You must learn to be a disciplined trader if you want to become a full-time consistently successful trader. There’s no way around it.
We already know that a system makes trades with a split likelihood of winning or losing money, suggesting that every system or strategy has a 50% chance of generating money and a 50% risk of losing money.
What is the one thing that swings the odds in your favour if every method has an equal chance of making or losing money? DISCIPLINE.
My aim in this blog is to remind you and hopefully show you a thing or two that will help you to become a disciplined trader. Let’s Go…
What is trading discipline?
The verb “discipline” is defined as “to train oneself to do something in a controlled and routine manner.”
To put it another way, trade discipline entails teaching oneself to do what needs to be done, when it needs to be done, and how it needs to be done, not just once, but on a consistent basis.
Why do most traders lack discipline?
Why are most traders undisciplined if discipline is the backbone of a successful trader?
I believe it is because, as traders, we have failed to comprehend and accept the facts about how the market operates.
You have an equal probability of profiting or losing on every trade you make. It’s 50:50.
Every failed transaction has a chance to develop into a winning trade. That also applies to a profitable trade.
Most beginner traders who are afraid of losing money have a bias toward the one side of trading where a lost trade has a reasonable probability of returning, making us money, or providing a break-even exit.
And so, what does an undisciplined trader do?
They start “hope” trading. He breaks the very rules he created to help him trade better. He over rides the stop-loss he put to save him from downside. He hopes this one time the market will favour him.
I have also blown trading account after another, all the while knowing this truth.
How do you become a disciplined trader?
You become a disciplined trader by religiously following the rules of your strategy.
That sounds so simple, doesn’t it?
If you don’t have a clearly defined strategy, then you can never be a disciplined trader.
You can’t call yourself a disciplined trader or expect to make money in the markets by hopping in and out of deals based on other people’s recommendations and advice. That will eventually come to an end. If you have a strategy but find it difficult to follow the system’s rules, you don’t trust your system enough to do so.
So to become a disciplined trader, you need to:
- Step 1
Create a trading strategy or system, as well as a set of trading rules.
Only once a trading method has proven itself over a long period of time can it be trusted.
Back-testing your strategy is required for this.
Your trading plan and trading rules then describe the circumstances or guidelines for what to do when you encounter a given price structure.
You will have no issue following your guidelines once you are convinced that your method gives you an advantage because you know from back-test data that you will generate money over time.
- Step 2
Make rules and stick to them. 50% of your trading success is determined by your trading system or technique. The remaining half requires the discipline to obey the system’s guidelines.
A disciplined trader sticks to the parameters of their trading strategy and sticks to it religiously. If you can achieve this obedience to your plan, you can stop going through the motions of the undisciplined trader.
Holding on to losing positions, hoping they will turn into winners.
Over-trading for fear of missing out (FOMO), for fun, or revenge trading.
Over leveraging your account.
To become consistent and disciplined trader, you should:
Have a strategy and game plan for entering and exiting trades.
Have and use proper money management while trading
Consistently and religiously follow your trading plan.
Take time to review your trades, learning from your wins and losses.
Not over trade.
As a trader, you must have complete faith in your technique, to the point where you believe it will enter a trade when it says so. As I previously stated, achieving this level of total confidence is difficult, and most traders never achieve it due to the nature of markets. A losing trade can easily become a winning trade, so minimising losses may not seem necessary.
To develop discipline, you must convince yourself that, while a lost transaction may return to provide you with a nice profit today, that same trade will wipe out your account tomorrow.
And all it takes is one bad trade to bring your account balance to zero. “A one broken rule.”
In the early days of trading, we all battled with discipline. However, you must understand that the markets function by transferring money from impulsive and undisciplined traders to disciplined ones. A trader who commits to discipline will profit handsomely.