The Power of Reviewing Your Trading Principles?
The Power of Reviewing Your Trading Principles?
A simple technique that can help power better personal trading performance.
"Learn the rules like a pro, so you can break them like an artist." - Picasso
The ability to remain on-process, and present to your trading needs, is a huge challenge for all traders. It is all too easy to veer off your chosen path, to seek short-cuts, or to be knocked out of your stride. The consequence is usually serious money-left-on-the-table. In this week’s newsletter, we share an approach that I used, to help me manage this, back in my trading days.
As a trader, I was an active journaler. I would use my journals to write down my thoughts and reflections on my work, my market views, and my behaviours. I would then periodically review my journals.
These reviews were extremely useful and often highly revealing, but there was another aspect to my journals which would prove equally beneficial. At the front of each journal, I wrote down what I called, my ‘Golden Trading Guidelines’. These were a set of principles personal to me, which I would remind myself of when my mind wandered, when I faced a challenging market, or when going through a sub-par period of trading.
The guidelines were principles that were central to my trading. Being stated as guidelines rather than rules, they gave me the flexibility to not be boundaried by them. This allowed me to move beyond them occasionally, and judiciously, when it felt necessary. However, whenever I ventured too far, it was often the case that my performance would suffer.
The list I created was personal to me and my process. It factored in aspects that related to my trading philosophy, and approach, and that kept my trading aligned with my personal preferences.
Creating Your own Principles List
It can be helpful to construct your own lists of guidelines (or rules if you prefer), which can create a framework for the behaviours that underlie your own trading practice. Once you have this list, it is vital to check-in with these regularly. It is this regular checking-in which keeps you honest to your process and purpose, and helps you remain present to your trading needs. This simple technique can power your trading in subtle ways that can have a big impact.
My list was an always evolving list, but the main themes were generally consistent. The list shown below was constructed back to a 2007 journal.
Since I no longer professionally trade, I no longer update the list. Though I still trade as a side hobby, and these guidelines are still very much applicable to me.
If you are going to construct your own list, I suggest ensuring you follow these 3 simple principles:
‘Keep it Simple’; making it too complex makes it hard to follow and adhere too.
In a similar vein, ‘Less is More’: I would try to avoid more than 20 guidelines. Though if you want more, feel free to expand.
‘Make it Personal’; Feel free to copy some of mine, or maybe Dennis Gartman’s well publicised lists, or pull some from Ray Dalio’s principles, but do evolve and adapt them to your own circumstances, style and risk philosophy.
My "Golden Trading Guidelines”
Personal Guidelines
1. Fear and respect the market but never hate it: Hate clouds judgment and leads to bitterness and resentment.
2. Know yourself: Know your strengths and weaknesses: Know your personal stress limits and comfort zone. Have aims and goals.
3. Suppression of Ego: Ego can turn winners to losers and leads to mistakes and judgment errors. Ego is not in itself a bad thing, it gives one desire, but it can also be a hindrance when too inflated or hurt.
4. Stay Fit, Healthy and Balanced: This applies internally to oneself: A healthy body will produce a healthy mind.
Planning Guidelines
1. Understand the market, its drivers, and its idiosyncrasies: It is vital to understand the market one is trading in. Each market has different characteristics, liquidity, volatility, event risk, and minor driving factors.
2. Preparation, Preparation, Preparation: Planning and preparation for trading cannot be overstressed enough. Too often money is lost on trading whims or poorly executed plans.
3. Essential Money Management: This is a vital part of planning. The downside must be protected, if trades are successful the upside will take care of itself, but inevitably drawdown will occur from time to time.
4. Speculate, Do Not Gamble: The following line encapsulates this, it is taken from ‘Reminiscences of a Stock Operator’ – “It taught me little by little, the essential difference between betting on fluctuations and anticipating inevitable advances and declines, between gambling and speculating.”
5. Patience Is a Virtue: This has many applications: Do not trade for the sake of it. Do not worry about missed opportunities, other opportunities always come along.
Trading Guidelines
1. Markets are volatile and rarely follow the script to the letter: Price action in many markets can appear to be almost random, particularly at the micro level where they rarely conform to predicted market behaviour. However, at the macro level, when trending and at crucial infection points, the larger moves can be predicted with a degree of probability.
2. Do not be afraid of losses but do control them: Losses are an essential part of trading, without losses there will be no profits. However, it is essential to control them.
3. Do not feel you have to trade: It is not always easy to do, but sometimes it pays to sit on one's hands or reduce.
4. Trade the market not your p&l: This speaks for itself: Whenever one moves from a trading view to protecting p&l, decisions are going to be dictated by fear of losses rather than a market view.
5. Good execution is vital: Good/poor execution can be the difference between success/failure on a trade. Execution does not mean purely getting in or out of a position, it also means lightning up and increasing.
6. There are no guarantees: Opportunities exist because of uncertainty. Price forecasts are at best estimates.
The image below shows the page from the front of one of my journals from 2007.
2 Announcement: ‘Technical to Trading Systems’ 1 Day Event Hosted by The Society of Technical Analysts (STA) in London 18th April 2023
This event is being run by our sponsoring partner, the Society of Technical Analysts (the STA ). This is open to finance professionals working in funds, banks, prop firms, commodity and energy trading firms, research shops, as well as to serious-minded retail traders and anyone interested in systematic/quantitative trading and analysis.
If you are in London, the UK or Europe this is a great opportunity to hear some great speakers, and to learn from them. It is also an excellent opportunity to meet and network with like-minded individuals.
The STA have already announced a list of outstanding speakers. Including our recent podcast guests, Robert Carver, and Jeff Boccaccio.
Professor Jessica James, Senior Quantitative Researcher at the German Investment banking giant Commerzbank
Technical analyst expert Trevor Neil.
Victoria Scholar, Head of Investment at interactive investor,
Eddie Tofpik, Head of Technical Analysis, ADMISI
Alan Dunne, Founder & CEO, Archive Capital
Stephen Hoad, Founder & CEO, The Stop Hunter
Myself and Mark will also be appearing as speakers, will be delighted to say hello if you happen to be around.
If you are unable to attend the event in-person you can register to view the speakers virtually.
There are limited spaces only at this event. To find out more and to register for the event go to the STA Website at or register here.
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