Trading Rules That Work
04/01/2007 12:00 am EST
The goal of Jason Alan Jankovsky’s new book, Trading Rules That Work, is an ambitious one: to not only provide twenty-eight rules that all traders should know, but also to explore the psychology behind the rules. Although the title refers to these statements as rules, Jankovsky treats them more as guidelines. However, he also hopes that traders will firmly adhere to the trading rules, aided by a firm understanding of the trading psychology. This flexibility and subjective nature is encapsulated in one, brief statement: “The rules are not the problem; it is making the rules work for you that is the problem.”
The book is broken into four sections: ‘Getting in the Game’, ‘Cutting Losses’, ‘Letting Profits Run’, and ‘Trader Maxims’. Within these sections, twenty-eight guidelines are discussed. The author provides these as a way for each trader to analyze their trading in order to develop their own rules. If the reader does not keep this in mind, they might find some of the rules inappropriate for their skill level. For example, while everyone should have a trading plan (Rule #2), beginning traders may have a hard enough time just making money consistently without worrying about adding to your winning trades (Rule #11).
That said, Jason does cover all of the bases, bringing up some rules which are not mentioned or emphasized in many trading books of a similar theme. Rule #2 is “Have A Trading Plan”, which, as it should be, is a common factor in most trading books. However, this is possibly due to the fact that we all run across so many traders that do not have one. One that I do not see as often is Rule #10, “Keep Good Records and Review Them”, a rule which I would agree is very important, as most successful traders stay successful by keeping good track of their trading. Slumps often occur when they become lax in their record keeping. This point is also reinforced in Rule #18, Know Your Ratios, where Jason has some very interesting points. In this chapter, he stresses analyzing your actual trading using the concepts of a ruin matrix, where ruin is defined as a 50% drawdown from starting equity. This will force you to look at the percentage of profitable trades and the average gain or loss on each trade. This, Jason believes, will allow you to refine and therefore improve your trading results. This is something I myself plan on trying.
Though this book is not an easy read there is some sound advice that will help traders get on (or stay on) the right track. He correctly points out that trading success is determined by what is inside the trader, not the market. This includes the importance of taking a break from trading, not letting trading adversely affect your personal or family life, and gives suggestions for how one can honestly analyze their trading. Though there is little discussion of actual trading methodology, any such focus is predominantly on the futures market, and Jason finds the volume and open interest data to be the most important in this situation. If you are not satisfied with your recent trading results and need a “tune up”, this book could help you find the right path.