Discipline in trading
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You have certainly heard that to be a winner in your trading, you must be disciplined. But what is discipline? Discipline is about following a set of rules and not questioning them. In trading, these rules are defined by your trading strategy which determines your position entry and exit points. This is a guideline that you must apply to each of your trades, to ALL of your trades. If you are given a bullish signal, you follow it without flinching. If your strategy tells you to cut your position, you apply this rule. You must follow your strategy to the letter, step by step.
You must not make any exceptions. If you think a little breach of the rules doesn't hurt, you're wrong. Not following your trading strategy on just one occasion can have serious consequences. It can lead to the loss of all your capital. Let’s take an example:
Let's say you have a long position on the CAC40. The price starts to fall but you believe very strongly that your bullish scenario will come to fruition. As a result, you temporarily remove your stop loss. Finally, the price keeps falling and you end up with a big red line on your trading account. The loss amounts to 20% of your capital while your strategy in normal times does not allow you to lose more than 2% per trade. This trade ruins all your efforts in just a few minutes. You finally decide to cut your position to stop the damage. You then tell yourself that you will never do it again. In your opinion, will you be able to resume trading as before by following your trading strategy again to the letter?
Well, no! This loss has changed everything. It activates emotions. You're going to want to recover. You may even think, “I’ll make up for my loss and then I promise to apply the rules of my strategy again.” But it's already too late, your emotions have taken over your trading because of your lack of discipline. You will then use more leverage. Either you will raze your trading account on the next trade or you will make up for your loss. But even in the latter case, you will continue to use much more leverage on your following trades. You will think, why be disciplined when I can earn 10 to 20% on a single trade. You will be euphoric, you will feel invincible because you have managed to make up for your loss. This overconfidence will sooner or later lead to the loss of all your capital.
Being disciplined in trading seems simple but it is actually very complex. If you are a trader, you may have already noticed this. That is due to emotions. Trading exacerbates our emotions and traps us in them. Your decisions are no longer rational, you improvise in your trading. It's the opposite of being disciplined. The problem is that many traders are looking for the excitement, the total freedom that trading offers. If you follow this path, you will always lose out in your trading.
At the risk of disappointing you, trading is boring. Following a trading strategy to the letter is boring. You have the impression of losing your freedom in your trading, of being a simple machine that executes the orders you give it, of no longer thinking, of no longer feeling any pleasure in trading. This is quite normal. Discipline in trading is boredom. The more bored you get, the better. It's sad to say, but that's the way it is. Trading is often exciting at first because you follow your intuition, you keep discovering new things, you jump into the unknown with each new trade and it's exciting. It's a bit like discovering a new job. Everything is fine at first, then routine sets in. But that's it, being disciplined in trading is the one and only way to success. This is why many traders insist on the importance of psychology in trading.
Fortunately, imposing discipline in trading has many advantages and that is what makes trading exciting. You are free to trade from anywhere and whenever you want, you are your own boss, you are constantly learning, you meet inspiring traders, and you can earn much more money than with most jobs. Being a trader is like starting a business (which is a lot of people’s dream). I suggest that you read the article: Becoming a trader is becoming a CEO.
Being disciplined 99% of the time means not being disciplined
You must not make any exceptions. If you think a little breach of the rules doesn't hurt, you're wrong. Not following your trading strategy on just one occasion can have serious consequences. It can lead to the loss of all your capital. Let’s take an example:
Let's say you have a long position on the CAC40. The price starts to fall but you believe very strongly that your bullish scenario will come to fruition. As a result, you temporarily remove your stop loss. Finally, the price keeps falling and you end up with a big red line on your trading account. The loss amounts to 20% of your capital while your strategy in normal times does not allow you to lose more than 2% per trade. This trade ruins all your efforts in just a few minutes. You finally decide to cut your position to stop the damage. You then tell yourself that you will never do it again. In your opinion, will you be able to resume trading as before by following your trading strategy again to the letter?
Well, no! This loss has changed everything. It activates emotions. You're going to want to recover. You may even think, “I’ll make up for my loss and then I promise to apply the rules of my strategy again.” But it's already too late, your emotions have taken over your trading because of your lack of discipline. You will then use more leverage. Either you will raze your trading account on the next trade or you will make up for your loss. But even in the latter case, you will continue to use much more leverage on your following trades. You will think, why be disciplined when I can earn 10 to 20% on a single trade. You will be euphoric, you will feel invincible because you have managed to make up for your loss. This overconfidence will sooner or later lead to the loss of all your capital.
Discipline and psychology in trading
Being disciplined in trading seems simple but it is actually very complex. If you are a trader, you may have already noticed this. That is due to emotions. Trading exacerbates our emotions and traps us in them. Your decisions are no longer rational, you improvise in your trading. It's the opposite of being disciplined. The problem is that many traders are looking for the excitement, the total freedom that trading offers. If you follow this path, you will always lose out in your trading.
At the risk of disappointing you, trading is boring. Following a trading strategy to the letter is boring. You have the impression of losing your freedom in your trading, of being a simple machine that executes the orders you give it, of no longer thinking, of no longer feeling any pleasure in trading. This is quite normal. Discipline in trading is boredom. The more bored you get, the better. It's sad to say, but that's the way it is. Trading is often exciting at first because you follow your intuition, you keep discovering new things, you jump into the unknown with each new trade and it's exciting. It's a bit like discovering a new job. Everything is fine at first, then routine sets in. But that's it, being disciplined in trading is the one and only way to success. This is why many traders insist on the importance of psychology in trading.
Fortunately, imposing discipline in trading has many advantages and that is what makes trading exciting. You are free to trade from anywhere and whenever you want, you are your own boss, you are constantly learning, you meet inspiring traders, and you can earn much more money than with most jobs. Being a trader is like starting a business (which is a lot of people’s dream). I suggest that you read the article: Becoming a trader is becoming a CEO.
