Rule; noun, verb.

–noun: a principle or regulation governing conduct, action, procedure, arrangement, etc.: the rules of chess.

We exist in a world governed by rules. Rules of law, rules of physics, and rules of nature are each example(s) of parameters imposed on us, or our surrounding environment, either naturally or unnaturally.

Some rules are more rigid than others. When or if rules are broken there are typically consequences – mostly disastrous. Furthermore, even when a rule is broken and the outcome is favorable, such reward for bad behavior presents just as grave a hazard; being rewarded for bad behavior will cause more attempts at what worked better than the "system" or pre-defined rules until the law of big numbers catches up with you.

The breaking of the rules is what defines the "discretionary trader", of which there are two kinds: the ones that have BLOWN UP and the ones on their way to blowing up. Following the rules is a critical skill to become a successful trader.

Perhaps the most cerebral game of skill is chess. Chess has a zero luck factor and your fate, win or lose, is absolutely pure and sterile. In games that combine both skill and luck, such as poker or trading, the players who impose on themselves the most mathematically sound, logical, well planned, and pragmatic sets of rules invariably rise to the top. Rules exponentially increase your chance of winning in any game involving skill, luck, or both. I compiled a list of what I believe to be some very important rules of trading to set you on a path toward consistently profitable trading.

Prepare to Trade

Preparation

pre-pare- [pri-pair] verb (used without object)

1. To put things or oneself in readiness; get ready: to prepare for war.

A successful trader is no different than a great military strategist or a champion tournament poker player. Their battles are typically won before the first shot is fired or the first hand dealt.

The rules I have listed below are a primer for your trading success. These rules will be amended periodically as market conditions warrant (or “initial conditions” change) but are a basic foundation for any market environment.

The #1 RULE is to DEFINE your edge - If 90% of people lose trading its probably best to not start trading until you can define your EDGE in writing.

Now answer these questions BEFORE starting your campaign:

How long will this "campaign" (or “test”) run (i.e., 30 days, 90 days…)?

How much total risk capital will you contribute to the total campaign or premise?

Which and how many vehicles will you trade?

What is your "Daily dollar stop loss" per system ?

What is your "Monthly dollar stop loss" per system ?

What is your bet sizing plan if things are going well?

Once the above foundation is set, then follow the protocol - - also you must make a protocol for changing the protocol in advance.

Also, when it’s time to trade, I suggest you arrive 10- 20 minutes ahead of your scheduled trading hours so as not to charge in the door and start punching buttons.

For me personally, I feel its key to have the lab cleaned up, clear off my desk, get whatever beverages and meals prepared, address and clear off all my voicemails/emails/texts, turn off cell phones, and eliminate as many distractions that can interrupt the designated trading session. Inform family and friends and share with them that these designated hours you are unavailable except for emergencies.

Study the various financial news outlets such as; CNBC, Reuters, Bloomberg, Forex Factory for any news items relative to whatever vehicle you are trading, or market conditions in general. Know the trading calendar(s) for the financial indices, energies, currencies, or other commodities you plan on trading. Know When Not to Trade – like 5 minutes before the Fed's interest rate policy meeting announcement or right into the Oil inventory numbers release each Wednesday at 10:30 am etc.

If you are trading manually then review the vehicle(s) you are preparing to trade in terms of: average true range (ATR), volatility, percentage movements, current trend, and volume since your last session in the subject vehicle.

Always analyze and review the status of your current campaign. You should constantly analyze your campaign. Another suggested tool is a trading journal so you can review both the good and bad results and document the causality and look for ways to improve for the next campaign.

Lastly, BEFORE you leave your trading area, VERIFY that you have NO "open orders", have a redundant backup process to make sure that you don't wake up and find yourself in a trade!

Bonus rule: IF you EVER have a "trading error" close your eyes and cover at "the market" period ! - - try and NOT make errors! They, besides slippage and commissions are the destroyers on your monthly P&L...

Being prepared is an ongoing effort and process. Some of the rules listed above will simply become part of your routine. The key is to prepare and not become lazy or complacent - - I will strongly suggest that when it comes to trading: you are either getting better or getting worse - - Entropy or changes in "Initial conditions" are NOT your friends ... You should begin every session by running over you own set of rules much like a commercial pilot runs through a pre-flight check list.