The Problem with Trading Rules


Right? That’s what we as traders are always told. Keep calm and follow the rules. Follow your system. Know your draw down and profitability quadrant at 7:17 am but only on the days that end in y. . .

If you can’t see it already, I’m not big on following the rules.

Let me try to explain why…

Lets start with a possibly unexpected question. Is trading science or art?  Lets define both of them and see if we can find out. Science is defined as “knowledge about or study of the natural world based on facts learned through experiments and observation” by Merriam-Webster dictionary. Lets dig in right there for a second, especially the part about facts learned through experiment and observation.” This is the very definition of rules. We observe things, we see what happens, and then we make rules surrounding these observations to try and predict the outcomes. As human beings we want to make all of these rules that create a framework of false precision that we think we can rely on. When in reality, all we really want is to be able to blame something when it doesn’t work!  “Well that loss was expected because it was apart of my rules…. really? Change your rules..

Ok. That’s enough on science. I think you get where I’m coming from.

Lets move on to art. What is art? Lets go to the dictionary one more time. Merriam- Webster defines art as “something that is created with imagination and skill and that is beautiful or that expresses important ideas or feelings”. Man that sounds strangely familiar. Maybe it’s because every successful trader I’ve ever known has approached trading this. way. So let’s compare them. When I put the definition of science up against the definition of art and run trading through the middle, trading for me leans way more heavily towards art. What if an artist is painting a picture?  They must anticipate what comes next and layer in the proper colors and brush strokes to make the painting come to life. If not, all they are doing is a kids paint by number, and no one will ever pay for or respect that kind of painting the way they do a Van Gogh….

Now, how we all view trading is very different. If you want to create rules, go for it. I’m not here to stop you. All I am trying to do is relay the experience I have both had personally an seen in the trading community around me. And I can only say all of this because I have been on both sides of this coin. When I started out trading, I wanted it to be science. Observable. Measurable. Predictable. Something I could make hard, fast rules for and stick by and win or lose based on how good my rules were. We see it all around the trading world. Black boxes, algorithms, HFT’s. These vehicles have been used in an attempt to turn the market into science. Some succeed. Most don’t. I know this because I have done it. I conceptualized, had someone program, tested, and ran an EA. I spent a year in that process and came out more frustrated than I went in. Did the EA work? according to 10 years of backtesting on the EURUSD it sure did. But when I turned it on, I wanted it to perform like an artist and not the robot that it was. 

So how do retail traders like you and I avoid this trap of turning to false precision and let art and owning our risk permeate our trading lives? My success has come from something very simple. It’s kind of like those old 3-D pictures that people used to squint at and get super mad because they could never see it. Remember these?

images (1)

Somewhere hidden in that mess is an image, but you have to focus properly. Thats one of the keys to successful trading. Proper focus on price vs indicators.

Making trading scientific and not skill full and imaginative comes down to the use of indicators. I used to use indicators to try and make my trading rules. Remember those? Those things that are observable, absolute, unchanging and lead us to our desired consequence? That’s what I wanted. But I never got it….

Most of the time with the systems that I used to create and the systems I see today, you could literally take price off the chart. All of the emphasis was on the action of the lagging indicator. Did you catch that? indicators are lagging, not future telling. It was never about what current price was doing. That was my biggest mistake. In my effort to science-ize my trading, I left out the only thing that mattered: what was price doing in the current candle I was looking at? So many methods I see today could actually take price off the chart all together because every decision is based on what an indicator is doing. I know because shamefully, I tried to do it!

So what should I do? Focus on price and let the indicators be your structure. Your lense through which you see. price. This is very important so I’m going to do one of those bold quote things here

“Do I, as a trader, use price as the lens through which I try to trade my indicator signals


Do I, as a trader, use indicators as my lens through which I trade my price signals”

Is trading my art or my science? All of the great traders I know trade from the subconscious. They apply their skill and imagination to anticipate prices moves and use only the price to enter and exit trades. That’s what I do. Trading is no longer my science, its my art.

Next time I will talk about the importance and use of rules in finding form, not creating false precision.

Thanks for reading



One thought on “The Problem with Trading Rules

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s