Usually traders start to lose money when they stop following their own trading plans. When the market behaviour changes and it starts, for example, move fast, the traders who slowly react to such changes fall into despair and start to open trades disorderly. Absence of discipline and self-control in such a situation results in catastrophic consequences for their trading capital and state of mind. In this article, we will try to find out whether the discipline in trading is the main secret of success in trading in the financial markets.
In this article:
- Discipline and trading plan
- Have a wider view
- A clear trading plan is the boss
- Even more discipline?
- Awareness during trading
Discipline and trading plan
Trading setups (a trading setup is a market situation in which there are good chances to execute a profitable trade) are just a part of the equation and although a big number of traders pay too much attention to this trading aspect, many of them do not have a clear understanding of their trading setups. Perhaps you’ve heard about situations when traders executed trades only because they liked how the market ‘looked like’. It is a rather frequent phenomenon in the world of retail traders who often do not have a clear trading plan.
Independent of the approach used by a trader for the market analysis or his trading style, if his trading plan is insufficiently clear or not available at all, he will get away with it for some time. However, when the market starts to change and its volatility and, consequently, the degree of the trader’s emotions increase, the absence of a clear trading plan will become a big problem. The trader will just not have a clear understanding of how to trade in such a situation. Moreover, when he starts to lose control and discipline, one loss-making trade will quickly become a series of loss-making trades.
Have a wider view?
Concentration and ability to be here and now are the best trader’s qualities which are able to exert strong influence on achieving success in trading in the financial markets. However, the excessive concentration could become a problem leading to losing sight of what’s happening outside a narrow focus. Its negative consequences manifest themselves when a trader doesn’t see the general market situation. Do you know who trades on long timeframes?
You are right – institutional players. They set main trends which you cannot see on short timeframes. Big daily, weekly and even monthly timeframes are their trading prerogatives. These senior timeframes exert strong influence on the market developments.
A clear trading plan is the boss
There is no need to possess the exceptional discipline or iron strength of will. Of course, there will be situations on your way to success when the lack of trading discipline will come into the picture and you will need to improve it. However, in any case, each trading decision taken during one trading session will exhaust reserves of your psychic energy, which would finally result in the mental fatigue.
Just imagine such an analogy. Your strength of will is like muscles in the human body and is subject to fatigue from continuous work. Each trading decision is like a physical exercise. Your strength of will dries out in the process of taking frequent trading decisions just like the strength of muscles dries out in the process of a long physical exercise.
If the market actively moves and your trading plan is insufficiently clear, it might result in emergence of problems as fatigue accumulates. It becomes more difficult for you to quickly analyze the market developments while immediate actions could become very important with the growth of the market volatility.
Recklessness starts to undermine the self-control and discipline, which guard your trading decisions, mainly due to the absence of clarity in your trading plan and the fact that you already have had several loss-making trades in a row during a trading session. The accumulated fatigue may result in fear and shock reactions which do not play in favour of profitable trading.
Even more discipline?
Do you need more discipline to follow your trading strategy? It is difficult to give a simple answer to this question since people are different. However, it is quite evident that strengthening of discipline is not what the majority of traders should start with.
Nevertheless, it will not hurt them if they introduce more clarity into their trading plans. They also need to plan their trading on a daily basis and take into account a more general market picture to be wide awake of the changes that take place outside the intraday time-frames.
You are all right if you have a clear trading plan and the number of actually made decisions for its realization is not big. However, if you are an intraday trader who has to make a big number of trading decisions during a trading session, you take a bigger risk of losing discipline and self-control than a long-term trader.
Availability of trading rules for each market situation, which you can face in the course of trading, will relieve the process of making trading decisions of excessive load. These factors do not exclude the risk of weakening or even loss of the trading discipline but they would become a good step forward on the way to successful trading.
Awareness during trading
Training your consciousness during trading could really help you to find a balance between trading and regeneration of your psychic energy. The problem is that the more active the market, the more time you will want to spend in front of your computer and very often this process goes out of control.
Consciousness is the key ability of each person, which adds efficiency, clarity, orderliness and accuracy to everything he does.
You should understand that it will make you more attentive to appearance of the accumulated fatigue from making decisions, which would not allow you to completely exhaust your psychic energy and, consequently, undermine your trading discipline. However, it would hardly guard you from a sudden fit of recklessness. Nevertheless, consciousness in the process of trading will help you listen to yourself and make more breaks, which you need to take a rest and regenerate concentration of attention.
That is why, before you decide that the reason for your failures in trading lies in your weak trading discipline, properly study the circumstances under which it starts to grow weaker.