How to Draft Your Own 3 Rules of Trading

If you decide to write your own trading rules.  Here’s an explanation of how I came about my 3 trading rules and the reasoning behind them.

So why only 3 trading rules?  There are several reasons for it.

1. Easy to remember.
2. Easy to follow.
3. Easy to learn.

As I’ve said in my 3 rules page, this list is not intended to be written in stone.  You are expected to progress from being restrained by it, to being familiar with it, and then to being habitual with it.  Thus, a short list makes it easy to remember, to follow, and to learn.  Once any rule become an unconscious competency, you will not need it anymore and it can be adapted or changed to address your new needs.

Besides the benefit of keeping it short, there’s another reason why I’m using 3 rules.  The three rules actually address my biggest trading weaknesses in the past, present, and future.  This is also the answer to this post’s title, how to draft your own 3 rules of trading.

Let’s get right to it.

The first rule is to tackle my archilles’ heel, the bane of my trading, based on my trading history.  It is the single most important thing that when I looked back and analysed my trades in the past few months, or even years, which would have made my trading better.  It could be a trading strategy tweak, a trading psychology note-to-self, or a risk management rule.  Anything goes.  And if that didn’t really help, consider using a popular hypothetical scenario, if you can go back in time, what would you have told yourself back then to improve your trading?

The second rule is derived from asking the question, what is the most important thing that I can do now with all of my trades to increase my odds in this game?  Let’s use a hypothetical again.  Imagine that there is a trading guru here trading with you now and watching you trade, what would s/he tell you?

The last rule is to address the future.  What can you do in the times to come that can make the most difference in your trading?  What is this next step you can take that will start the wheel going on your journey to becoming the trader that you want to be?

Whatever your trading rules are, the most important rule about drafting your own trading rules is to be as specific as you can.  Vague or unclear rules are worse than useless because they can give a false sense of security.  Consider these three #3 rules about the same idea.

I want to …

1. Improve on my trades.
2. Improve on my trades by studying my trading history.
3. Improve on my trades by studying any trade with performance statistics beyond the middle 50% quartile.

I’ll let you be the judge on which style you prefer.

If you didn’t read any of the above, remember this, the most important rule (yes, I lied above) for drafting your trading rules is to just write them down and follow them.  No matter what you wrote, you will eventually find ways to improve on it if you are diligent about them.  So just start somewhere and go with it.

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