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Discipline in Trading: Why it’s so Vital

Winning several trades when you start trading can feel great. Phrases like “I can do this”, “I’m good at this”, “This is easy” come into your mind. This is one of the first and most critical mistakes new traders make. It’s not about luck, it’s about discipline!

Trading is not easy. There are thousands of people, banks and funds trading every day professionally. And most of them don’t profit consistently.

Trading is as hard or even harder than a regular nine to five job. It requires knowledge, strategic thinking, tactical awareness and most of all discipline.

In a psychological experiment way back in the 1960s, a team at Stanford University gave kids a choice between having one marshmallow now or two marshmallows in 15 minutes, if they could resist having the first one.

Part of them managed to hold on to their urges, others caved in. But here comes the interesting part. Later in life those same children were tested for their overall achievement. The ones who managed to control themselves had better scores.

Trading Discipline Marshmallow

Most traders look for a quick profit, for a multiple of x5, x10 on their investment in a few days or weeks (very much like the impulsive kids in the experiment). Especially now with the cryptocurrency craze. But that’s not how it works in trading.

Financial markets for stocks, forex, cryptocurrencies, gold or oil, have a very large number of factors influencing their price and movement. Luck cannot account for guessing all of them. Not consistently.

This is where discipline comes into play. It’s not merely about looking at a chart and an analysis method with good reputation like Elliott Wave – it’s about looking at yourself, what your state of mind is and how it’s affecting your decision-making.

Here are a couple of examples of trading in an undisciplined and futile manner:

  1. Loss recovery – after you lose a trade you try to win back the losses immediately, regardless of what is happening in the market
  2. Trading too much – the quick ups and downs, checking the price, fear of missing out. There is a certain thrill about it. But trading too much because of a good thing, just like an addiction, never ends well.
  3. Incoherent trading – closing your positions too soon, opening them ahead of schedule, misreading signals – if this is happening to you then just stop trading, you’re being erratic and you’ll just continue losing.

There is good news about discipline, both in trading and in general. It’s just like a muscle. If you train it, if you make an effort – it will expand.

Trading Discipline Dumbbells

How can you make this happen? First you have to look at your limitations by observing your behavior while trading. It would be great if you can do it WHILE trading but if it’s too much, you can just keep a log of your trades and the reasons that made you open or close them. Seeing your winning and losing trades side by side will help you identify your mistakes. When you connect the dots between the losing trades and what caused them, then you can just remove them altogether.

What counts here is sticking to a predefined plan. That will give you an advantage when the next challenge comes along. Do not continue trading when you feel your discipline is getting lower – in other words – when you’re getting distracted, tired or cranky.

Discipline is the most critical factor when it comes to trading and just like in the experiment from the 60s – it will determine your future results.

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