Thursday, May 2, 2013

Trendline Discipline

The single most requirement for successful trading is discipline: the ability to stick to your own rules. Most people are impulsive and are easily pushed emotionally one way or another. Take stock of your own history. Do you rush to the office kitchen when someone announces free cookies or buy things on impulse? Check out the hot girl while at work well knowing that its detrimental to your career? If so, you are likely to be a poor trader.

Good trading requires you to be convinced that your rules matter and following them has long term benefits far outweighing the short-term emotional pleasures of breaking them. Once you realize this, then it becomes a matter of training yourself to stick to your rules.

Consistent profit comes from consistent behavior.

Once your profitability is consistent, you can work on improving it. Even a consistent loss is better than whipsawing between profit and loss since an introspective trader can figure out what is making them lose and apply corrections.

One of the simplest rules of trading that you can practice discipline on is trendline discipline. The idea is that you always trade with support behind your trade and even when other supports such as the ema are far away, a trendline is usually easy to draw. The best trades will take off from trendlines  or will pullback to trendlines. The only exception to this rule is a W such as b16 opening wedge or b55 WP.

Even if you don't follow any other rule, trading only after a trendline is tested (preferably poked through, not just tagged) is likely to improve your results.

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