Building a rules-based process
Combine sizing, limits, a checklist and a review loop into a written plan you can follow on a bad day.
Components
A plan covers: markets and timeframes; setups with explicit entry/stop rules; risk per trade; maximum open risk; daily and weekly loss limits; what you do after hitting them; and a review schedule.
Circuit breakers stop the spiral: e.g. stop trading for the day after −2R, for the week after −5R, and cut size by half after a 10% drawdown until a review is done.
Honest expectations
Most people who try active trading do not beat simple passive benchmarks after costs. A good process improves your odds and limits damage; it does not promise profits. Paper trading or tiny size is a sensible place to learn.
Worked example
Limits in dollars (synthetic)
- Account $20,000; risk per trade 0.5% = $100 (1R).
- Daily limit −2R = −$200; weekly limit −5R = −$500.
- Max open risk 3R = $300 across all positions.
- Three losing trades today: −$100, −$100 → daily limit hit; the third trade is not taken.
Limits decided in advance protect you from decisions made under stress.
Common misconceptions
“Rules make trading rigid and less profitable.”
Rules make results measurable; you can change them deliberately after review.
“A good plan guarantees results.”
It controls risk and behaviour; outcomes remain uncertain.
Checkpoint