Stock Exchange: Are Your Trading Rules Too Rigid?

Review: Do you have a Strategy?

Our previous Stock Exchange pointed to readers that while drawing lines not a chart is not a trading strategy by itself, it helps to visualize your strategies. A glance at your news feed will show that the key points remain relevant.

This Week: Are your Trading Rules Too Rigid?

While each of us might have definite rules for trading stocks, we should also see that the rules are not so rigid that we become incapable of using our own sense of judgement in a novel situation. As Pradeep Bonde has posted in StockBee: “The good skilled trader no longer relies on rigid rules, guidelines. They operate within certain framework of rules but they are not rigid.

They have flexibility to bend rules and guidelines as they dynamically read the situation and can change on the fly during the trade.” He also concludes saying: “In order to improve your trade performance you need to do hundreds of trades . Or study hundreds of past patterns”.

Pegasus has a nice explanation of the advantages of rules-based trading:

  • Setting rules allow you to be more discipline and it emotion when you you are analysing a trade setup.

  • Having rules allows you to formulate methodology based on preset criteria and to evaluate trading method.

  • It eliminate random trade entries and you know when exactly to buy or sell.

  • Trading with predefined rules, keeps you in a trade longer, no unnecessary trade stop-out because you are able to determine the trade direction more accurately.

  • Rules eliminate stress and gives confidence especially beginner traders.

Dr. Brett Steenbarger explains other techniques that traders can use kill the fear of failure in our trading.

He comes up with three techniques to kill the fear of failure: 1. Being mindful of our breathing to keep us grounded in the present, 2. Reassessing the severity of the threat of failure, and 3. Directing our Attention outward.

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