Futures Radio is a weekly talk show hosted by 18-year futures veteran and CME member Anthony Crudele, an ex-pit trader and one of the first to trade the E-Mini S&P. Each week Anthony talks with traders, CEOs, and other proven market participants about relevant trading and investing information.

Trading Instincts vs Trading Rules

Posted on Jan 28, 2018

Subscribe for New Shows & Blog Posts
We respect your privacy.

In my interview last November with Denise Shull I spoke about using Trading Instincts vs Trading Rules.  I received several emails and messages about this so I wanted to write a post about it.

Like most new traders I began my search for trading rules by searching successful traders to see what they were using for their rules.  Once I had a bunch of rules to choose from I picked the ones that I felt were the best.  I had no way of knowing whether these rules would work for me, but I figured because successful traders were using them they should work for me.  I don’t remember exactly how many I had chosen (I think it was somewhere around 25).

They were written on trading cards and I kept them in my trading coat and put them on my desk when I was trading.  I had all of them committed to memory.  After many months of searching and picking trading rules from the all time greats I was still losing money and trying to follow all of these trading rules was just confusing and causing me to think way too much.

Was it me?  Did I have the wrong rules?

The traders I got most of these rules from were massively successful, so it had to be me…right?  I didn’t have these answers yet, but what I was learning about myself was that having 25 trading rules from legends in the trading industry was doing absolutely nothing for me.  They were useless to me because they didn’t fit my personality and my style of trading.

After evaluating the trading rules I had chosen I came to the conclusion that their rules can’t work for me.  Most of them were famous stock & ETF traders or swing futures traders that traded less than a handful of times a day or even a week.  I was a futures day trader and I traded a handful of times just in the first few minutes of the trading day!

In my opinion stock/ETF traders & futures swing traders are a different breed of trader than a futures day trader and we can’t have the same rules for execution.  Yes, we can have some rules that are the same and yes there are similarities between us, but in my experience futures day traders can’t use their rules for execution.

The biggest reason that I believe we can’t have the same rules as them is because they have a lot more time in between trades to implement their rules into their trading.  They are not trading nearly as active as a futures day trader.

I believe that day traders need to have instincts, not rules.  They have to be a part of you, they have to be second nature.  As a futures trader you have to be able to react quickly, you don’t have time to look at a piece of paper for your trading rules.

I believe that day traders need to have instincts, not rules. They have to be a part of you, they have to be second nature. As a futures trader you have to be able to react quickly, you don't have time to look at a piece of paper… Click To Tweet

After years of failure trying to follow other traders trading rules I sat down and created 9 Instincts that became second nature to me.  Here they are…

9 TRADING INSTINCTS 

  1. Be Yourself:
    • Ask yourself this question – How much am I willing to risk per day and per trade?
      • If you immediately do not know the answer, then you shouldn’t even be trading.
  2. Trade According to Risk:
    • Once your strategy gives you your Entry, Stop, and Target…Execute according to the risk price/stop.
    • The single entry price coming from your strategy does not matter, it matters where you get in and the price where are you are wrong (where you’re wrong is more important than your entry).  Sometimes I buy above my strategy entry price, sometimes I buy below it.  Same thing goes for my short entries.  I am not held by an entry price.  I have a range of execution & I typically get into the market 1/3 of my position at a time.
      • All traders must have a range of execution.  The cannot live and die by a single entry price.  They need to adjust their position size according to the risk price (the stop price).
        • Further from the risk price the smaller I would trade.  The closer to the risk price the larger I would trade.
          • I had a set amount I could risk on a trade and I adjusted my contract size depending on the situation and how far the stop would be for that particular trade.
  3. Always be a Student: 
    • Watching while you are not trading is learning.  I come in everyday and allow myself to learn from the market.
    • I put this in my arsenal and use it as an edge throughout the day and also on future trading days.
  4. React with Reason: 
    • Just because it’s slow or busy that does not mean you have to make a trade.  Trade when your strategy gives you a reason to trade.
    • I know that most of you have good work ethic and want to trade all day every day, but trading doesn’t work that way.
    • Save your mental capital and trading capital for when it makes sense to put risk on and trade.
  5. Be Aggressive: 
    • When you are making money and your strategy is paying you, keep trading and or increase your risk per trade.
    • In order to get to the next level you have to learn to be aggressive when the situation presents itself.  You make money in this business by seizing the moments when your strategy is working well and you are in the right mindset to execute it.
  6. Get Out of Losers:
    • The easiest rule to understand, but for some the hardest rule to apply.  Nobody likes to lose, especially me.
    • I’m the most competitive person I know and I hate to lose, but when my stop is reached I get out with confidence and I accept the loss.
    • Losing is a part of this business…once your stop is determined and you trade off of it…get out when its hit.
  7. Never Let Winners Turn Into Losers: 
    • Once the market gives you equal reward vs. the amount of risk that you were taking on that trade get out of at least half of that position.
    • This way you are now managing a trade with little to zero risk and have the opportunity to take that trade again and now potentially trade it with bigger size without taking on more than your risk per trade.
      • If you choose not to put that part of your position back on and your stop gets hit, you will lose less on the trade than originally intended.  In some cases you may lose nothing or even make a small profit if you took off more than half of your position.
        • None of us know whether our targets will get hit.  Manage your risk to be able to take the next opportunity when it presents itself.
          • In my career I have averaged around 50% winners to 50% losers.  In some of my best years I only had a 40% win rate, but I still had a good year because I managed the downside really well.  I did this by taking risk off. When winners were going my way I held on to them and let them work to their final targets.
  8. Know When To Stop: 
    • If you’re sick, tired, frustrated or something is on your mind…walk away.  A trader told me one time when I was fighting to make money:
      • “The market will always be here, but the question is will you?”
    • Walk away until you regain your focus.  Those words couldn’t be truer.  It takes guts to walk away when you know you should.
  9. Be Disciplined: 
    • The rule that every trader seems to have, but very few know what it means.  Most think it means to follow their strategy…yes that is true, but more importantly it means to follow your process.
    • My process begins with morning and evening Preparation, followed by Anticipation of trade setups, and then Execution of the trades.
      • Preparation, Anticipation, Execution.

These are my 9 Instincts for day trading futures and although they may not apply to your trading I hope that my approach to using instincts vs rules will be beneficial to you in your trading.  I believe that all traders need to have to their own rules or instincts that fit their personality.  Do not settle for someone else’s set of rules or instincts.  Learn from others and create your own that fit your personality and your strategy.  If you have any questions or comments please post them below or you can email me info@FuturesRadioShow.com.

Cheers,

Anthony “DELI” Crudele

19 Comments

  1. As a former open outcry trader I love this. Anthony discusses a key ingredient to greatness that can be guided, but not fully taught – the art of anticipation the follows preparation. Great note, My Man.

    Post a Reply
    • Thanks Ton!!!
      ‘Leave the gun, take the cannolis’ 🙂
      Salute my friend

      Post a Reply
  2. Simple, to the point and valuable!
    This post should be printed, kept within arms reach and reviewed regularly.

    Thanks Anthony!

    Post a Reply
  3. Most helpful, thanks Anthony.

    Good reminder that others’ great rules may not be transferable.

    I still need work on taking losses more quickly.

    Post a Reply
  4. Brillant advise, every novice should follow it.

    Post a Reply
    • Great to hear you liked it Ernie!! Cheers and all the best to you and your trading.

      Post a Reply
  5. Thank you, really needed this after getting steam rolled on Friday, the markets remain irrational longer than one can stay solvent. Need that discipline so life does not get tougher

    Post a Reply
    • Glad you found it useful Matt!! Keep yourself in the game my man.

      Post a Reply
  6. I Love it! We have the same personality Crudele! As a two week old e-mini trader (2 years equities exp.) this is like manna from heaven.

    Post a Reply
  7. Hi Anthony….
    A well written and frank commentary on what each of us, as different traders, must define as we move through the steep learning of trading. Even as a seasoned trader who still is a “student of the markets” as you say will always be that just because of the nature of this business.
    Again well done…

    Post a Reply
    • Really appreciate that Stephen. Great to hear you enjoyed the post. Cheers my friend

      Post a Reply
  8. wow
    thanks you make it sound simple
    it will become my 9 commandments for day trading

    Post a Reply

Submit a Comment

Your email address will not be published. Required fields are marked *