Discipline, what does it mean and how do we put it into practice when we trade?

Nov 28 • Between the lines • 1458 Views • Comments Off on Discipline, what does it mean and how do we put it into practice when we trade?

shutterstock_148454654One of the words we get used to hearing and reading at the very start of our journey as a trader is the word “discipline”. Despite the majority of us knowing what the word generally means, what the word actually means when considered in the context of trading can often be confusing.

Without a doubt the concept is incredibly important to traders’ success and in this article we’re going to list the key areas of our trader activity in order to highlight the relevant areas were our discipline as a trader becomes important…

Ask what the word “discipline” means to a group who aren’t traders and the majority will define the word and concept in both mental and physical terms. A dictionary or thesaurus might define the word and concept as;

The practice of training people to obey rules, or a code of behavior, using punishment to correct disobedience.

A list of synonyms might list something like this: control, regulation, direction, order, authority, rule, strictness, a firm hand.

It’s interesting to note that discipline as a concept, to the majority of non-traders questioned, has references to punishment; if we don’t obey the rules we’ll get punished, an emotional experience  many of us discover early on in our trading careers when we divert from our individual set of rules laid down in our trading plan.

So let’s look at the word that’s so often mentioned in trading ‘conversation’ and investigate what the relevance and meaning of the word and concept has to trading…

Discipline to be at our desks/trading set ups day after day

Many experienced and profitable traders refer to the “boring” nature of trading once they’ve discovered a method and overall strategy that consistently works (for them). Having removed emotion from their trading, after years of dedication, they simply repeat the same procedures day after day. However, the inherent discipline contained in that repetition should not be overlooked.

Whilst our trader may be repeating the same daily tasks, there are undoubtedly a raft of disciplines they’ll have to go through each day in order to put themselves in the right position to take money out of the market on a consistent basis. Moreover, the discipline to be at their desks, or bank of trading monitors at certain times each day should not be overlooked. Our trader will perhaps spend hours reading the high impact news events published and keep abreast of those to be published during the coming week. Our trader will have their charts set up a certain way on their monitors and ensure that they’re aware of levels such as the key areas of support and resistance each day. In short our traders will give themselves every opportunity to be in the right place, at the right time to take that next trade.

Discipline only to take the high probability trade set ups as they occur

Having developed a high probability trading methodology our trader needs to make sure the opportunities (when presented) are executed exactly as per the trading plan. Whether by automation, or through alerts that require manual intervention, our trader needs to take all the high probability set ups as they occur. Our trader needs to ensure that when the high probability set ups trigger they’re in the position to action those alerts. If away from ‘base’ the incredible technology available through smartphones and tablets should ensure as traders we never miss that trade.

Discipline to work to the trade plan

There is little point in perfecting an overall trading strategy and technique, then committing every aspect of our traders activities to a trading plan and then violating the trading plan. Traders must ensure that they maintain their discipline regarding their plan. There can be no deviation unless a change is deliberately made.

Discipline to not let emotions rule our trading

There is little doubt that early on in our trading career we experience a range of emotions, some will be fairly unique to us, particularly if you’ve never placed anything you’d consider describing as “a bet” into any market. Those well versed emotions of greed and fear rise to the top as we engage with the market in our early years, and these are just the principle emotions that most recognize.

It’s fair to say that trading appears to have an ability to ‘hunt out’ our weaknesses and fallibility and magi fit them in our trading. However, until we find a personal mechanism by which emotions are removed from our trading, we’ll struggle to move on. The short answer is that only time and market exposure will reduce the impact emotions have on our discipline, but we have to overcome it in order to succeed.

Discipline to repeat what works (for us)

The tendency is strong to continually tinker with a winning strategy and method. We’ll fine tune our method often by curve fitting indicators in order to what we believe is optimizing our plan. However, we may be inadvertently moving the goalposts and making the opportunity to put the ball in the back of the net more difficult. What we must do is maintain the discipline to stick to the trading plan and allow the market to distribute its often organic share of winners and losers based on probabilities. Often the best we can do is follow price and lock in profits, we have to repeat what works until it works no longer as market conditions inevitably change.

Discipline to adjust the risk for each and every trade

We must ensure that once we’ve calculated the level of stop we’re using on a particular trade we adjust our risk and position size accordingly. If we’re risking 1% of our remaining capital on an individual trade then we must calculate the position size exactly. There is no room for approximation when we’re dealing with mathematics, probabilities and finances. When we check our bank statements we don’t expect a ‘near enough’ calculation, don’t accept it where your own personal self-control and money management is concerned.

Discipline to commit each trade to our trading journal

The journal is a personal self-publication that sits alongside your trading plan. In the early days it’s essential that a trader keeps what amounts to a personal diary of all their trading activities. If the journal contains; thoughts, emotions, actions, a table of losers, winners and break even trades and a side bar for any other thoughts, then this will provide an indication of how serious our trader really is with regards to their new chosen career.

Conclusion

We’ve highlighted several areas where discipline is essential in relation to trading. As we list these it becomes apparent that trading is not a ‘near enough’, imprecise activity. We have to develop discipline across a range of skills, some of which we will naturally excel at, some of which we’ll struggle with. But in order to move towards trader behavioral excellence we have to develop discipline. Without it we have no reference points, no terms of reference, and very little hope of conquering what can be a simple business. If we concentrate on getting the basics, such as discipline right in our early trading days, our years as successful traders will be less stressful, more enjoyable and profitable.

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