Why You Should Stop Following Trading Rules, an AUD/CAD Long Trade, and More

Trade of the Week

In this week’s video we go through a straightforward long trade on AUD/CAD from Wednesday evening.

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Stop Following Trading Rules. Start Following Logic.

Most traders agree there’s no such thing as a holy grail trading strategy.

There are no perfect set of rules that you can follow step-by-step and produce consistent profits over the long-term.

And yet, if most traders took a step back and looked honestly at what they’re doing day-to-day, they’d see that’s exactly what they’re working towards.

They spend months tweaking strategies, adjusting indicators, and testing different rule combinations. Thinking they just need to find the right combination of criteria.

They’re not looking for the holy grail in name. But in practice, that’s exactly what they’re doing. They reject the idea intellectually, but they accept it through their behaviour.

The reality is, mechanical trading rarely works. Markets are too dynamic, too complex, too fluid for fixed sets of rules to capture what’s really happening.

Every trade involves judgement. And judgement is a skill, not a rulebook.

The traders who succeed aren’t the ones who memorise the most techniques or indicators. They’re the ones who can read the market situation, interpret what’s meaningful (the context), and make accurate judgements under uncertainty.

When you try to make trading mechanical, you’re removing that judgement. You’re pretending that decisions can be replaced by conditions… That if A and B happen, then C will follow. But the markets don’t obey your if-then statements.

This kind of thinking gives you an illusion of control. It feels systematic, measurable, and safe. But it’s really just a way of avoiding uncertainty… And uncertainty is where all the real skill lives.

That doesn’t mean rules are useless. They just need to be understood for what they really are.

Rules are shortcuts for applying logic efficiently. They’re summaries of reasoning, not replacements for it.

Take any rule you use in the markets. Maybe it’s something like “only trade in alignment with higher time horizons,” or “trade when price breaks this particular type of level.”

Those statements aren’t truths. They’re simplified ways of applying a certain logic about how prices move.

But if you only follow the rule without understanding why it exists, you’ll miss the deeper logic that actually makes it useful (or fail to realise when something is actually illogical!).

And that’s why the same rules that worked perfectly in one context will fail completely in another. The market conditions have changed, but your rule hasn’t.

If you understand the logic behind it, you can adapt to any situation. If you don’t, you’re stuck tweaking variables and hoping something works.

That’s why mechanical traders are constantly adjusting the parameters of their systems. They’re trying to fix symptoms of a deeper problem they haven’t actually diagnosed.

When you think logically, the rules stop being the point. You start to see why things work when they do, and why they fail when they don’t.

Here’s a simple but powerful exercise I recommend doing.

Open a new document on your computer, and write down every single element of your trading approach. Each type of level you identify, each concept you rely on, any indicators you include, every technique, pattern, process… Every rule.

Now, for each one, spend some time thinking deeply and explaining the full logic behind it. Don’t stop at the surface level. Keep asking “why?”

For example:

“I use ___ levels.”
“Why? Because there’s a higher probability of price reversing there.”
“Why does it reverse there? Because traders see it as an important level.”
“Why do they see it as important? Because it represents __________.”
“Why does that matter? Because ________.”

Then I’d recommend concluding with three important questions:

• Is there evidence of that?
• Does the rule capture the full logic?
• Is the rule necessary?

By the time you get to the end of that line of questioning, you’ve either uncovered a genuine market principle or realised there wasn’t one there in the first place.

This process not only elevates your thinking, but it also helps you uncover illogical aspects that have no real place in your trading (spoiler alert: it’s most things traders rely on!).

You start seeing which parts of your trading are grounded in real reasoning and which are just habits you picked up without thinking.

You might find that once you understand the logic, the rule itself becomes unnecessary.

Or you’ll realise when it’s appropriate to bend or ignore the rule without it being a mistake. Real skill includes the ability to adapt without losing coherence.

Trading isn’t about memorising the right checklist of actions. It’s about understanding how the market behaves and using that understanding to make logical decisions in each different context.

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Consider a Fuller Range of Potential Outcomes

“After identifying as many of the possible outcomes as we can, we want to make our best guess at the probability of each of those futures occurring. When I consult with enterprises on building decision trees and determining probabilities of different futures, people frequently resist having to make a guess at the probability of future events mainly because they feel like they can’t be certain of what the likelihood of any scenario is. But that’s the point.

The reason why we do reconnaissance is because we are uncertain. We don’t (and likely can’t) know how often things will turn out a certain way with exact precision. It’s not about approaching our future predictions from a point of perfection. It’s about acknowledging that we’re already making a prediction about the future every time we make a decision, so we’re better off if we make that explicit. If we’re worried about guessing, we’re already guessing. We’re guessing that the decision we execute will result in the highest likelihood of a good outcome given the options available to us. By at least trying to assign probabilities, we will naturally move away from the default of 0% or 100%, away from being sure it will turn out one way and not another. Anything that moves us off those extremes is going to be a more reasonable assessment than not trying at all.

This is true of most strategic thinking. Whether it involves sales strategies, business strategies, or courtroom strategies, the best strategists are considering a fuller range of possible scenarios, anticipating and considering the strategic responses to each, and so on deep into the decision tree.”

— Annie Duke, Thinking in Bets

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Think About Trading This Way and Everything Changes

In case you missed it, here’s our new video from a couple of weeks ago explaining a shift in thinking every trader should make: