I’ve lost count on how many traders I’ve seen this happen to. To be honest, it’s probably
happened to almost every trader out there at some time or another. Unfortunately, for many it
could be the beginning of the end.
As we all know, to be successful at trading we need to come up with a certain set of rules
we will follow each and everyday. These rules are extremely important as they give our trading
structure and help us to decide what to do and, just as importantly, what not to do.
If you have good solid trading rules and you follow them consistently, then making
profits and avoiding large losses should be an attainable goal. But, on the other hand, if you
don’t follow your rules, you will receive many more losses than you would otherwise. And,
here’s where the big mistake comes in. I’ve seen it happen to many traders.
If you don’t follow your rules and the trade ends up being a winner, you will most likely
breathe a sigh of relief when it’s over. But in reality, you shouldn’t be relieved. You may have
just made an error that will cause you to fail faster than any other trading mistake you could’ve
made.
You see, if this trade (where you didn’t follow your rules) works out, then you will be
more likely not to follow your rules the next time. Again, this is the worst mistake you can
make. This will cause more damage to your trading account than any other error you can make.
And the worst thing is it’s so tempting not to follow your rules just this one time. But
you must learn that there can’t be a “just this one time.” You must follow your rules every time,
without exception.
Like I said before, I’ve seen this happen to many traders. For example, I remember one
trader who usually averaged about Rs500-Rs1,000 a day in the NSE Futures. He was going along
fine just trying to make his goal each and everyday, but he got greedy and said there had to be a
way he could make more profits. (I’m not sure what was wrong with Rs500-Rs1,000 a day.) He
decided his rules were too restricting and he was missing many opportunities. So he decided that
since he was doing so well, he would relax his rules somewhat so he could get into more trades
and hopefully make more profits.
Well, he ignored his rules for a couple of days. Because of that, he ended up taking a lot
more risk than he was used to. But he thought it was no big deal because he was now averaging
about Rs2,000 a day for a week. Not following his rules was making him more money for now.
But I’m sure you realize what happened.
Within the next month, he lost everything he’d made for the last four months (almost
Rs60,000), and was now down money for the year when he was on a pace to make about
Rs200,000. This happened not because he didn’t follow his rules. No, it happened because he
didn’t follow his rules and it worked out. So it gave him a false confidence that he didn’t have to
follow his rules.
I’m sure you will go through a time in your trading career (if you haven’t already) where
you will be tempted to not follow your rules just this one time. I can’t caution you enough how
big of a mistake this can be, especially if it works out and you make a profit. Making money on
this “rule-breaking” trade could very well be the most expensive profit you ever make. It then
can easily reinforce you to not follow your rules the next time.
It will always be tempting, but avoiding the temptation and resisting making the worst
mistake you can make will be much more profitable.
Following your rules consistently is the only way to be a successful trader. If you decide
to not follow your rules just this one time, it won’t be long before you are part of the 80-90% of
traders who lose money. Don’t let yourself become a statistic. Always follow your rules. Don’t
let there be a “just this one time.”
I wish you best
Suresh