Most trading rules fail for a reason nobody mentions: they cannot be broken.
“Manage risk properly.” “Only take high-quality setups.” “Do not be emotional.” “Follow the trend.”
You cannot violate any of those, which means you also cannot follow them. They are values, not rules, and a set of values cannot be audited at the end of the day.
This post is about writing rules that can fail, because those are the only ones that can also hold.
The four tests
A usable rule passes all four.
1. Can it be answered yes or no?
At the end of the day you must be able to mark each rule followed or not followed, with no interpretation.
Fails: “I traded with proper risk management.”
Passes: “No trade risked more than ₹2,000.”
2. Does it contain a number?
Almost every good trading rule has a number in it: a rupee amount, a count, a time, a distance. Numbers are what make a rule checkable rather than negotiable.
Fails: “I will not overtrade.”
Passes: “Maximum 3 trades per day.”
3. Can it be enforced by something other than willpower?
The best rules are executed by an order, a timer, or a closed application. The worst require you to resist an impulse at the moment it is strongest.
Fails: “I will exit if it goes against me by 30 points.”
Passes: “Stop-loss order placed at entry, 30 points from entry.”
Same intention. One is a plan to make a decision under pressure. The other is already done.
4. Is it decided before the session?
Any rule that requires calculation during market hours will eventually be calculated in your favour.
Fails: “I will stop when the loss gets significant.”
Passes: “I stop at minus ₹6,000, written on the card before the open.”
The five rules you actually need
Most traders write twenty rules and follow none. Five is enough, and these five cover the failures that produce most losses.
Rule 1: Setup criteria as a numbered checklist
Write your entry conditions as a numbered list with a required count. Maximum five conditions, each objectively checkable.
Example:
- Price above 20 EMA on the 15-minute chart.
- Pullback to the 20 EMA or prior swing high.
- Rejection candle at that level, closed.
- Between 9:30 and 14:00.
- Stop distance under 1.5 ATR.
All five or no trade.
The value is not better analysis. It is that a marginal setup now fails visibly instead of being quietly promoted.
Rule 2: Maximum risk per trade, in rupees
“No trade risks more than ₹2,000.”
Rupees, not percentages. Percentages are abstract and require calculation mid-session, which is where they get adjusted.
Set it at roughly one third of your daily loss limit, so three consecutive losses are needed to hit the limit. That gives you two chances to notice before the day is over.
Rule 3: Daily loss limit, on paper
“If I am down ₹6,000, I stop for the day.”
Written on a physical card next to your screen before the open. Not in your head, not in a file you have to open.
Rule 4: Stop as a live order at entry
“Every position has a resting stop-loss order from the moment it opens. The stop may move toward entry. It may never move away from it.”
Two sentences, and together they eliminate the most expensive habit in retail trading. The direction clause is essential, because without it you will find a reason why this particular case is different.
Rule 5: Stopping conditions
“Two consecutive full stop-outs and I am done. Three trades taken and I am done. Daily loss limit reached and I am done.”
Whichever comes first. Terminal closed, not minimised.
Rules for state, not just trades
Most rule sets cover what to trade and ignore whether you should be trading. That gap is where the worst days come from, because the degraded state usually precedes the loss rather than following it.
Add three lines to your pre-market routine:
- Hours slept: ___ (under 6 counts as a bad answer)
- Money pressure from outside the market today: yes or no
- Carrying anything from yesterday’s session: yes or no
Then the rule: two bad answers means half size, or no trading today.
Decided at 8:30, when you are still able to be honest about it.
How to write yours
Do not write rules from first principles. Write them from your own failures, because those are the only ones you need.
Step 1. Pull your last 30 trades. For each, mark whether it followed your intended process.
Step 2. For every failure, write the specific action. Not “I was emotional” but “I entered without waiting for the candle to close.”
Step 3. Count them. You will find two or three actions account for most failures.
Step 4. Write one rule per dominant failure, passing all four tests above.
Step 5. For each rule, ask: what mechanism enforces this? If the answer is “I will remember,” rewrite it until the answer is an order, a timer, an alert, or a closed platform.
Rules written this way tend to number three or four, which is the right amount.
Where to keep them
On paper, physically visible, next to your screen.
Not in a document you have to open. Not on your phone. The entire function is to be present at the moment you would otherwise break them, and anything requiring a click will not be there.
One card. Five rules. Large enough to read without leaning in.
Reviewing them
Monthly, in the evening, with no position open and the market closed.
Two questions:
- Which rule did I break most often? That one either needs a stronger mechanism or is wrong.
- Did any rule cost me money by being correct? Distinguish carefully between a rule that is genuinely too tight and a rule that simply prevented a trade you wanted.
The absolute prohibition: never change a rule during market hours. A rule changed mid-session is not a revised rule, it is a rule break with paperwork.
Frequently asked questions
How many rules should I have?
Three to five. Traders with twenty rules follow none of them, because the set is too large to hold in mind and too large to check. Cover your dominant failures and stop.
Should my rules be the same for every market condition?
Risk rules yes, always. Setup rules can be regime-dependent, but define the regimes objectively in advance, for example by an ATR or trend filter. “I trade differently in volatile markets” without a definition is not a rule.
What if a rule keeps costing me good trades?
Review it monthly, outside market hours, using data rather than memory. Count how many trades it blocked and what they would have produced. If the number is genuinely negative across 30 or more instances, adjust it. One memorable missed trade is not evidence.
My rules work until I have a losing streak. Then I abandon them.
Expected, and it means you do not know your normal losing streak. Calculate it from your win rate and write it on the card. A trader who knows to expect eight consecutive losses handles the sixth very differently from one who thought four was unusual.
Should I have rules about when not to trade at all?
Yes, and they are among the most valuable. News events, expiry day, the first fifteen minutes, days after poor sleep. Rules about when to stay out prevent more damage than most entry rules generate.
The bottom line
A rule you cannot break is not protecting you. Write rules with numbers, that can be answered yes or no, that are enforced by an order rather than by intention, and that were set before the session started.
Three to five of them, on a card, from your own failures.
Rule wahi hai jise tod sakte ho. Baaki sab sirf achhi baatein hain.
Related reading:
- The ACE Framework: Aware, Control, Execute Explained
- How to Build Habits That Actually Stick as a Trader
- The Evening Review That Fixes Tomorrow’s Trades
Want help writing yours? I run a free live session twice a week for traders with two or more years of experience who know the setups but still cannot execute under pressure. Register for the next free session here.
I am Samir Dash, founder of Mindful Trading Hub. I work with experienced traders on live market decision-making. More about my story here.
