3 Rule Books Every Trader Needs: Money Rules, Trading Rules And Emotional Rules

Knowing a strategy and following it are two completely different things. Most accounts get hurt in the gap between the two.

On our client webinar I gave the clients a picture. Your trading account is a gift box. One side holds a million dollars. The other side holds a bomb. You have a keypad and a small screen. Type the right code and the money lid opens. Type the wrong one and it goes off. And the box comes with a manual that lists every number.

Most people tear off the wrapping, skip the manual and start typing. The manual has three parts: money rules, trading rules and emotional rules.

1. Money rules: lot sizes, capital and monthly deposits

Money rules set how big your trades are and how much risk you carry. The robot keeps lot sizes capped to the capital you choose, so adding money does not buy bigger trades. It buys breathing room.

Say your open trades are down $200. On a $1,000 account that is a fifth of everything. Add another $1,000 and the same $200 is a tenth. Double the capital and the drawdown halves.

That is why we ask clients to add money every month, like the unit trust debit order most of us already pay. That is dollar cost averaging. Each month buys at whatever the price is, and the cheap months do the heavy lifting.

2. Trading rules: pick one strategy and stay with it

Changing strategy halfway through a strategy is where most drawdowns get worse. In the robot, every dropdown is a strategy. Change a number and you change how a strategy performs. Change a dropdown and you change the strategy itself.

So start on one chart. Learn each setting. Then predict: a trade should open on the next candle. If it does not, ask why. If you hit a word you do not understand, stop and look it up. Skip one word and the rest of the lesson slides past you, like reading ten pages of a book and realising nothing went in.

3. Emotional rules: should you take this trade at all?

You see gold slide at the open and a loud voice says you know where it goes next. Forget the plan. That voice is emotion, and every trader hears it. Emotional rules tell you whether to take the trade at all.

A subscription can feed that voice. People pay every month and want to see money every day, so they start changing settings. You are not paying for a robot. You are paying for a university. It took me 11 years to build this, and there is no magic pill.

A mentor of mine once explained learning with a sports field. Some people are on the five-yard line. Some are not even in the stadium. It only clicks once you can watch a trade open and close and know why. If your robot hedged you, it did its job. Add cash, leave the pause on, and watch the videos.

The good and the bad of three rule books

Pros: Each rule book catches a different mistake. Your plan stops depending on your mood. Monthly deposits keep shrinking your drawdown.

Cons: It feels slow and rigid on days you feel sure. It needs fresh money each month and hours of videos.

If you want your trading rules followed for you, without emotion and without sitting at the charts all day, the Rule 2 forex robot is what I use.

Questions traders ask

What are the three sets of trading rules?

Money rules set your lot sizes and risk. Trading rules are your strategy. Emotional rules tell you whether to take a trade at all.

Does adding money to my trading account lower my drawdown?

Yes, if your lot sizes stay capped. The same open loss is a smaller part of a bigger account, so doubling your capital halves the drawdown.

Why should I not change my strategy halfway through?

Every dropdown is a different strategy. Switching midway leaves trades from the old strategy open under new rules, which is how a small dip turns into a deep one.

Read next

• The Learn To Read A Forex Chart course: if you want to do what this article teaches, this is what I use.
• 5 Rules That Stop Traders Repeating My $39,000 Finger Slip
• What clients say: reviews from the Alive FX community.

Forex trading carries risk.