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How to Trade Smarter with Rules-Based Trading Strategies

Posted by the Tradeguider Team Jul 17, 2020 9:00:00 AM


Even the most seasoned trader needs a structure around their trading activity otherwise their moves will be governed by emotion-driven whims and unquestioned habits. This structure is provided by rules of engagement and the strategy that guides the approach. We discuss how traders can improve performance by operating with rules-based trading strategies.

Why are predefined rules important in trading?

Even someone who hates cooking (unless they’ve spent their entire life being cooked for) will have acquired some knowledge of a few of the rules of kitchen science. You don’t need to be a professional chef (or even a half-decent cook) to know that, for example, we have to be careful when handling raw meat or cooking food that’s frozen.

Just as we have rules of the kitchen, so we have rules in trading. Not only do they protect you from losing your capital, but they also help to instil the need for discipline across the board. And being blunt, more discipline means more profit.  

Some trading rules are obvious and more general, like:

  • Never start trading with real money until you’ve done some demo trades
  • Be careful about trading on big-news days

Others are more specific, for instance:

  • Always look for low volume or high volume bars when scanning for trade setups
  • (If you’re a Tradeguider customer) look for at least three consecutive dots of the same colour before you determine that this is a viable opportunity 

Ensuring that you follow rules will make the difference between losing money or cashing in.

Why habit and gut instinct aren’t enough

Psychology is a key part of trading: it’s up to you whether you make your psychology work for you, or against you. 

Just because you’ve always done things a certain way, doesn’t mean those habits don’t need some performance analysis. We get attached to the familiar and become blinded to how it might be holding us back. Confirmation bias means that we see what we’ve looked for rather than allowing the charts to tell us what we should see

Avoiding confirmation bias in trading | Rules-based trading strategies

In addition, what we consider to be our gut instinct can be wrong. We might not realise how much it’s being swayed by our fear of missing a good trade, or how much our opinions have been manipulated by smart money manoeuvres. 

It’s better to have a framework that allows objective deduction to govern your trading rather than emotionality or trial and error. This is drawing on luck and whim, rather than on the collective wisdom of the trading community.

That said, the application of knowledge is power, not knowledge itself. Some traders know about the key trading rules but don’t follow them - another habit that prevents them reaching their targets. 

Examples of effective rules-based trading strategies

So, back in the kitchen, we have the rules of kitchen science and the recipes, and we need both (even if the recipe is our heads and not on paper) to get that dish on the table tasting half-decent.  

It’s the same with your trading activity. You need rules and you need a strategy, and the two together will propel you towards consistent wins. 

For instance, Tradeguider’s rules-based trading strategies tell you which time frames to monitor depending on your trading style. They then set out what to do when you have an alert for a short or long trade, how to check for confirmation, and how to manage the trade. The strategies also give guidance on stop losses and low volume bars.

TrendSetter strategy

For traders who like to do detailed chart analysis, our new ‘TrendSetter’ strategy offers a flow chart to help with knowing when to enter a trade and when to wait, giving checklists and criteria for these scenarios. Here’s a snapshot of the flow chart below:

Tradeguider's TrendSetter trading strategy flow chart

Prism strategy

The ‘Prism’ strategy for intraday stock traders and longer-term investors helps you scan your target sectors to find the strongest and weakest stocks that could lead to long or short in-trend trades. The strategy provides the structure and rules for trading those trades.

TopBot strategy

The ‘TopBot’ strategy for countertrend traders lays out what to do when you get signals of an imminent market turn and how to manage the trade. See this TopBot strategy in action, as we traded live using the strategy in a recent webinar. Learn more about countertrend trading in our recent blog: How to Know When the Reversal is Coming in Countertrend Trading.

Sharp Shooter and Super Scalper strategies

A couple of scalp trading strategies. This video of a live trading session shows professional trader Gavin Holmes, Tradeguider’s CEO, trading live with real money using the Sharp Shooter and Super Scalper strategies in the FOREX and futures markets. Sharpshooter is for scalpers who work down to 5-minute time frames and Superscalper is traders working in 1-minute time frames.

Implementing rules-based trading strategies, powered by Wyckoff VSA SMART trader software

Let’s face it, you can either reach success via the long winding and repetitive road through expensive trial and error or you can take the fast track, fuelled by indisputable collective wisdom and solid discipline. 

This is what rules-based trading strategies allow. Tradeguider has distilled the complexity of trading into a range of rules-based strategies to suit your trading style. This way you have a track to run on, knowing it’s powered by the only methodology that takes smart money manoeuvres into consideration: the Wyckoff VSA method.

Our experienced customers find that they enable greater consistency and a larger amount of trades while for new traders they accelerate their learning. Just like any recipe, all you have to do is follow the instructions. 

If you’d like a taster of how our special sauce (in the form of pre-set trading strategies) could work for you, or how to configure the software to match your own strategies, get in touch to schedule a demo.

Tradeguider is the home of Wyckoff Volume Spread Analysis (VSA). As highly experienced experts in trading techniques and trends, we use it ourselves to trade FOREX markets and can vouch for its efficacy. We share our knowledge and experience of VSA FOREX strategy (and other asset classes) on our website, from eBooks and pdfs to webinars and videos. Our trading services include trade alerts for FOREX as well as and futures, stock scanning and commodities and our mentorships and training courses address the FOREX market too. If you’d like to talk with us about how to see better returns in the FOREX market, get in touch with our experts today.

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