Sticking to trading rules

Let’s face it, the last few months of market action have been some of the most volatile and difficult that I, and likely many others, have ever experienced. The market has been crazy (for lack of a better term) and has given many, many mixed signals. It has been hard to stay committed to a trade and good setups are often stopped out due to adverse volatility. This market is not for sissies and coping with the seesaw action has been, for me at least, very difficult.

I would like to say that the market has taken me through my entire range of emotions, but in truth, the only real emotion that I have been feeling is anxiety. For every one trade I get right, I get two wrong. This is alright I suppose, as the account balance has not really moved much over the past few weeks because my losers and winners have been offsetting each other. However it has been hard on the confidence. It feels like I am a blind rat trying to avoid being crushed by the mousetrap, while desperately trying to snatch the cheese from it. For every bit of cheese I’ve managed to get over the last period, I’ve had to pay a dear price.

This feeling of anxiety is misplaced though. What I should be thinking about is the opportunities that this volatility presents. Let’s take PGR as an example. There was a great setup on PGR that triggered a long entry. It had come down to pay its respects to its moving averages, showed divergence, is in the universe of ‘stocks I want to be long’ and gave a long trigger by breaking the short term down trend. Everything was right to take this trade, although putting it on was very uncomfortable. Rules are rules though and I took the trade.

At the time I went long I was just about bearish enough to move to the woods, find a nice little quiet stream and start catching salmon with my bare teeth. Going long in a market I expected to fall felt unnatural and uneasy. Pulling the trigger was very difficult, but at the time of writing this, the trade has worked rather well and looks to be on its way to reach target, or at the very least trial stop me out for a profit. A good trade then.

I had to ignore what I thought and felt and stick to my rules. The setup was clear and although I felt confident that the setup was at least a B-grade setup, I was afraid of what the market might do. This silly feeling of anxiety over not knowing what is going to happen next or what the U.S. Fed wanted to do with interest rates was absolutely the wrong feeling to feed.

I’ve said this before, but I’ll say it again: as a trader my job is not to predict the market, but rather to react to it and extract the money it makes available to me. This is a good example of me doing just that and I am being rewarded for my disciplined adherence to my trading rules.

The truth is that every day the market gives us a chance to take a good trade and our job is only to pull the trigger when that good trade comes along. Worrying about the future is essentially pointless. Things are happening right now and I need to be in the now in order to capitalise on them.

So my lesson over the last two weeks is to not worry about when the world is going to end, but rather to make hay while the sun shines. Trades like that PGR trade prove to me that sticking to the rules is the real holy grail of trading. Everyone looks for this magical thing that will make them rich. Well I propose to you that I have found it… discipline.

Happy trading.

Trader Petri