The Disciplined Trader

What is it that makes the winning trader different from the rest? What is it that helps create that success and generate profitable trades? The answer is discipline. Discipline in the form of consistent planning, reviews and an established trading strategy. The markets are all about playing the odds and the only way to be on the winning side of the probability is to play enough times in the same fashion so that the law of averages works for rather than against you.

The fact is, without participating it is impossible to win, and in order to get that batting average you need to participate enough in a consistent fashion. As the random application of strategy will not deliver the profits in the end but this is what seems to occur with a large number of traders. They don’t stick to their trading strategy or suddenly throw caution to the wind and this loss of discipline brings their overall plan down. What is it though that makes them forget the fundamental of trading and ignore the strategy or to plan a trade?

There are several potential driving forces for such lapses or changes. The primary one has to be the trader spotting what they determine to be a golden opportunity and deciding it ‘can’t lose’. Therefore they see no need to plan, no need to put in place the usual risk management or capital protecting stops.

On the flip side, a trader may abandon the plan due to fear or anxiety or through a need to see a losing trade get back to break-even. Whatever the cause the outcome is the same in so far as putting greater risk on the capital and jeopardizing the long-term plan. But how do we ensure that we keep disciplined? How do we protect ourselves from ourselves as traders?

One method is to have a card on the wall or close to hand that reminds you of the consequences of not sticking to your trading strategy or not planning a trade. It can either be the reminder that this will cost you in the long run or a list of trades that turned out badly due to not planning. The later is the more powerful as reading the card will bring the emotions of those losses or moments of regret and put it back in the forefront of your mind such that you wish to avoid it happening again. Make the consequences clear to see at all time.

A typical failure point with traders that can cause trading strategies and plans to be abandoned is that they were never fully formed in the first place. The trader plans a trade at such a superficial level that if something outside of obvious profit or loss movement occurs they don’t know what to do. Their strategy is not specified clearly enough to help them and they freeze.

The winning trader will have every aspect of their trade identified with clear entry and exit points, protective stop points and how much will be risked on the trade. Once planned, it is much easier to then follow as it is like a detailed road map that takes the majority of the guesswork out of the journey.

The other issue that frequently comes up is fear but again this is easily overcome by having a detailed plan. It is only natural to be concerned when you see your own money on the line, especially if the markets start bouncing around.

Fear can cloud your judgment and rational thinking becomes a lot harder which is why a detailed plan is essential as it helps you stick to it as it guides you through and reduces the need to second guess. The discipline of following the plan should help control the emotions of the moment and keep the trade on track, even if it is to decide to cut the losses and exit from a losing trade.

What sets the winning traders apart from those who fail to make a long term profit is discipline and self-control. The markets on a nice clear day are easy but they don’t often stay like that and even if the markets in general remain calm there is frequently a mini pocket of turbulence during the day or the week or within a sector.

Traders enter the markets to earn money, to make a profit and for a disciplined trader the turbulent moments are often where some of the real opportunities lie as the majority panic. To not respect what it takes be a profitable trader and behaving as if it was a trip to a casino is to effectively throw your money away.

To be on the winning side requires you to have a trading strategy, plan your trades in sufficient detail and then stick to it.

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