With the recent melt-up of bitcoin and much of the crypto/digital asset universe, I decided I’d write something. Wasn’t sure I would do this again, mostly because it’s been so long, but with the rally I decided to write a kind of Part II to my previous blog https://billsindel.com/2021/05/13/trading-is-hard/. In that edition I posted my SIN’s 10 Rules of Trading. I realized I’ve never really addressed them, and while they don’t necessarily need much explanation, I thought I’d go through them anyway so you can understand why I picked these 10. Most traders could make a list far larger than that, all learned from mistakes.

While many people making these lists start at #10 and count down, I’m going to start with the most important one, in case you decide to stop reading before the end. And so, with no further delay, here’s SIN’s 10 Rule of Trading:

Rule #1: Discipline [ dis–uh-plin ] noun – behavior in accord with rules of conduct; behavior and order maintained by training and control.
That definition was one of nine listed and was actually used in a sentence related to the military as an example. It makes sense to me since it’s not generally an instinctive trait; it’s something you need to focus on until the ‘behavior’ is second nature. If you’ve ever spoken with a successful trader, you will have heard them use this word. No matter how you go about your decision making, be disciplined. A disciplined trader with a mediocre strategy will be far more successful than an undisciplined trader with a great strategy. Don’t change your outlook because you want the asset to go up (or down). Or because you’re wrong. Just repeat the same habits that lead to profitable trades. Don’t talk yourself into or out of something when you know it’s not what has previously been effective. This one word, discipline, sounds so simple, yet when you have skin in the game and the success or failure of the trade or position will impact your life, it can be extremely hard to maintain your discipline.

Rule #2: Don’t Add to Losers
The point of this is not necessarily to say if you bought it at 10 don’t buy more at 9. What it really means is that if you have a position that goes against you enough that you know you should get out, don’t add to it just in case there’s a 50% move back and you can get out even. Could it happen? Of course! Does it happen? Of course, again. Will it work when you try it? Probably not. Why? Because you’re not adding because of support or resistance, you’re adding out of hope and prayer. Hope is most definitely one of those four-letter words you need to avoid when it comes to trading. Oddly, I think so is love; I love this position oftentimes doesn’t end well. We’ll get to this later in Rule #9.

Rule #3: Make A Plan and Stick To It
If you buy something and say I’m going to sell at ‘A’ profit or ‘B’ loss, then do it! If, as part of your plan, you buy half figuring it could go down a bit and you can buy more but at least you’re in, then do that. Don’t get this one all mixed up with Rule #2. A negative P&L isn’t necessarily the reason to get out, it could mean the asset has traded all the way down to a support level and you decided in advance that you would buy more there. That’s a plan. So do it. And if you say I’m going to sell ½ when it goes up to a certain point, do that too. Greed kicks in when your trade is going your way; same way Fear sets in when it’s going against you. Just stick to the friggin’ plan!

Rule #4: The Market Is Always Right – You’re Not That Smart
Too many times someone will say, ‘why is this going down? The news is great! The market is wrong, they’re all going to lose money. I’ll be right in the end. That’ll show them.’ Yeah, OK Einstein. Seriously? Maybe it’s a ‘Buy the Rumor, Sell the News’ situation. Everyone expected the news that came out and bought before it was official. When it came out, the buyers had already done their thing and now were taking some profits. Or maybe there was a small nuance in the news that you just missed. Or, or, or…too many reasons for you not to be the smartest one in the trading room. Sorry if I hurt your feelings. On to the next trade, er Rule.

Rule #5: That Feeling In Your Gut Is Indigestion
I’m pretty sure I’ve covered this one previously in a less definitive way. People very often trade on ‘their gut.’ And I’ll be the first to say that for a very small number of traders it works. Now I believe this is because they get the same feeling each time a specific setup presents itself and for some reason, they feel it physically. Really, it’s the result of years of seeing the same thing over and over, doing the same thing in reaction over and over, and making money over and over. For the rest of us, it probably means we’re wrong and the feeling in our gut is nerves telling us we’re fooling ourselves…or it could simply be the fish you ate last night.

Rule #6: Don’t Chase A Trade – There Will Be Another Opportunity
Sometimes you’ll have a plan to enter a trade and you miss it. Oh well. Shit happens. Move on. You will always miss trades. That’s actually the good news. It means there are enough opportunities out there that you don’t have to wait long for the next one. But wait for it. If you ‘chase’ a trade you’re changing your initially planned risk/reward setup for the trade. Now you’re changing the plan you thought would work. Refer back now to Rule 3. It’s about the plan. Stick to it. If you missed this trade, make a plan for the next one. Better use of time and energy.

Rule #7: Let the Market Dictate Your Exits – Not Money
This one may be a bit more esoteric, but it’s a rule nonetheless. What I mean by this is, when you put on a trade don’t say I’m putting this on to make my rent for the month. Or just enough for dinner. Set your exit the same according to your rules. Saying ‘I want to make $100’ doesn’t justify your entry or exit spot, unless it’s coincidental. Get in the trade. Enter your stop and target (if you have one) for the same reasons you always do. That’s how you make rent money.

Rule #8: Learn From Mistakes or Repeat Them
Kind of a general life rule, no? I’ve always told new traders to keep a detailed trade log. Write down why you got in and out of every trade. Then review it at the end of each week. What sucks is writing the same stupid mistake down multiple times, because as you’re reading it again and again you feel like a total idiot. The good news is I never told anyone to read it out loud to friends or family, even if may have thought about it…lol. Seriously though, this practice reinforces good habits and helps drive home the bad ones that continuously lose you hard earned profits and should therefore be avoided forever more.

Rule #9: Save Emotions For Your Family
I’ve always believed that getting out of trades, winner or loser, is harder than getting in. Why? Because every tick of the market means you have more or less money. That can get emotional. When I left the trading pits, I started writing computer trading models so my exits would be calculated automatically and my emotional state at any moment would not interfere with the successful execution of my trade exit. As I’ve gotten older, I’m finding it easier to trade unemotionally, but I still won’t trade without a Stop order in place. I just don’t trust my own emotions during decision making times. To me, this is all numbers. Price, Volume, derivative indicators, e.g. Moving Average, are all just numbers. It’s binary. Up/down. Profit/Loss. Where is there room for love (or hate) or any other feelings in there? There isn’t. But there’s plenty of room for love and other emotions, pride, admiration, etc. when you’re with your family. Just please keep both your feelings and your family out of the trading room.

Rule # 10: Remember Rule #1
‘Nuff said.

Will following these rules guarantee success? Of course not. But it sure will increase your odds of success, and as a Technical Analyst looking at charts, I’m really just trying to maximize the odds of success in my favor. So, start with these rules. Add or substitute more of your own as you go. Just don’t forget Rule Number 1…or Number 10.