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Trading Discipline

 

Trading discipline exists in two distinct parts:

·         Before your order is filled.

·         After your order is filled.

Let’s look at each of these categories, because both are tremendously important.

Trading Discipline Before Your Order Is Filled:

Here we are talking about all the things you do as a trader that require the consistency that comes from having good habits of preparation. Let’s look at good habits in terms of a series of questions:

·         Do you research your trades?

·         Do you study the markets?

·         Do you regularly engage in chart analysis, technical analysis, fundamental analysis — even all three?

·         Have you studied every kind of order available to you? Have you built strategies around the types of available orders, and have you come up with tactics -- ways to implement those strategies?

·         Have you thoroughly mastered your trading software and the platform from which you trade?

All of these are part of trading discipline, and still there’s more:

·         Have you practiced paper trading or trading on a simulator before launching a new strategy? This is especially necessary if you have never before traded.

·         Do you have plans for what you will do if your computer goes down in the middle of a trade? What will you do if your data feed stops working? What will you do if you inadvertently place a wrong order — or your statement shows an order you didn’t place, or doesn’t show an order you did place?

Taking care of the seemingly little things are all part of trading discipline, and I’m sure I haven’t covered everything. My purpose is to get you thinking!

Trading Discipline After Your Order Is Filled (Also called Self-Control).

There is a saying in martial arts that goes something like this: “If you are suddenly and unexpectedly attacked, you have two seconds in which to make a rational response. This response must come automatically, as part and parcel of who you are, and the response is gained through disciplined practice and repetition. Another way of describing this kind of trading discipline is to call it self-control.

All the discipline practiced before your order has been filled, including the trading discipline derived from practice and repetition, finally comes into play as self-control in a battle situation. The moment you are filled you are in battle, and if you are not fully prepared you will begin to behave emotionally. Without the discipline gained through practiced repetition resulting in self-control, you will begin to act irrationally, emotionally. Fear, greed, pride, guilt, and other emotions will come into play, causing you to fail to carry out your strategy or to implement the tactics you need for fulfillment of your trading plan.

How Do You Gain Discipline and Self-Control?

Many, many years ago, I was in the same situation in which many of you find yourself today. You are asking yourself, “How can I acquire the discipline and self-control I need to become a successful trader?

When I asked myself the very same question, I eventually discovered the solution. I began to chart my life. After all, chart reading was a huge part of my trading life. Chart reading was what I did every day. My entire world concept revolved around reading charts. Charts were one of the main ways through which I perceived the world around me.

There was another aspect to trading discipline that intrigued me. I had always heard that if I wanted to be a winning trader, I had to keep my losses small and let my winners run. Wow! Great idea, isn’t it? But no one ever showed me how to do it!

I was now confronted by two mountains. The first was how to chart my life, and the other was how to keep my losses small and let my winners run.

The answer to both seemed to come at the same time. By charting my equity, it became crystal clear to me as to how to keep my losses small and let my winners run.

Charting my life was somewhat more difficult.  I had to think hard about which factors of my life most affected my trading. I had a trading life, but how was I to break it down into chartable pieces? And what about my emotional life, how did that affect my trading? And there were still other life categories that affected my trading: my relational life was one; my financial life was another; and my spiritual life was yet another.

Eventually I came up with two tools: one I called the “Life Index;” the other I called the “Equity Evaluator.” I laboriously maintained these tools manually until the computer age. Both of these tools have now been digitized, which makes it extremely easy to enter the data and quickly see the patterns of results. Now both tools are available to assist you with your trading discipline: learn more about the “Life Index for Traders” and the “Equity Evaluator.”

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Sunday, 22 October 2017

Derivative transactions, including futures, are complex and carry a high degree of risk. They are intended for sophisticated investors and are not suitable for everyone. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results, and all of which can adversely affect actual trading results. For more information, see the Risk Disclosure Statement for Futures and Options.