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Good Morning All;

 

One of my favorite trading quotes; "You must be rigid in your rules and flexible in your expectations. Most traders are flexible in their rules and rigid in their expectations." Mark Douglas, Trading in the Zone.

 

Rules and Expectations

 

Read today's quote again. "You must be rigid in your rules and flexible in your expectations. Most traders are flexible in their rules and rigid in their expectations". This is from Mark Douglas in his book, Trading in the Zone. This should be one of the top quotes you keep near your monitor at all times. You may have read this quote prior to this, but perhaps many of you have now gained the experience to recognize the pure wisdom in the words. That is the reason an entire "Eyes" is being devoted to this quote, so everyone reading can recognize its importance.

 

The reason that this advice is so important is because two of the most common problems among new or struggling traders are addressed here. The first problem raised is that most traders are flexible in their rules. Actually, the truth is most traders do not even have a firm set of rules they trade by. Sure, if you ask most traders they will say that they follow stops, and set targets. However, very few have the rules that are generated by a quality trading plan. Those that do, usually view them as optional, which really defeats the purpose of having rules.

 

The second problem is that traders are rigid in their expectations. They form or acquire a market bias, or a 'feeling' about a particular stock, and hold to that expectation regardless of what the chart (reality) is telling them. When good news is released, they go long the stock and stay steadfast in their bullish view; even though the chart (reality) is telling them that the stock is falling.

 

Some say that you cannot follow rigid rules, because trading requires your expectations to be flexible and change as needed, as the second part of the quote implies. Obviously, it is true that trading requires you to be flexible. However, all of the contemplated flexibility can be part of your plan and your rules. For example, you can decide ahead of time and define what a 'change in market direction' is and then define how you react to that new information. You could react by selling all of your position, selling half, raising the stop, etc.

 

Closing Comments

 

Those of you that have not embraced these concepts will hopefully take a new look at the quote above and use it to help improve your trading.

 

Paul Lange

Vice President of Services

Pristine Capital Holdings, Inc.

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