The 3-Hour Rule

one of the most difficult things to do in trading is: patience

patience, when stock or market is not moving but your system is telling you that a move is on the cards...

patience, not to chicken out but add to the position (subject to money management and safety measures) when the market has moved adversely and your system is saying that it is in the most likelihood a bluff...

patience, not to book profit too early just because you have not seen such a good profit for long or just because you desperately need this profit but your trading system is telling you that the move is far from over.

this impatience is one of the key reasons for budding traders never making it to the next level.

i struggled with this for a long time.

over a period of time, i came up with homemade solutions some of which have stayed on and hardened as i found them brilliantly effective.

one of them is what i call "the 3-hour rule"

this rule is not for day traders but for short term traders. also, this rule is not for those who don't trade as per some system and just bet randomly or arbitrarily.

let me explain the rule with an example.

suppose you are holding a long position for a few days. the system is saying that the price/stock/index will go up. needless to say, there is a strong likelihood that there will be turbulence, and the price fluctuates.

while a seasoned and hardened trader with a not-so-scary volume of holding will be less or no fearful at the times of fluctuations, a normal mortal one will be scared a lot. especially if he/she is sitting on a profit.

at this time, our mind starts talking to itself.....sort of self-talk....and mostly the thoughts are of fear.

under such circumstances, traders tend to rivet their eyes to the screen, thereby making it easier for the operators/strong hands to hypnotize and shake them out.

so, here is the 3-hour rule.

check the price, check the system...if it says up for the next many hours or a few days, stand up and get lost or busy for 3 hours. don't check the price for the next 3 hours. mark the time or set an alarm.

so many times it has happened that a particular option was 155 (say) at 10:15am and when i checked back at 1:15pm it was at 237. you can well imagine what would have been my reaction. especially considering that had i kept staring at the screen post 10:15, the pressure to book profit would have been too much for me to bear resulting in my booking at a big compromise.

you may argue that after 3 hours it can also happen that the 155 is reduced to 55. well! possible, very much possible. but that is where the first rule of trading comes into play....trading only with a system. without a system, it would be gambling and not trading....and surely the 3-hour rule can be suicidal.

with a system (and more so with an evolved one) the probability of trade going right is much more.

with the 3-hour rule, you are allowing profits to maximize. with the system, the profits you collect when trades go right are much more eventually than the loss you suffer when the trades go wrong.

even otherwise, the prime reason for even sincere traders losing money despite getting things right 50% or more is that they book too early when right and book too late when wrong. ruthless adherence to the 3-hour rule takes care of that anomaly.

when you are not able to wait, don't wait, get busy.