only when your levels comes not on your emotions.

I have interacted with many traders and mostly are trading on der emotions never on there system or levels which is one of the reason why they loose money.

 Trading System is how a trader selects and executes trades.

Trading Rules is how a trader implements the total Trading System

Trading Plan is the total, detailed plan of how a trader plans to achieve pre-determined goals and how to measure progress toward those goals.

 

I have discussed about Trading System(Click on Link) on this post

Trading rules are procedures established by the trader to help insure that the trading system is executed consistently.  For example, if you change your stop loss from 5% to 8%, this might change the win-loss ratio. Another example might be that if you run into a streak of losses, your trading rules might stipulate that you stop trading for one week. If you violate that rule, you may start to force trades that you might otherwise not enter. Trading rules are established to help build strict consistency on every trade.

 

Trading Rules helps in many aspects For example, if you find yourself overly influenced by the opinions of others, you might make a rule that you will not subscribe to any form of trading “guidance” such as newsletters, watch investment “experts” on TV or even ask others for their opinion about a trade. Indeed, you are the expert on your own system.

To establish the most effective rules requires knowledge of yourself and the honesty to know and accept your weaknesses.

Examples Of Trading Rules

1) Do research early in the morning before trading.
2) Do not act on trading advice unless it checks with the filters and is within the scope of your expertise and trading plan.
3) Do not trade more than 5% of the account balance on any one trade.
4) Trade no more than 15% of the account balance on any one day.
5) Follow the trading system checklist on each trade.
6) If making any alteration to trading procedures, enter that into the trading journal and highlight.
7) Stop trading if:

•  If the trading account is drawn down below 35%

• If you have lost five consecutive trades.

•  If you are tired, ill, emotionally upset, pressed for time or otherwise distracted.

• If you are going on vacation. (smell the flowers)

• If you are not comfortable trading in the current state of the markets.

•  If you feel that you are trying to make up for losses.

“Don’t think about what the market’s going to do; you have absolutely no control over that. Think about what you’re going to do if it gets there. In particular, you should spend no time at all thinking about those rosy scenarios in which the market goes your way, since in those situations, there’s nothing more for you to do. Focus instead on those things you want least to happen and on what your response will be.”