4 Rules Consistent Traders Won’t Break

03/22/2012 10:00 am EST


Sticking to a proven strategy and doing these four things consistently is what separates long-term traders from those who end up losing and eventually closing their accounts, writes NetPicks.com.

If you are serious about making money trading, I am sure you have taken a professional approach to trading. You have learned a little about the main drivers of a currency and are also well aware of what news announcements have the potential to move the markets the most.

You have zeroed in on a trading strategy that you are comfortable with and have ensured you have undertaken a backtesting time period, if you are able. The fact is, some strategies are almost impossible to backtest. You have sat in the live markets forward testing your strategy and are confident that over the long term, you can succeed with the strategy.

See related: The Most Complete Backtest You Can Do

Now, after months of practice, you have gone live with a real money account. The question is have you discovered one of the most important keys to succeeding? Some may even call it the “secret sauce” of being a profitable trader.

I don’t want to just hand over this “secret” and prefer to give you a situation we are all aware of.

You get in your car and head to a destination you know very well. You have traveled this route so often you could probably drive it with your eyes closed. The traffic is usually light, there are few traffic signals, and that road is solidly paved without any ruts.

One day, however, you decide that you are bored with that route. Perhaps one day, traffic was heavier than usual because of construction on an arterial road. Whatever the reason, you decide to deviate from the proven path and choose another. That decision leads you down a road that is full of potholes and the lights seem to be solid red as you slowly creep towards your destination.

Simply due to a minor inconvenience, you decide to abandon your path and pay for it in time lost and perhaps some suspension problems. You did not remain consistent in your approach.


The secret ingredient is doing the steps you have proven to yourself to be successful. You have made a trade plan that covers everything from instrument traded to risk percentage. You know exactly what to do when "X" happens. Every step you make is not guesswork or impulse. When you are faced with something unexpected, you have a rule to close your trades.

What occurs most of the time is someone enters the trading arena and once a patch of losers happens, they jump ship to another strategy. Not only that, they change their position sizing to make up for what they have lost, they overtrade, and the biggest thing is they begin to doubt their strategy.

See related: How to Repair Shaken Confidence

You are going to lose. You are going to have a few losses in a row, and that is just the nature of trading. You did the work and have seen that your strategy is a profitable one, and when you lose, this is not time to start doubting your strategy. Trading is not a one-act play. Trading is not a fling. Trading is a long-term commitment.

Hitting a rough spot is the time to go back over your records. See how last quarter played out. Perhaps you will notice that you had some very long streaks of profitable trading because you stuck to your strategy of letting winners run and cutting the losers off at the knees.

Maybe in your records you also logged how your “emotional spreadsheet” was doing. You find out that you were very fluid in your trading and have very little distractions outside of the markets. Life was a little stress-free. Your confidence with pulling the trigger was high, and like a robot, you executed your trading plan like a habit.

See related: The Way to Quick, Confident Execution

One thing you do not do is jump ship to a new strategy. Ever look through the trading forums? Many people try the newest strategy someone posts, dumping the one they are currently using. The only thing they consistently do is not be consistent. Ride your strategy through any rough patches, staying consistent in your approach. Give the strategy a chance to repay the faith you gave it and let it recover.

If you are the type of person who loves that fact they are impulsive, you may want to change that. Doing things consistently is what separates long-term traders from the ones who end up closing their accounts.

Without question, it makes no sense to be consistent with a losing strategy. Who in their right mind starts trading a system they have not tested, or one with no proven track record?

What are a few things you should stay consistent on?

  1. Maximum risk you take on every trade
  2. Trade entry and exit rules
  3. Instrument traded (unless testing occurs on another)
  4. Overall account exposure

Those four items are something I tell every trader I communicate with. I have certain risk profiles I use depending on the trade set-up. This means that on certain trades, I may bump up my position sizing to accommodate a higher risk on that trade. Since I do swing trade and daytrade, I must keep a macro picture of my account and ensure that I do not exceed X % of my account wrapped up in risk exposure. The other two are pretty self-explanatory.

Consistency. Apply those steps that have shown a greater probability of leading you down a successful route and consistently ignore those that can lead you to ruin.

Even though I have been trading for about seven years, I still get the impulse to be a little haphazard. I have found that shutting the computer down is a great relief valve. By the time I have a chance to boot it back up, I have had a chance to settle back into a consistent mindset, and whatever impulse I was looking at undertaking, has subsided.

Trade well; trade consistently.

See also: How to Achieve Consistency Faster

By the Staff at NetPicks.com

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