question your trading rules
TRANSCRIPT
![Page 1: Question Your Trading Rules](https://reader034.vdocument.in/reader034/viewer/2022042512/55a202af1a28ab33268b478b/html5/thumbnails/1.jpg)
![Page 2: Question Your Trading Rules](https://reader034.vdocument.in/reader034/viewer/2022042512/55a202af1a28ab33268b478b/html5/thumbnails/2.jpg)
Whenever you talk to other traders, there is always someone who feels certain trading rules are gospel and
other rules are foolish.
![Page 3: Question Your Trading Rules](https://reader034.vdocument.in/reader034/viewer/2022042512/55a202af1a28ab33268b478b/html5/thumbnails/3.jpg)
Sure, trading rules about cutting losing trades off at the knees when it’s hit
the point that invalidates the premise is one that I can get behind. Those
rules are all about saving your trading account because once the account is
finished, so are you.
![Page 4: Question Your Trading Rules](https://reader034.vdocument.in/reader034/viewer/2022042512/55a202af1a28ab33268b478b/html5/thumbnails/4.jpg)
But there are other rules that many trading courses talk about. Rules that many traders hold dear and follow to
the letter.
![Page 5: Question Your Trading Rules](https://reader034.vdocument.in/reader034/viewer/2022042512/55a202af1a28ab33268b478b/html5/thumbnails/5.jpg)
The issue becomes when you can’t see the folly behind buying into your rule and discounting other trading “rules”.
![Page 6: Question Your Trading Rules](https://reader034.vdocument.in/reader034/viewer/2022042512/55a202af1a28ab33268b478b/html5/thumbnails/6.jpg)
There is more than one way to make profits. There is more than one way to enter a trade. There is more than one way to deal with risk.
![Page 7: Question Your Trading Rules](https://reader034.vdocument.in/reader034/viewer/2022042512/55a202af1a28ab33268b478b/html5/thumbnails/7.jpg)
The issue is finding what suits you as a trader AND fits the trading style and plan that you have chosen. I want to recreate a chat with two traders I had where each had separate thoughts on two popular variables in trading that
we have all heard and read about.
![Page 8: Question Your Trading Rules](https://reader034.vdocument.in/reader034/viewer/2022042512/55a202af1a28ab33268b478b/html5/thumbnails/8.jpg)
Scaling out of your position as the trade goes in your favor allows you the benefit of taking profits and reducing
your risk at the same time.
![Page 9: Question Your Trading Rules](https://reader034.vdocument.in/reader034/viewer/2022042512/55a202af1a28ab33268b478b/html5/thumbnails/9.jpg)
This chart here shows a trade entry that may or may not be a valid entry.
This is for sample purposes only.
![Page 10: Question Your Trading Rules](https://reader034.vdocument.in/reader034/viewer/2022042512/55a202af1a28ab33268b478b/html5/thumbnails/10.jpg)
The trade rallies nice and the green line represents a higher time frame swing level. These areas do have a
tendency to hold up price and if this move is a trend continuation, it should
break the level.
![Page 11: Question Your Trading Rules](https://reader034.vdocument.in/reader034/viewer/2022042512/55a202af1a28ab33268b478b/html5/thumbnails/11.jpg)
![Page 12: Question Your Trading Rules](https://reader034.vdocument.in/reader034/viewer/2022042512/55a202af1a28ab33268b478b/html5/thumbnails/12.jpg)
We don’t know if it will break the level but we do know these levels do have
volatility as different interests take action. A safe scale out that reduces
risk is right before this area where you see “1st scale”.
![Page 13: Question Your Trading Rules](https://reader034.vdocument.in/reader034/viewer/2022042512/55a202af1a28ab33268b478b/html5/thumbnails/13.jpg)
![Page 14: Question Your Trading Rules](https://reader034.vdocument.in/reader034/viewer/2022042512/55a202af1a28ab33268b478b/html5/thumbnails/14.jpg)
You can see there were competing interests at the level as shown by the yellow box but buying pressure wins
the battle.
![Page 15: Question Your Trading Rules](https://reader034.vdocument.in/reader034/viewer/2022042512/55a202af1a28ab33268b478b/html5/thumbnails/15.jpg)
![Page 16: Question Your Trading Rules](https://reader034.vdocument.in/reader034/viewer/2022042512/55a202af1a28ab33268b478b/html5/thumbnails/16.jpg)
Price makes a high but there is not structure to the left that stood out that would indicate there could be
resistance. Price falls but then rallies again but this time, there is clearly a structure level where we could take
profits.
![Page 17: Question Your Trading Rules](https://reader034.vdocument.in/reader034/viewer/2022042512/55a202af1a28ab33268b478b/html5/thumbnails/17.jpg)
As price rallies, it hits the high where you would scale out again (2nd scale). Clearly, this level had selling pressure (could it be others who use this level to exit longs?) which, depending on your strategy, could have you buying
the lows when price starts to rally again.
![Page 18: Question Your Trading Rules](https://reader034.vdocument.in/reader034/viewer/2022042512/55a202af1a28ab33268b478b/html5/thumbnails/18.jpg)
![Page 19: Question Your Trading Rules](https://reader034.vdocument.in/reader034/viewer/2022042512/55a202af1a28ab33268b478b/html5/thumbnails/19.jpg)
The main issue people have with scaling out is that if you don’t hit the first scale out and price reverses, you
get stopped out full position.
![Page 20: Question Your Trading Rules](https://reader034.vdocument.in/reader034/viewer/2022042512/55a202af1a28ab33268b478b/html5/thumbnails/20.jpg)
On the flip side, your profits are not full position profits because you have
taken off positions while the trade was moving in your direction.
Fair points.
![Page 21: Question Your Trading Rules](https://reader034.vdocument.in/reader034/viewer/2022042512/55a202af1a28ab33268b478b/html5/thumbnails/21.jpg)
The other trader in the conversation was not a fan of scaling out for the reason of less profits, full stop outs.
This trader stuck to his guns and
actually called scaling out your trades “foolish behavior”.
![Page 22: Question Your Trading Rules](https://reader034.vdocument.in/reader034/viewer/2022042512/55a202af1a28ab33268b478b/html5/thumbnails/22.jpg)
He went on about his trade system which was, in brief,
Use limit orders for entries
Target structure levels for profits.
![Page 23: Question Your Trading Rules](https://reader034.vdocument.in/reader034/viewer/2022042512/55a202af1a28ab33268b478b/html5/thumbnails/23.jpg)
Pretty common basics that many trade plans call for but there is an issue that this trader didn’t think of while he was
bashing scaling out.
![Page 24: Question Your Trading Rules](https://reader034.vdocument.in/reader034/viewer/2022042512/55a202af1a28ab33268b478b/html5/thumbnails/24.jpg)
I told this trader that his limit entries have issues that can have huge
consequences on his profitability.
![Page 25: Question Your Trading Rules](https://reader034.vdocument.in/reader034/viewer/2022042512/55a202af1a28ab33268b478b/html5/thumbnails/25.jpg)
What is a limit order? A buy limit for example is an entry order that sits below current price. If/when price
reaches/trades through your entry price, you are filled. This allows you the benefit of having the market come to your price
and not have you chasing the move.
![Page 26: Question Your Trading Rules](https://reader034.vdocument.in/reader034/viewer/2022042512/55a202af1a28ab33268b478b/html5/thumbnails/26.jpg)
Problem.
Take a look at this chart.
![Page 27: Question Your Trading Rules](https://reader034.vdocument.in/reader034/viewer/2022042512/55a202af1a28ab33268b478b/html5/thumbnails/27.jpg)
The line “a” represents resistance busted through and the trader sets a limit order in that area to catch the
bounce.
![Page 28: Question Your Trading Rules](https://reader034.vdocument.in/reader034/viewer/2022042512/55a202af1a28ab33268b478b/html5/thumbnails/28.jpg)
The stop is placed at “b”. As you can see, the trade gets filled and then
stops out for a full loss.
![Page 29: Question Your Trading Rules](https://reader034.vdocument.in/reader034/viewer/2022042512/55a202af1a28ab33268b478b/html5/thumbnails/29.jpg)
Here at “c” we have a trend line from the highs off to the left. A limit order is set at the line and what you can’t
see, there is a small congestion area to the left that helped support this trade.
![Page 30: Question Your Trading Rules](https://reader034.vdocument.in/reader034/viewer/2022042512/55a202af1a28ab33268b478b/html5/thumbnails/30.jpg)
![Page 31: Question Your Trading Rules](https://reader034.vdocument.in/reader034/viewer/2022042512/55a202af1a28ab33268b478b/html5/thumbnails/31.jpg)
Price punches down to the area, misses the limit price and then rallies
strong for over 400 pips before offering another possible entry area.
![Page 32: Question Your Trading Rules](https://reader034.vdocument.in/reader034/viewer/2022042512/55a202af1a28ab33268b478b/html5/thumbnails/32.jpg)
Do you see the problem?
While this trader bashes scaling out, he fails to understand that he will
participate 100% in all losses as well.
![Page 33: Question Your Trading Rules](https://reader034.vdocument.in/reader034/viewer/2022042512/55a202af1a28ab33268b478b/html5/thumbnails/33.jpg)
However, he will not participate at all (at times) on large moves if price does
not come to his area.
![Page 34: Question Your Trading Rules](https://reader034.vdocument.in/reader034/viewer/2022042512/55a202af1a28ab33268b478b/html5/thumbnails/34.jpg)
As a side note…if your trade plan uses limit orders for trade entries, have you factored in no fills into your testing to
see if you have valid samples?
![Page 35: Question Your Trading Rules](https://reader034.vdocument.in/reader034/viewer/2022042512/55a202af1a28ab33268b478b/html5/thumbnails/35.jpg)
Keeping an open mind is paramount when choosing a trading plan, trading rules, and trading method. This one
trader was so adamant that scaling out was a fools game that he totally
missed the boat on the downfalls of his trading method.
![Page 36: Question Your Trading Rules](https://reader034.vdocument.in/reader034/viewer/2022042512/55a202af1a28ab33268b478b/html5/thumbnails/36.jpg)
There is nothing perfect about trading. There will be trade-offs in many
aspects that you should account for when deciding on your plan of attack.
![Page 37: Question Your Trading Rules](https://reader034.vdocument.in/reader034/viewer/2022042512/55a202af1a28ab33268b478b/html5/thumbnails/37.jpg)
All of the trading rules and trading “truths” for the most part can be rethought and dissected as they
pertain to you as a trader.
![Page 38: Question Your Trading Rules](https://reader034.vdocument.in/reader034/viewer/2022042512/55a202af1a28ab33268b478b/html5/thumbnails/38.jpg)
Question everything you hear. Question everything your see. Question everything you read.
![Page 39: Question Your Trading Rules](https://reader034.vdocument.in/reader034/viewer/2022042512/55a202af1a28ab33268b478b/html5/thumbnails/39.jpg)