Let’s break down the question: what does it mean to trade according to rules?
If you establish rules, the outcome should be a profit generated from following those rules.
In other words, if I traded by the rules yesterday, I should be in the positive today. And then, tomorrow, the profit should grow even more. If the rules always work, it means that the market can be described and is predictable. I don’t know about you, but to me, that’s nonsense. There are no patterns in the market. I won’t argue this point; it’s more a matter of belief!

So, moving on for those who believe there are no patterns.
If there are no patterns in the market, it means there will be times when the rules work and times when the rules don’t.
Here’s the problem: our rules don’t account for the fact that there are moments when they stop working. The standard approach involves setting specific loss-to-profit ratios, assuming we know when the market will change direction, and then adjusting our direction accordingly.

Such a system has the right to exist, but it can lead to failure if volatility changes. This may seem strange, but a bad situation arises when volatility drops. Here’s what happens: the market changes direction, we adjust, but the movement ends at that point. We repeat the process until there’s a move sufficient to cover the loss. But if the movement is smaller, we accumulate a growing deficit. If this process drags on or repeats too often, it takes a toll on the nervous system. The only solution is not to change direction until you have a profitable trade.

When a profitable trade appears, you return to trading by the rules, and you should start generating profit again until a loss reappears.

From this, I came to a conclusion that was unexpected for me. Essentially, it follows directly from the Monty Hall paradox, but what does Monty have to do with the market?
My conclusion: it’s safer to start trading when the rules aren’t working. Let me explain. When everything is going as it should, it means the market is already moving in your direction, and this movement could end at any moment. While you’re confirming this, you’ll be taking losses, and then you’ll identify the change in direction. I repeat, in this scheme, much depends on volatility and trading conditions. I suggest slightly altering the order of actions. Trading by the rules, i.e., when the market is moving in your direction, is only possible if your previous trading period by the rules ended positively. How long this trading by the rules will last, no one knows. But while it’s going on, you should trade and even increase your contracts. You should allocate part of your profit to test the assumption that the rules are still working. If we exaggerate the situation, you stay with the trend until you get stopped out, and after that, you give yourself a few more attempts to continue the trend. These attempts depend on your ability to monitor market dynamics and identify changes. Whether the trend continues or ends, no one knows, and it’s important to realize that this is pure roulette. You can play by your rules as long as you’re in the positive, but when you’re not, like any successful casino player, you need to become a counter. You’ll have to wait, based on your market analysis skills, for the moment when the market returns to your rules.

To summarize the above:

1. It’s necessary to segment the market. You need to define the time and volatility distance within which you’ll be earning amount X in time T.

2. You need to develop a signal system that describes and allows for market segmentation as mentioned above.

3. In the resulting market picture, you need to highlight the price movement areas you want to capture and develop rules that will enable you to do so.

4. When creating rules, you must consider that an existing movement may end at any moment. When your rules stop working, you should see a price movement in the opposite direction that fits within the rules you described, taking into account the change in price direction.

5. You need to learn to see the market well enough to distinguish when the market is ALREADY moving by your rules and when you’re waiting for the market to START moving by your rules.

I understand that what I’ve written may seem, to put it mildly, unclear. Many questions may arise, and first of all, about the very existence of such rules. Next month, I hope we will test this in the “Trading Life Hacks” section. I will describe the previous day according to such rules, on the basis of which conclusions were made. Perhaps posts will come out several times a week; perhaps there will be one post-analysis for the week. We’ll see; the format hasn’t been finalized yet. Questions, comments, suggestions — in the comments or any available way.

Regards.