Rules and Expectations

Rules and Expectations

Rules and Expectations

"You must be rigid in your rules and flexible in your expectations. Most traders are flexible in their rules and rigid in their expectations". This is from Mark Douglas in his book, "Trading in the Zone". When I first read the above-mentioned book years ago, I did not highlight or remember this quote as anything special. It was not until recently when I saw it again that I had the experience to recognize the pure wisdom in the words. That is the reason I am devoting this commentary to this quote, so everyone reading can recognize its importance.

The reason I feel this advice is so important is because two of the most common problems among new or struggling traders are addressed here. The first problem raised is that most traders are flexible in their rules. Actually, the truth is most traders do not even have a firm set of rules they trade by. Sure, if you ask most traders they will say that they follow stops, and set targets. But very few have the rules that are generated by a quality trading plan. Those that do, usually view them as optional, which really defeats the purpose of having rules.

The second problem is that traders are rigid in their expectations. They form or acquire a market bias, or a 'feeling' about a particular stock, and hold to that expectation regardless of what the chart (reality) is telling them. When good news is released, they go long the stock and stay steadfast in their bullish view; even though the chart (reality) is telling them the stock is falling.

Some say that you can't follow rigid rules, because trading requires your expectations to be flexible and change as needed, as the second part of the quote implies. Obviously, I agree that trading requires you to be flexible. I just believe that all of the contemplated flexibility can be part of your plan and your rules. For example, you can decide ahead of time and define what a 'change in market direction' is and then define how you react to that new information. You could react by selling all of your position, selling half, raising the stop, etc.

I hope that those of you that have not embraced these concepts take new look at the quote above and use it to help improve your trading.

Avery Meizner

Contributing Editor

Interactive Trading Room Moderator

Gap and Intra-Day Trading Specialist

Instructor and Traders Coach

http://www.pristine.com/FreeEducation/FreeWebinars.aspx

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