Big Mike's Trading Blog

Day trading futures, discussing money management and trade management techniques, and more

Can you follow your trading rules?

Why is it so hard to follow your rules?

For this short post I will use my life-long friend Gary as the guinea pig in the example

Most everyone has a very hard time following their rules in the beginning. After months or years of struggling and financial losses, your mind is in self-preservation mode and every action it takes is almost always in direct conflict with the necessary actions to trade successfully.

I won't get into the psychology of why, but I will cite a simple and true example. I hope Gary doesn't mind

Yesterday Gary and I were on the phone talking about some mistakes we see traders making over and over on the forum. And our conversation reminded me of a particular instance that happened a long time ago with Gary and I. I recalled it and we both had a good laugh.

What I remembered was that a long time ago when Gary was first developing a new strategy, and he and I were on Skype together as we often are, trading... Gary entered a position. It was working fine, in his favor. He then began to question himself. He and I have different charts, keep in mind.

I said something like "why are you questioning this?" because it looked fine to me, nothing had changed to make me think it was going to fail. And he kept saying "I don't like it." but when I asked him why, he couldn't answer, at least not with specifics. I reminded him, "hey this looks fine to me, follow your rules" but he kept saying no, he was going to just take it off. I think he had suffered from a couple stops in the day before this trade and was second guessing his strategy. Remember, he worked a long time on developing this strategy and had sim traded it for a long time, but didn't have much experience trading it cash yet. This was a cash trade.

So I knew his rules loosely, and even though I didn't have his chart in front of me, I kept reminding him "hey, your rules say to stay in until xyz, right?". Of course they do, but his response was "yes, but I just don't like it. Something isn't right".

So now I am starting to raise my voice a bit because it's like I need to "snap him out of it". I am getting to the point where I am like "Gary! Follow your damn rules! There is nothing wrong with this trade! You can't even tell me what you don't like about it!".

Still, Gary is acting like he is going to pull the trade any moment. Why? Because he is up, enough to cover his prior losses probably, and is mind is in overdrive to protect itself, screaming at him to EXIT!!!! But in trading it's all about probabilities, and all about discipline. It's very little to do with where you enter, it's everything to do with what happens next and where you exit.

Gary spent months working on this system and then traded it sim for weeks and was killing it. Yet when he went to cash with it he relapsed into old ways of not following his rules. I could sit there on skype, yelling "Gary! Why are you even CONSIDERING not following your rules?!?! Don't you remember where that gets you!!?! Don't you know that you MUST. FOLLOW. YOUR. RULES.!!!!!!" and yet he was still just barely listening, his mind was blocking me out, the fear was taking over.

Now, this story has a happy ending. During the 3 or 5 minutes I was having this "conversation" with him, it popped. He was now up two times as big as before, then three, then four times. I convinced him to follow his rules and because of it he ended up taking a huge winner.

What does this tell you? Gary and I have been friends for over 15 years. We've been through a lot of stuff together. Yet even with me YELLING at him to not take the trade off, and to follow his rules for the love of pete, he almost didn't.

So you can imagine how hard it is for someone who doesn't have that person in the background telling them they need to follow their rules 10 times over and over... that person would almost certainly NOT follow the rules. And of course then they beat themselves up, which leads to a whole new set of problems which ultimately causes them to have even more fear.

Anyway, I wanted to share this little story because I wanted to underscore the importance of psychology in trading. It's not indicators that make you win or lose. It's what you do in the above situation. This is the mountain you have to climb in your trading career before you can be successful. All the way up the mountain, you are struggling and gasping for breath, afraid you will fall, avalanche, everything. But once you get to the summit you have a real sense of accomplishment, a real sense of pride, you conquered your fear, and now each time you climb that mountain in the future it is easier and easier.



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