Lesson 7: Different Trade Management Rules and Why You Should Consistently Journal Them

Regardless of what you do, having a plan is essential to be on track on everything.  

This is especially true when you’re online trading – in which every trading decision must be made deliberately to avoid putting money over something uncertain.  

Following a specific set of trade management rules ensures the protection of your capital and trading account. Beyond just having these rules, however, it’s equally crucial to journal and assess them consistently. A journal helps you evaluate what’s working and refine your strategy over time.

In this lesson, we’ll explore trade management rules, the importance of journaling them, and some practical examples of rules that can help you trade more confidently.

What Does Trade Management Mean?

Trade management is at the heart of trading strategies.  

It’s the ongoing process of planning, monitoring, and adjusting trades based on market conditions to ensure that trades align with your goals and risk tolerance. Effective trade management protects capital, manages risk, and allows traders to capitalize on profitable opportunities.  

It also helps maintain emotional control, since a well-planned approach reduces impulsive decisions and keeps you focused on your predefined rules.

Why You Should Journal Trade Management Rules

Keeping a journal of your trade management rules is essential for identifying patterns, evaluating effectiveness, and ensuring consistency in your trading approach.  

Here are some key benefits:

• Improves Strategy Evaluation: Journaling allows you to track which rules help or hinder your trading system, helping you refine your setup and make data-driven adjustments.
• Enhances Discipline and Consistency: By having a record of the rules you’ve created, you can hold yourself accountable, reducing the likelihood of breaking rules due to emotions or market pressure.
• Facilitates Learning: Reviewing journaled decisions gives insights into your strengths and weaknesses, helping you grow as a trader.

Here are the trade management rules that you can consider jotting into your trading journal:

All Possible Outcomes

In trading, uncertainty is the only certainty.

Preparing for all possible outcomes – including gains, losses, and break-even scenarios – allows you to react calmly regardless of the market’s direction.  

This might involve setting up stop-losses, having an exit strategy for profits, and planning for sudden market reversals.

For a long trade, you might have a profit target in place and a stop-loss 2% below your entry price. If the market starts to dip, you already know how to close the position at a certain point instead of hesitating or guessing.

Polished Trading Decisions from Start to Finish

Decide on your entry, target, and exit conditions before placing a trade. This “pre-trade” planning ensures that all trading decisions are intentional, reducing the risk of impulsive reactions to market noise.

Planned and Polished Set-Up

Your trade setup should be thoroughly planned and well-researched, using reliable indicators and data. Journal details like the strategy used, the reasons behind the setup, and any adjustments you might consider based on the outcome. Over time, you’ll be able to see which setups consistently perform better and refine them further.

Learn When to Stop and Never Chase Losses

Emotional trading often leads to “revenge trading” – trying to recover losses by taking additional, usually riskier trades. Journaling your rules can reinforce your discipline to accept losses and stick to your plan.

Example: If you have a rule to stop trading after two losses in a row, document this in your journal. If you find yourself tempted to ignore this rule, write down why, and reflect on the results later.

Don’t Rely Too Much on the Crowd

Following popular market sentiment can lead to unprofitable trades, especially during market volatility. Documenting rules for when to ignore the crowd can help you avoid “herd mentality” trading. Trust your analysis and your plan.

Don’t Break Your Rules

Consistently following your own rules is the best way to test your system’s effectiveness. Write down instances where you felt tempted to break your rules and the outcome if you did. This self-reflection strengthens discipline.

Rely On Experts, Not Gurus

With countless market “gurus” offering advice, be selective in whose guidance you follow. Journal and assess the influence of advice from trusted experts and analysts rather than unverified sources. Reflecting on these entries will help you filter out noise and focus on genuinely helpful insights.

How to Pick the Best Trade Management Rule

Choosing trade management rules should align with your trading style, goals, and risk tolerance. Here are a few steps to guide you in selecting and refining the best rules:

1. Start with a Core Strategy: Use a core strategy as your foundation. For example, if you’re focused on swing trading, your rules might prioritize entry and exit points based on technical indicators like moving averages or support and resistance levels.
2. Add Risk Management: Define how much capital you’re willing to risk per trade and set corresponding stop-loss rules.
3. Iterate Based on Performance: Review your trade journal regularly to assess rule effectiveness. If certain rules consistently lead to gains, consider keeping or enhancing them. For rules that lead to losses, decide whether to adjust or discard them.

Finally, journaling your trade management rules is as vital as creating them. The process of writing, reviewing, and refining rules enables you to assess their effectiveness and adjust them as needed.  

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