Here are the Rules:

1. Every human endeavor is played out like a game and each has its own rules that are specific to it.

2. Do not assume that you know what the rules are – especially if you are applying logic or past experience to a new game.  Learn the rules of the game you are playing.

3. If you want to find out what the rules are, look for the most successful player and study him. He will be a master player.

4. Develop relationships with the successful players.  Ask them for advice and seek their protection until you become a skillful player.

5. Step into the game slowly and only after much preparation and practice. DO NOT LEAP into the game unprepared.

6. Bring enough chips to the game so that you are not forced to leave the table before you have learned how to play.

7. Make a clear list of the rules in your head and/or on paper so you know what they are.  Then, set them to memory.

8. Commit to following these rules, as you understand them. Acknowledge the cost of not following them.

9. If you decide that you do not like the game and do not want to play by its rules, be very clear that you must leave the game.

10. NEVER whine because you were forced to leave the game for failing to play by its rules.

There is no shame in leaving a game when you do not like or agree with the rules. Find a game where you can excel and the rules are consistent with your values. On the other hand, no points are ever awarded for being clueless or for staying that way. David is a nice young man who flaunted the most sacred rule of his organization and he will soon be paying the price. My hope is that someday he will seek me out as his coach and I will be able to teach him how to play any game he chooses and emerge as a winner.

If trading is a game that has its own rules, and if washing out of trading is the price you pay for failing to play by those rules, exactly what are those rules?

I have listed below some of the most important general rules of trading as a profession. These rules are not the technical rules that can be mastered through reading, taking a few courses, and practice in paper trading. Nor are they the trading rules that you will develop for entering and exiting trades. These are the rules of the game that allow you to enter the game and stay in it long enough to become a successful professional.

Here are the Rules:

1. In trading, the winner takes all because trading is a zero-sum game. There are no second or third place prizes handed out in trading. There is nothing warm and fuzzy about the markets. For people who have ever played in arenas where an effort is made to support the loser and to humanize the game, this is a difficult and painful concept to wrap oneself around. There is much at stake in trading and losing can mean losing everything and being forced to leave the game. If this level of risk is unacceptable, you are getting a clear signal to find another game to play.

2. You cannot play to win without the admission price. This ‘no-tickee-no-washee’ rule is another of the painful realities of trading.  Attempting to trade without sufficient capital is the equivalent of fighting the U.S. military with slingshots or taking on the Mensa club with the patients from the Alzheimer’s wing.  Sufficient capital for entering trading falls in a range with the very bottom being approximately $25,000 and has no upper limit.  This capital cannot be money that is needed to live on. 

A new trader must have another source of income that can be counted upon to supply his family’s needs for at least three years. You will hear traders argue that these figures are too high, but they are the few who have survived. The others are already out of the game, having lost all their capital. If a trader is playing with too little capital, he will have no room to experience the losses and remain in the game. In addition, he will be playing scared, which is a like dueling with both arms tied behind your back.

3. Preparation is required. The trader who has read everything, taken every course, attended every workshop, done endless research, developed his own trading system, back-tested it thoroughly, paper-traded for an extensive period of time is a prepared trader.  Match this prepared trader against a cowboy trader who is shooting from the hip without any target practice and you can apply Rule Number One. The professional can start counting his money before the first volley is fired.

4. Psychology is more important than smarts and/or formal education. I have worked with incredibly successful traders who did not make it through high school. What they had going for them, in each case, was the right psychology. And what is that ? They were trading with confidence and focus with a sense of calm, with a love of the process, and without the baggage of fear, greed, and unresolved psychological issues that lead to self-sabotage. 

This advanced state of psychological balance is rare. Some individuals are born with it but most acquire this state through commitment, effort, the willingness to do the hard work and confront their fears and the willingness to make the investment in money and time to deal with their issues.
 
5. Develop discipline. This rule is a subset of Rule Number Four, but it is so important that it deserves its own category.  Discipline is what motivates a trader to do the hard things that must be done rather than taking the easy way out, which, in trading, is usually the wrong way. Discipline allows a trader to say ‘no’ to destructive behavior and ‘yes’ to the scary things in trading like dealing with loss and money management.