What is discipline? Discipline can be defined as an activity, exercise, or regimen that develops or improves a skill. Discipline is a form of training.

I am sure I am not the only trader that has found it challenging to keep discipline at the forefront of my mind at times. Losing discipline happens to every trader at some point. Your state of mind and emotional feelings at any given moment can sometimes overwhelm your longer term intentions and expectations. It then becomes very easy to lose discipline and veer off your trade plan. A disciplined trader is similar to a disciplined athlete. An athlete faces emotional and physical challenges to remain disciplined and focused on winning. Similarly, a trader must overcome certain internal and external hurdles to become a successful trader.

Your trading discipline can increase when you monitor, and take appropriate action, on these important points:

  • Have a clearly defined trade plan. It is difficult, if not impossible, to be consistent with a plan (and evaluate your consistency), without having a trade plan outlined in detail.
  • Plan for your trading day. I wrote a previous article two weeks ago on How I plan for my trading day. Being prepared can help maintain your discipline.
  • Don't be overconfident. It's very easy after a string of winning trades for a trader to become overconfident, and get off track from their trade plan. Your overconfidence may lead you to think that you “have it all figured out.” This may lead to increasing your position size too quickly, which can create more risk and more stress.
  • Loss of confidence can be just as detrimental as being overly confident. You can regain confidence in your trade plan by a combination of research and back-testing, which gives you experience in a variety of market conditions.
  • Learn to accept your losses. Losing is an inherent part of trading and can't be avoided. It is not possible to win 100% of the time. What is more important to your long-term success is to remain with your trade plan, and be willing to exit a losing trade according to your plan. When you have a losing trade, back-test the position to learn from any possible mistakes. Many believe that we learn more from our losing trades than the winners. Losses are a learning experience.
  • Be sure to adopt a trading style that meets your personality and risk tolerance, encompassing the amount of risk you are willing to accept. At times, traders stray from their plan because someone else's trade looks more “inviting”. They have the perception that it may have a higher reward with the same amount of risk. This departure from discipline can put you at an increased risk by venturing into a new strategy, outside your trade plan. This can be dangerous without adequate research, back-testing, and experience.
  • Trade appropriate position size for your trading account. Start with an amount of capital which you can afford to lose. As you become a more experienced trader, increase your capital slowly. Trading too large is a common occurrence in trading, and can result in emotional reactions that cloud calm, sound judgement and action.
  • Mental exhaustion and “computer overload” can create a loss of concentration. The market can be demanding. Watching the screen for hours at a time can make it difficult to maintain discipline. This creates fatigue which could lead to poor judgement. When time permits, take frequent breaks from your computer to clear your mind.
  • Avoid external distractions whenever possible during the trading day. These can tax a trader's attention span: whether it is construction outside your office, family visiting, or general boredom in a quiet market. Boredom can lead to over-adjusting a position that may not be part of your trade plan. You may also consider entering a new position at an incorrect time if boredom becomes a reality.

The loss of discipline can reflect a problem with your trading habits. Discipline for a trader is really no different than that of someone on a diet trying to lose weight. Someone dieting may eat the wrong foods, avoid exercise, etc. If you are taking the right action at the right time, there is little need or desire to deviate from the plan. But if you are not following your plan, it's very easy to lose that discipline. Adhering to your trade plan is a key element to maintaining discipline. When you are calm, confident, and patient in your daily trading routine, remaining disciplined becomes a simple task. This is a major step towards improving your trading results.

To quote Mark Douglas:

“Your primary goal has to be to learn how to think like a consistently successful trader. Remember, the best traders think in a number of unique ways. They have acquired a mental structure that allows them to trade without fear and, at the same time, keeps them from becoming reckless and committing fear-based errors.”

I hope this article helps make you a disciplined trader.

How do you maintain your trade discipline? Feel free to comment below.

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