Without discipline traders fail to follow their own rules. They enter and exit on a whim, or perhaps, much worse, they fail to have any trading rules at all.
In contrast a highly disciplined trader, executes their plan flawlessly without exception, even when it seems like the most difficult thing to do, or if they are trading large positions.
So, how to be disciplined? It’s about applying the right mindset and processes to your trading.
Trading is a game
If you view trading as a game, then making a mistake is necessarily a failure to follow your own rules. Viewed through this lens, perfect play becomes a lot easier to work towards. Whether you make or lose money on a trade is NOT important in the long run. What is important is that you follow the rules of the game.
Money is not important
Top traders view money as not important.
Of course they want to make money, and they are very respectful of their capital and profits, but it’s not about the money. It’s about following the correct trading processes. If they do that, then the money will come. Instead, if your focus is on the money you are making or losing, you tend to make emotional decisions based on fear and greed.
Focus your total attention on trading well, and let the results take care of themselves.
Don’t care if you win or lose on a trade
Not every trade you place is going to be a winner. Some will win, and some will lose. It’s important as a trader not to get invested in the results of any one individual trade.
So, when you trade, control your emotions. Strive for a sense of balance, no matter what the market does. If you have a win, don’t get elated. If you have a loss, don’t get upset about it. Instead, be happy at all times just to follow your own rules, and play the market game in your own way.
Trading is like rolling a dice loaded in your favour
When you place a trade, it’s helpful to think that it’s like rolling dice loaded in your favour. Trading is a game of probabilities, where the results of any one individual trade don’t matter. Over time, if you “continue to roll the dice”, your losses will be far outweighed by the profits from the wins generated by your system’s edge (your “loaded dice”).
This means that as a trader, your job is to follow your system, irrespective of whether the last trade was a win or a loss. If your system does something that results in losses, that’s just part of the system, and so it’s nothing to be greatly worried about.
Think of the next trade as the first in the next 1000 you are going to do
As humans, we tend to over-value recent results, so it is helpful to put the trade in the context of your trading lifespan.
The reality is the trade is one of potentially thousands you will place over your career as a trader. While it might be nice for the trade to go for you, the market is going to do what it does irrespective of your feelings.
If you can put the trade in this perspective, it becomes much easier to calmly accept the results – good or bad.
A plan forces discipline
Without a written plan, it is incredibly difficult to be disciplined.
If you trade with no plan, you are what is termed a “non-rules based” discretionary trader. That is, a trader that enters positions on feeling, tips, or simply what looks good at the time.
By having a set of written rules that you follow when you trade, you are exercising discipline. You enter the realm of “rules based” discretionary traders, where Market Wizard Van Tharp suggests that 90% of successful traders live (the other 10% are mechanical traders).
Have a core philosophy; without a core philosophy you are not going to be able to hold onto your position
As well as having a plan, it is very useful to develop a core trading philosophy.
By knowing what you are trying to achieve, and by being very comfortable about your trading, you can continue about your trading business with a minimum of fuss or emotion. It’s by really truly knowing what you are about as a trader that your trading discipline goes to another level.
This is why it is difficult to trade someone else’s plan. You can have a great set of rules, but if you are not in tune with the reasons behind the rules, then you will find them tricky or even impossible to follow mistake free.
This is particularly true when it comes to trading at larger sizes, or holding on to a winning position. Without understanding why you are holding on to the position, you will be tempted to grab your profit prematurely.
Objectively evaluate your progress
If you are holding yourself accountable for following your plan, you will instil a large degree of discipline in your performance.
By being honest with yourself when evaluating your progress, you will pick up on the things that are hampering you, or areas where you are making mistakes.
A good way to do this is to establish a review process for your trading. This could be done daily, weekly, or on each individual trade. This is one task that comes highly recommended if you want to achieve peak trading performance.
Furthermore, it will force you to accept unpleasant truths about your trading. Perhaps you think you have been disciplined when you have not been. There is a story in the Market Wizards books about an amateur trader who believes his wife is hiding his trading statements, when in fact he is subconsciously hiding them himself to avoid facing his losses.
While this is an extreme example, sometimes we are doing things we don’t realise we are doing until we take the time to review it.
How to integrate more discipline into your trading
There is no denying the importance of discipline.
To integrate more discipline into your trading:
- Firstly, write down your newly adopted mindset, and keep it by your trading desk. When you are making trading decisions, refer back to what you have written.
- Secondly, make sure you have your rules written down, and that you understand why they work.
- Thirdly, set up an evaluation process that ranks your performance against your rules.
If you do this, your discipline should go up several notches. Trust me, you’ll notice the difference.
This post is excerpted from “The Master Trader Mindset” lesson 15 of the Advanced Forex Course for Smart Traders (Get FREE Access)
About the Author
Sam Eder is a currency trader and author of the Definitive Guide to Developing a Winning Forex Trading System and the Advanced Forex Course for Smart Traders. He is a part owner of Forex Signal Provider fxrenew.com (You can get a free trial). If you like Sam’s writing you can subscribe to his newsletter for free.