- Key rules to trading
- Sleep well at night
- Love your trades
REHASH - It never hurts to rehash the cardinal rules to my trading methodology. Right now, I am sitting back on my three open positions in GOLD, the SPX500 and AUDNZD, and we are waiting for volatility to pick back up following the long holiday weekends in the UK and US. So while we wait, let me go over the two rules at the core of my strategy, that have been primarily responsible for my success as a trader over the past several years. There's nothing complicated about them and yet, they have meant everything to me.
PILLOW TEST - The first rule has to do with position sizing. One of the most common questions I have been asked over the years is how do I know what position size to take or how much I should risk. There are many out there that quantify this answer, applying a hard percentage of equity as the measure. While I am not critical of this per se, the reality is that everyone is different. And so, I came up with the Pillow Test. If you are able to put your head down on the pillow at night and sleep well, you are appropriately positioned. If on the other hand you can't sleep, reduce your size until you can. It's that simple.
LOVE THY TRADE - The second rule is all about limiting your trading to the best possible trades and eliminating anything that falls short of this standard. We are all so lucky these days to have the luxury of trading wherever and whenever we want. But luxury can spoil and dull the senses. One of the biggest problems for traders is forcing trades that aren't really there. And so, if you just tell yourself you will only take trades that you LOVE, you will find you are eliminating a lot of crap, while at the same time feeling good about the trades you do take, whatever the outcome.