I believe self imposed trading rule-sets and methodology are very much personality dependent and that there is no generic one size fits all. Trying to emulate someone else is often just smashing a square peg into a round hole. (which while possible I suppose, is not ideal)
While I hate definitions, in this case it is likely important as it ‘frames’ the rule-set.
I started out as a scalp*-trader on a 3 minute chart. (1 minute was too quick for me and five felt glacial). I never really with great enthusiasm ventured near the longer time frames. I had this puritan belief that scalping was the only path for me and having survived in this space I was loathed to stray from what I knew (that the violence of the shorter time frames can become a comfort zone is quite weird)
*literally it was the word ‘scalp’ that appealed to me. With an inflated sense of self, a (not always metaphorical) tomahawk in hand, I was going to make this my trading ideology come hell or high water.
Of course now I know better and consider myself more of a well rounded trader. In the ‘classic’ day-trader sense I will usually close out all my positions before the end of the day. Although sometimes (very rarely) I will leave a trading running overnight.
My workspace is fairly boring. I only have two screens. (I’m usually trading one forex pair and one index) I trade price action almost exclusively… and while I suppose I could (probably) trade naked charts, I’ve gotten used to the 20, 50 and 200 exponential moving averages choking up my otherwise pristine candlesticks. At the bottom of the screen I have Stochastics (with the default 5, 3, 3 – 80/20 settings) and MACD (with the default 12, 26 9 settings). Both of which I glance at before making a trade (but routinely ignore)
I don’t have a lot of rules. Probably because I have an incredibly short attention span and more than three seems like a lot to remember. This is what works for me…
1. ‘Stick to the fucken plan…’
It’s a quote from Grand Theft Auto V… that I saw on a Day Trading subreddit once. I realize quoting Grand Theft Auto as your #1 trading rule… probably leaves much to be desired… but I don’t think I can phrase it any more succinctly than this.
For me at least this is meant to curb MY most dangerous and insidious tendency, the boredom trade. It’s easy to say ‘Don’t pick at it’… but… you know how it goes… sometimes price is hanging out in no-mans land. While I hating quoting Warren Buffet or Charlie Munger…
The big money is not made in the buying and selling… but in the waiting – Charlie Munger
In any event. Waiting for your stars to align is likely one of those things that you have to experience viscerally before you really start to believe. ‘Stick to the fucken plan’ also flows into rule #2 which is…
Actually no… while I wish I could make this work… and likely quite a good rule in CQC… my trading rule #2 is actually…
2. Quit while you’re ahead (or getting head)
The two most problematic psychological states (for me anyway) are greed and hope. Neither is desirable. In order to counter this I tend to take profits relatively quick (I use limits which automatically gets me out of the trade without me having to get emotionally involved). The reverse is also true, if I feel a trade is starting to go against me I prefer to just cut my losses instead of getting stopped out a little while down the road… go find something else to trade or wait for the next set up. If I get stopped out its usually because I’m either not at my desk or someone spiked the market.
I have a daily number that I like to trade towards. (that how-do-you-eat-an-elephant idiom) [I know a lot of traders balk at setting yourself targets, especially daily targets… *shrugs* maybe weekly is better]
In any event, sometimes when I’ve hit my target I’ll often ease up a bit, zero out my stop-loss and let the trade run a bit longer than I usually would… But really, in my experience, it often feels like I should have probably just taken the profit.
Taking profits also helps me deal with my ego. (which brings us to rule #3)
3. Leave your ego at the door.
I try not to discuss my trades. This theoretically keeps my ego in check. This is also one of the hardest rules to follow, because, well, day trading is quite lonely. And I am also naturally competitive. But as soon as your start to compare yourself or brag about what a hotshot trader you are is when things start to get murky. Also no one really cares about what you do (at best they are humoring you and at worst they secretly want you to fail)
Good trade, bad trades… they’re done and in the past. I see no benefit in reliving your glory trades through embellished narrative. Or indeed, on the converse, beating yourself up about trades that went ‘bad’ on you (unless of course you didn’t follow your ruleset in which case you probably should be chastising yourself). Treat each day as a fresh start. You are not the continuation of yesterday. This is also part of the reason why I (usually) close out my positions at the end of the day, a clean break or maybe compartmentalization. Whatever it is, I find I’m better going in every morning fresh and having to get a feel for things anew.
A note about information consumption
While not a rule… I believe traders and market analysis peeps are… for the most part… (how do I put this delicately) motherfuckers. I don’t think any other industry peddles so much bullshit. I very rarely follow the news cycle (sometimes I’ll go have a look, post event, to see what caused the market to tank)… and I’m inclined to lump Technical analysis (with a skeptical raised eyebrow) into the same category as homeopathy and chiropractics. Ie. I don’t believe it works. (you can likely make a case for the placebo effect of technical analysis… but really I don’t have the energy or enthusiasm for this). I will occasionally draw in a support or resistance level to help me visualize where people are lining up to buy and sell… and this one time I tried to draw one of those triangle thingies… but really its mostly because everyone else thinks these things matter… that I guess some times they do matter. Maybe some familiarity wouldn’t go amiss.
Be super wary of anyone offering to teach you how to trade or any form of subscription service. Anyone who needs to subsidize their trading income by running a website or service… I’m weary… and my spidey sense tells me there is (usually) something else at play here. Either they are placating some form psychological need (like ego) or this is their side hustle.. which makes me wonder about their ability to generate trading income. Same goes for people posting trading stuff on You-tube. 99% of it is dangerous bullshit (and potentially evil)… I think you’re much better off with a free demo-account and trying to figure it out on your own.