- You've Heard the word "discipline" many times in
relation to trading, but do you really know what it means to
the trader?
-
- Discipline has a number of definitions:
- A branch of knowledge
- A system of rules of conduct or method
of practice
- The trait of being well behaved
- Training to improve strength or self-control
- The question now is how do those definitions relate to your
trading. I always found it frustrating to hear educators talk
about the fact that I, as a trader, needed discipline and just
leave it at that. I always had a void about how discipline was
to be used. I would think to myself, ok, I need to be in control
of my trading. So, what does that mean? Here is what I discovered.
-
- There are a number of ways a trader uses discipline.
- A beginner needs to develop a style and
method of trading that is successful. During this period of simulator
trading the beginner will try many different things to see what
works best and that is good. Discipline comes into play when
the beginner decides to do live trading. He or
she must have the discipline to stick to the trading style that
works and not go trying new things while live trading.
- One of the most important ways discipline
is used is when closing a position that has hit a stop. It sounds
easy when we talk about it, but there is that nagging feeling
that as soon as you bail on the trade it will turn around in
your favor. None the less, you need to have the discipline to
always dump the trade when it hits your stop or you will eventually
suffer a catastrophic loss.
- Don't you just hate getting out of a trade
too soon and leaving money on the table? Me too, but that is
the reason we many times stay in a trade too long and end up
losing the profit we could have had. We need the discipline to
determine before hand when we will get out of the trade and stick
to doing it.
- How many times have you watched the market
reverse from a down trend and as you watch it climb you become
more and more anxious to jump in? The higher it goes the more
anxious to buy in you become until you just have to buy in. Then
the market rolls over. You know you should wait for the dip in
the market and that is where discipline comes in to play. No
one wants to miss out, but discipline will keep you from buying
in at the top of the move.
- Just imagine making 5 wining trades in
a row using 300 shares each. Nice! So, what do most traders do?
Well, logic states that if you made $300. on each 300 share trade,
changing to 1000 share trades will yield $1000. per trade. This
is so tempting, but sadly what happens is that a heavy loss occurs
on the 1000 share trade that is difficult to recover from because
fear now has the trader back to trading 300 shares again. Use
discipline to trade a lot size that is not too big for your account
and trade it consistently until you are sure that you can handle
more shares.
- There are ways to make money and keep that money, but only
by using discipline in your trading will you be successful over
the long haul.
-
- ***
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- Learning to trade is no simple task due to the skills and education
necessary. If you think that you've learned enough and are ready
to trade I hate to rain on your parade, but you are trying to
take money from the professionals and they don't like to give
their money up. How would you do as a Green Bay Packers quarterback
after just a few lessons. I know I would get squashed. For some
reason people don't think they will get squashed in stock trading,
but time and time again people lose their money; that's how the
professionals make a living. You know the old saying, "
you can lead a horse to the water, but you can't make him drink".
Well, I'm leading you to the training courses you need, but only
you can drink.
-
- There are 2 main reasons why I take the time to publish this newsletter.
The first is to share my knowledge with fellow traders because
I love profitable trading and the second is to introduce people
to Princeton's TradeTutor courses. I put an incredible amount
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