The 10 Commandments of Disciplined Trading

By Barry Burns

The ten commandments of disciplined trading are based on common mistakes made by traders. You dramatically increase your odds of being successful if you follow these commandments.

  • Thou shalt not chase a move. If you missed the best risk/reward entry, just let the trade go. Never chase the market.

  • Thou shalt not trade in choppy markets. Trading isn’t a zero-sum game. You lose money on every trade on both the bid/ask slippage and commissions/fees. Without clear directional momentum on your side, you don’t have an “edge,” and without an edge, you won’t have a profit! Never trade when the 50 SMA is flat!

  • Thou shalt not trade against the dominant energy (shorting higher highs or buying lower lows). These can look so good, but because momentum is against you, it’s like trying to push a Sumo wrestler uphill.

  • Thou shalt not trade too many contracts/shares/lots for your account size. If you lose more money than you’re comfortable with, you’ll trade badly. Everyone, even the best traders, go through periods of days, weeks, and occasionally even entire months of losses. You need to keep your losses per trade and per day small enough that you can financially survive a major losing streak without having to refund your account and without causing you emotional stress.

  • Thou shalt not trade for the “action.” Trading is a business, not an extreme sport! Like any good businessperson, your primary objective is to increase your bottom line.

  • Thou shalt guard your capital. It’s your lifeblood. Without it, you can’t trade.

  • Thou shalt never trade from a state of panic or anger to recover losses. When you have a losing trade, that money is gone, and the trade is done. Trying to get the money back by bending your rules will only result in more losses. Your rules are what make you money. They’re proven to give you the high-probability trades.

  • Thou shalt not worry about “missing the boat.” Your goal isn’t to catch every big move in the market — in fact, you won’t. No one does. Your only objective is to trade your rules and take the money the market will give you each week according to those rules. Even though you often hear about “trading the market,” you can’t trade the market; you can only trade your rules.

  • Thou shalt not place your stops too close. If you’re doing this, it’s an excellent indication that you’re not in the right frame of mind for trading, and you should stop trading. You can’t trade scared. You should place stops where the pattern you’re trading would be broken and no closer. You must give the market room to wiggle. It doesn’t move in a straight line. Allow for the bids/asks of individuals to move the market around messily within your trading setup.

  • Thou shalt not take profits too soon. You want your winning trades larger than your losing trades. Be patient with the trends and let them ring up big money for you.