7 STEPS TO BECOME A MORE DISCIPLINED TRADER

Definition of Discipline

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

  • The controlled behaviour resulting from such training.

  • Activity that provides mental or physical training.

  • A system of rules of conduct.

           (Source: Lexico)

Discipline is undoubtedly one of the most important character traits a trader needs to be successful. A lack of discipline is often the cause for most mistakes such as breaking rules, making impulsive trading decisions, violating risk management rules, revenge trades or over-trading – just to name a few. All these things inevitably lead to greater losses than originally expected or would have been necessary.

The following seven steps aim to facilitate discipline in trading. Discipline can be learned and is best learned by making mistakes, recognising them, and not repeating them.

"You can never make the same mistake twice because the second time you make it, it's not a mistake, it's a choice."

(Steven Denn)

Step 1

Have a trading plan and do back tests. The goal should be that you develop confidence and a strong understanding of your trading strategy. Once you know and are certain that your trading strategy is working, you can apply this plan for you.

Analyse your markets based on your trading plan. Zoom out, mark important levels and get a complete overview of the respective market. Think about different trading scenarios that might arise from your trading plan. When the market opens, wait for your specified levels. Those areas are the only ones to execute trades. This approach helps to avoid impulsive trades and entering the market too early - if you have your plan and notes permanently in front of you, you will have to consciously and actively break your rules in the event of misconduct.

"Trading opportunities are like trains, there is always one coming"

Step 2

Make a checklist. A checklist lists all the criteria that are relevant for entering / exiting the market. Every time before you enter a trade, go through your checklist and check things off. With a checklist it becomes immediately obvious whether a trade complies with your rules or not. It makes you think again about whether we will go into the market or not. This "barrier" between the market entry and the final mouse click prevents impulsive trades and over-trading. A checklist visualises the criteria which makes it easier to follow them. Make yourself aware that you alone have total responsibility for your actions and their results. Look at this from all angles - you are 100% responsible for your results.

Step 3

Think about both ways of trading - it can always work for you or against you. If you have agreed on both options with yourself before entering trade, there are no surprises - expect the unexpected. A trade that moves against you will not make you nervous because you have already dealt with this possibility and the possible loss in advance.

"There is only one side of the market and it is not the bull side or the bear side, but the right side"

(Jesse Livermore)

Step 4

Maintain a trading book. A trading book has the advantage that you can have a look at previous trades and see those notes again. See what went well and what did not go well. Trades recorded in writing are internalised much better and the risk of mistakes being forgotten is minimised. When you know that you need to note your trades in a trading book, you will think twice about making the same mistake from two pages before.

Example

Date:

Ticker:

Reasons for the trade:

Strategy / Playbook:

Time:

Result:

Conclusion:

Step 5

Decrease the time in front the charts. Often, after a trade has been entered, every tick is watched - up, down, up, down.. This constant movement can consciously or subconsciously create nervousness and consequently stress, although there is no reason for this - we have already agreed on the possibly outcomes before the trade was entered. There is also the risk that by following each individual tick we get a tunnel vision and lose sight of the bigger picture during the trade. Do not just stare at the screen when the trade has been entered but do something else - analyse your thoughts for example. Take notes or read in your trading book. Consciously take breaks and make yourself aware of your rules again and again.

"If you watch every tick, you'll trade like a dick"

(Anton Kreil)

Step 6

Analyse and reflect after each session. You are the most important part of your trading business and, as a consequence, you should mainly deal with yourself. Listen inside and consider how you reacted in different situations, what are your thoughts before and during a trade, what are your feelings before and during a trade? The more you deal with your emotions and your inner self, the less control your emotions will have on your trading results.

 

"The key to trading success is emotional discipline. If intelligence were the key, there would be a lot more people making money trading”

(Victor Sperandeo)

Step 7

Create reminders for yourself. This can be post-its on the screen, printed charts and sample trades. If things are read again and again, they are not forgotten so quickly and are internalised much more effectively.

The more often you repeat a process, the easier it becomes. It develops into a habit through the repetitions and ultimately runs automatically.

"We are what we repeatedly do, excellence then is not an act, but a habit"

(Aristotle)

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