Trading Discipline

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Introduction

I can't over state the importance of containing emotions and maintaining discipline.  The psychological aspect of trading is extremely important, and the reason for that is fairly simple: A trader is often darting in and out of stocks on short notice, and is forced to make quick decisions. To accomplish this, they need a certain presence of mind. They also, by extension, need discipline, so that they stick with previously established trading plans and know when to book profits and losses. Emotions simply can't get in the way.  

Many traders will only trade on indicator signals as part of their trading style, thus by-passing emotions.  This may work for you, it may not, or you may want to do a little more fundamental analysis before trade entry.  After trade entry, you've got to make sure you have your loss protection in place with a stop/loss and trade management set up with defined trading targets and trailing stops in place.  You need to stick to your strategy. Your strategy may become more discretionary over time, but even then discipline plays a fundamental role in your trading dicisions.

Keep Calm.  If trades are going against you, you need to keep calm.  Don't overreact and cash in your trade, unless it's part of your overall strategy. Recognising that things may go against you before you trade, will set you up to deal with any eventuality and help you deal with your emotions.  Of course, this is not easy and will take lots of practice before it's perfected.  But, it's necessary for a healthy portfolio.

Greed is not an option.  You stand a good chance of loosing your position if you hold on to your positions for too long.  Your rational trading plan should have trading targets and trailing stops to help you manage this greed and weakness.  The old Wall St. saying "pigs get slaughtered" is a good one to remember.

Keep to your Trading Rules

It's imperative that traders define rules prior to trading.  But you need to be smart about it as discipline is not enough to be a successful trader. We'll talk about these rules in The Managing Money Module, but they are interlinked with trading psychology and worth a mention here.  If traders have a profit target of £/$/€ 5 they will either sell here manually, or sell through a previously set limit order.  They may however, place a stop order at £/$/€ 5 (once price goes beyond 5) to lock in profits, but hope the price will continue higher.  This target will be decided before the trade, based on the traders risk reward ratio, within his/her strategy.

As part of the trading system a set price target may not be the only exit criteria.  Traders may have built in an exit point based on economic news, or if volume increases or decreases, or if they've made their overall profit target on all their trades for a specific time period.  There are numerous reasons to exit a trade, just try to factor in all of them to your strategy and hold your discipline.

Is Discipline Enough?

All the discipline in the world won't help a losing, non viable, strategy become a winning strategy. Sticking strictly to the rules of a losing strategy will just make a person become an expert loser.
I think way too much emphasis is placed on discipline because it allows people who are not traders to believe that discipline is enough to succeed!!! I've been in this game for 15 years and I can tell you this, if you have a great system, you can afford to not be disciplined once in a while and you will still do great. I think we need to focus on this: 
1. WHAT is wrong with my system that I cant be disciplined with it all the time? 
2. or...Is this the right system for my personality that discipline is a problem? 
Maybe it is not me, it is the system. If you told every trader they could maker a living just buying over the previous days high and selling when it breaks any days low, would there be one person foolish enough not to be able to follow that? No! Everyone has enough discipline for that.
So, discipline isn't enough, at least not the kind of discipline that requires you to follow rules by the letter of the law. There are times when rules need to be broken...

Written by Patuca & Vincent 50


To Sum Up

It's important to be able to read a chart and have the right technology so that trades get executed, but there is often a psychological component to trading that shouldn't be overlooked. Setting trading rules, building a trading plan, doing research and getting experience are all simple steps that can help a trader overcome these little mind matters.



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=======

Introduction

I can't over state the importance of containing emotions and maintaining discipline.  The psychological aspect of trading is extremely important, and the reason for that is fairly simple: A trader is often darting in and out of stocks on short notice, and is forced to make quick decisions. To accomplish this, they need a certain presence of mind. They also, by extension, need discipline, so that they stick with previously established trading plans and know when to book profits and losses. Emotions simply can't get in the way.  

Many traders will only trade on indicator signals as part of their trading style, thus by-passing emotions.  This may work for you, it may not, or you may want to do a little more fundamental analysis before trade entry.  After trade entry, you've got to make sure you have your loss protection in place with a stop/loss and trade management set up with defined trading targets and trailing stops in place.  You need to stick to your strategy. Your strategy may become more discretionary over time, but even then discipline plays a fundamental role in your trading dicisions.

Keep Calm.  If trades are going against you, you need to keep calm.  Don't overreact and cash in your trade, unless it's part of your overall strategy. Recognising that things may go against you before you trade, will set you up to deal with any eventuality and help you deal with your emotions.  Of course, this is not easy and will take lots of practice before it's perfected.  But, it's necessary for a healthy portfolio.

Greed is not an option.  You stand a good chance of loosing your position if you hold on to your positions for too long.  Your rational trading plan should have trading targets and trailing stops to help you manage this greed and weakness.  The old Wall St. saying "pigs get slaughtered" is a good one to remember.

Keep to your Trading Rules

It's imperative that traders define rules prior to trading.  But you need to be smart about it as discipline is not enough to be a successful trader. We'll talk about these rules in The Managing Money Module, but they are interlinked with trading psychology and worth a mention here.  If traders have a profit target of £/$/€ 5 they will either sell here manually, or sell through a previously set limit order.  They may however, place a stop order at £/$/€ 5 (once price goes beyond 5) to lock in profits, but hope the price will continue higher.  This target will be decided before the trade, based on the traders risk reward ratio, within his/her strategy.

As part of the trading system a set price target may not be the only exit criteria.  Traders may have built in an exit point based on economic news, or if volume increases or decreases, or if they've made their overall profit target on all their trades for a specific time period.  There are numerous reasons to exit a trade, just try to factor in all of them to your strategy and hold your discipline.

Is Discipline Enough?

All the discipline in the world won't help a losing, non viable, strategy become a winning strategy. Sticking strictly to the rules of a losing strategy will just make a person become an expert loser.
I think way too much emphasis is placed on discipline because it allows people who are not traders to believe that discipline is enough to succeed!!! I've been in this game for 15 years and I can tell you this, if you have a great system, you can afford to not be disciplined once in a while and you will still do great. I think we need to focus on this: 
1. WHAT is wrong with my system that I cant be disciplined with it all the time? 
2. or...Is this the right system for my personality that discipline is a problem? 
Maybe it is not me, it is the system. If you told every trader they could maker a living just buying over the previous days high and selling when it breaks any days low, would there be one person foolish enough not to be able to follow that? No! Everyone has enough discipline for that.
So, discipline isn't enough, at least not the kind of discipline that requires you to follow rules by the letter of the law. There are times when rules need to be broken...

Written by Patuca & Vincent 50


To Sum Up

It's important to be able to read a chart and have the right technology so that trades get executed, but there is often a psychological component to trading that shouldn't be overlooked. Setting trading rules, building a trading plan, doing research and getting experience are all simple steps that can help a trader overcome these little mind matters.



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