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More on Impulsive Trading

When your money is on the line, it's difficult to remain calm, rational, and in complete control. What happens if you lose? How will you recover? It's natural to become consumed with self-doubt and abandon your trading plan, or act irrationally in the midst of the chaotic market action. But winning traders control their impulses. They execute a trading strategy effortlessly and flawlessly, even under the most adverse market conditions. The winning trader is disciplined. Although discipline is a key ingredient to success, not everyone is capable of maintaining a high level of self-discipline. It's worth determining where you stand on this characteristic and, if you lack self-discipline and self-control, work to build it up.

Some people are highly disciplined and very self-controlled. They scrupulously follow rules and are careful to control their impulses. They pay off their credit cards every month, are never late for an appointment, and carefully plan every detail of their lives. Although these characteristics may seem ideal for trading, there's a potential downside. Overly disciplined people often have trouble taking risks. They prefer a sure thing, and seek out consistency and safety. But trading outcomes are rarely sure things. It is often necessary to live a little on the wild side. The astute trader may not recklessly seek out risk, but he or she doesn't mind it. In the final analysis, every trader has an issue with discipline to some extent, whether it is a lack of discipline or too much of it. That said, regardless of whether discipline comes naturally to you, or you have to work at, it is essential to trade with discipline.

How do you rate your self-discipline and self-control? Do you have trouble sticking to your trading plan? Do you long for more self-discipline and self-control when it comes to your trading? How is your discipline in everyday life? Are you often late for appointments? Do you spend more money each month than your budget allows? Do you frequently find yourself breaking promises? It's not necessarily the case that a disciplined trader is disciplined in all aspects of his or her life but it helps. The life strategies we use in everyday life may bleed over into our trading life. If you often overspend, overeat, or have an unrestrained need for pleasure, you may find maintaining self-control and self-discipline while trading a little more difficult than others. But don't despair. Even the most undisciplined person can learn to trade with discipline. It merely takes time and practice.

The markets are chaotic and unpredictable, and so, it is understandable to feel unsure and unsettled at times. After a trade is executed, what happens next is anyone's guess, and this state of uncertainty can cause stress. The best way to gain control is by organizing your perceptions and activities. If you trade with a detailed trading plan, for example, you will impose structure onto an unstructured reality. You can reduce some of the feelings of uncertainty by clearly defining a target profit objective, and entrance and exit strategies. The more structure you impose and follow, the less uncertain and unorganized you'll feel. You will know what to do and when to do it. Your trading plan will be easy to follow, and you will be more in control.

It's also important to view your ability to maintain discipline as similar to a muscle. Like an actual muscle, it's necessary to build up stamina. Maintaining control takes mental energy, and humans have a limited amount of mental energy. When the limits are reached, maintaining discipline is a challenge. The best solution is to build up as much mental energy as possible, which will in turn allow you to maintain self-control. It is important to get plenty of rest and relaxation. When you're tired, the available mental energy you can devote to trading is restricted. You will have great difficulty controlling emotions and impulses. By getting the proper amount of rest, you'll have enough energy stored up to combat pessimism, stay focused, and maintain self-control.

Many traders have difficulty trading with discipline. It's tempting to trade by the seat of your pants and live with the consequences. But the winning trader is the disciplined trader. By taking steps to build your self-control skills, you'll increase your odds of success.

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Thursday, 27 February 2020

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.