Why Is It Important For Traders To Follow The Rules Than Trading Whipsaws?

why is it important for traders to follow the rules than trading whipsaws

The Forex market is vast, and the daily trading volume of this market is around $5.1 trillion. This explains the sheer size of this market and the liquidity it has to offer. But it is said that there is only a 5% success rate in the industry of Forex trading. So, where are the other 95% going wrong? The answer is simple; the top 5% of traders are the ones with rules. They have their strategies in place that they have back-tested before, and they stick to those strategies. They also follow strict money management rules and trade with discipline. Whereas the other 95% are those who do not have any trading rules, or they do not tend to follow the rules that are set by themselves. Hence they always end up on the losing side. 

Following Rules Will Mitigate Uncertainties

Any existing business in the market right now have their own risks because of some uncertainty. Trading is no less than those businesses, as there is more uncertainty here as well. This ambiguity is not good for any business. We can never eliminate the obscurity, but by all means, we can mitigate it. It is not as complicated as it sounds. All you have to do is to find that one strategy that works the best for you. Then make some boundaries/rules depending on your risk appetite and stick to them no matter what. This should be given the utmost importance for not falling prey to the market uncertainties. 

Rule 1 – Go with the sharks!

Unless you are an absolute novice trader, you must have known the composition of the Forex market. More than 90% of the volume is contributed by industry players, MNCs, etc. Retail traders like us comprise of a mere 5% – 6% of the mighty Forex market. To explain this with an analogy, retail traders are just like fish in the market. The market is not moved by the fish but the sharks (industry players). These sharks have deeper pockets, and they do not trade in standard lots like us. As a retail trader, your rules should be designed around these sharks. Following the direction of these industry players will always help you in being a better position.  

Avoid trading scepticism

There is also one golden rule every trader must know. If you are not sure about any trade, do not go for it. If you are not confident about the outcome, better avoid than trading with doubt. We recommend you doing a simple exercise to understand the importance of following rules. Check your P&L equity graph and examine it thoroughly. Ask yourself how much profit or loss you made while following your trading rules and vice versa. You will be surprised to see the losses you incurred just by not following the rules. 

Successful Traders Follow These Rules

  • Do not break the rules that you have set for yourself
  • Stick to one strategy that makes more profits than losses
  • Follow your intuition. Most of the times it is correct
  • Use your logic over blindly following the technical indicators
  • Update your trading plan with time
  • Mental Peace is the key to trade without any distractions   
  • Make sure the Risk/Money Management is in place

All of the above rules are self-explanatory. But did you see the very first one? Not To Break The Rules. The whole point of making those trading rules is to keep you out of trouble and protect your balance when your trades go wrong. When you are breaking those rules, you are not allowing them to do their job. But this has more adverse effects as well. By not following the rules, you keep losing the trades, and that will affect your mental stability. As the account balance decreases, ‘Fear’ of failing increases. This fear will not allow you to trade as you keep doubting your strategy that was actually working fine for you. Hence it is always important to not break any rules, especially while taking bigger bets. 

It’s okay to fail by following the rules

All the traders (including experienced ones) would have traded whipsaws in their lifetime. These whipsaws are nothing but the price spikes that occur because of some news event or release of some financial report etc. It is okay to fail by following the rules because that doesn’t happen all the time. Also, your mental state won’t be affected at all as you followed your strategy, and there’s nothing to regret. The bottom line is that trading with a well-scripted plan & following specific rules is essential to be a successful trader. 

That’s about today’s topic. We hope you find this article informative. Stay tuned for more exciting and quality content on Forex education. Happy Trading. Cheers!