How to work on Trading Discipline?

To become profitable in financial trading, it is a must to be patient and wait for your pattern to form on the price chart. Without having sufficient discipline, and patience is extremely difficult. In fact, the majority of traders lose money because they are quickly bored staring at charts and open positions solely out of boredom. But discipline is not only connected to patience, but it also offers basic psychological groundwork to develop the trading strategy and follow it strictly. Trading stands on the discipline and psychology. It is a disciplined mindset that becomes successful in trading, there is no other way around. We will discuss important trading rules and practices for achieving discipline in this blog post.

The Fundamentals of Trading Discipline

Fundamentals of trading discipline encompass a set of rules and behaviors that traders need to follow to maintain control and consistency in their trading activities. Strong skills of trading patience and discipline play a major role in forming a successful trader. Key aspects of discipline in trading include:

Risk management

Traders must establish and follow clear risk parameters, including stop-loss orders and position sizing, to limit losses during trading and protect their capital.

Trading plan

Successful traders might have different trading strategies but all of them have one common characteristic, they all have a well-defined trading strategy that outlines specific entry and exit plans, along with criteria of trade selection and management. Traders adhere to the rules of their strategies to avoid impulsive decisions.

Emotional control

Successful traders have a greater ability to control their emotions or completely ignore them. According to trading legend Mark Douglas, there are four main fears: fear of being wrong, fear of losing money, fear of missing out, and fear of leaving money on the table. Emotional control which is part of a disciplined trader’s skill set ensures traders act according to their well-tested strategies rather than fears or greed. Trading psychology and discipline ensure traders can maintain their emotions under control during trading.

Patience

The most difficult skill to master without which it’s impossible to become profitable is patience. Trading is boring as traders have to wait for the exact conditions in their strategy to present themselves on the market and open positions. It is a common occurrence to open trade out of boredom and lose money. Patience is the cornerstone of trading and a critical aspect of discipline.

Record-Keeping

Traders must write down all the trading positions they have taken during trading sessions to analyze their mistakes. Checking the performance of the trading strategy and trader is impossible if there is no historical data on trades.

Adherence to Rules

Following rules is the number one challenge to developing trading discipline. Trading must be approached scientifically, and opening random positions will not give any information to the trader. Following and executing the rules outlined in the trading strategy therefore is a must.

Exercising patience, recording all trades, and sticking to rules are the golden rules of trading.

The Importance of Trader Discipline

Maintaining consistency and managing risks is a result of a trader being disciplined. It helps traders make rational decisions, control emotions, and follow the rules of their trading strategies. Discipline, therefore, increases chances of success in the long term enormously. Disciplined traders can minimize losses and do not change stop-loss after the market goes against them. Adding to losing positions because of a lack of patience and discipline can be a recipe for failure in this business. Without a disciplined mind, traders usually make impulsive decisions and react to market movements emotionally, leading to poor results and financial losses. Unfortunately, trading is not a get-rich-quick scheme and requires considerable time and effort, and without discipline achieving financial success is impossible.

Building a Solid Foundation: Trading Discipline Books

Despite today’s tendency to get all the educational from YouTube and Google, underestimating the all-time bestseller books would be a great mistake. Several books are a must for anyone wanting to become a trader.

1. “The Disciplined Trader” by Mark Douglas: As the name suggests, this book directly explains the importance of discipline in trading emphasizes the importance of discipline, and provides practical guidance on developing it. Douglas offers a comprehensive framework for understanding and developing essential skills for discipline in trading. He offers insights into how traders can identify and overcome bad trading behavior and establish a disciplined approach to financial markets.
2. “Trading in the Zone” by Mark Douglas: another timeless classic from Mark Douglas explores the trading philosophy and explains why discipline plays a critical role in achieving constant profitability. The book discusses the beliefs, attitudes, and mental states of a trader that can significantly impact their results. The book also provides practical advice to maintain discipline and focus on the process instead of chasing outcomes. Trading discipline quotes from Mark Douglas including four fears are key for successful trading.
3. “Market Wizards” series by Jack D. Schwager: This series of interviews with the most successful traders offers readers unique insights into the strategies, experiences, and mindsets of top traders. Interviews highlight the importance of discipline in financial trading, as the majority of traders interviewed in the book attribute their success to their ability to control emotions and stick to their trading plans. Sticking to a trading strategy is one of the rules of successful traders.
4. “Trading for a Living” by Dr. Alexander Elder: In the book, Dr. Elder refers to a wide range of topics related to trading, including the critical role of the trading discipline. He emphasizes that discipline is crucial for consistent success in the financial markets. The book itself provides essential guidance on risk management, trading plan development, and maintaining the psychological discipline needed to execute that plan.

All these books contain critical trading rules for beginners and experienced traders as well. We strongly advise anyone interested in trading to read these books and write down all critical lessons.

Crafting Effective Trading Discipline Rules

Trading discipline can be built by setting rules and following them strictly. Some of these rules and steps include:

Setting clear risk management rules

Set exact rules and guidelines when you will close your open position and set maximum risk tolerance for each trade. How much capital are you willing to risk making a certain amount of profit? Do not risk more than a predetermined amount for each single trade. Set maximum risk for all open positions combined as well.

Establishing a trading plan

Create a well-defined trading strategy that consists of rules on when to open a position and when to close it. This plan should also include criteria for trade selection.

Using stop-loss orders

Stop loss is a must. Always set stop-loss orders to limit potential losses for each trade. These are essential rules, and ensure you can stay in the game of trading for the long term. Stop-loss helps in preventing emotional decision-making and enforces strong risk management practices.

Avoid overtrading

Opening trades out of boredom is one of the leading causes of failure and unnecessary losses. Try to filter setups to select the best trades to maintain a clear focus on quality trades.

Managing leverage

High leverage is a double-edged sword, it amplifies both potential profits and losses. Prop firms usually offer conservative leverages of up to 1:100 which is enough to prevent overleveraged trading. 1:100 leverage means traders can open a position 100 times their trading balance.

Keep emotions in check

Emotions like fear and greed can lead to impulsive decisions. Trade when you are levelheaded, and avoid trading out of revenge. Develop your unique ways to control emotions and manage emotional reactions while trading. Following trading rules written in the trading strategy can greatly assist in this task.

Record keeping

Create and maintain a trading journal to track all your trades. Record your thoughts as comments, and write down emotions if necessary. Evaluate your performance over time using the trading journal. Writing down emotional states and then seeing the relationship between emotional states and trading results can be very useful for detecting when not to trade.

The Psychological Aspect of Developing a Trading Discipline

It takes several attempts to develop discipline and follow trading rules. Like in physical training, in trading, it is essential to develop a habit of following rules outlined in a trading plan and not open positions out of boredom or emotional imbalance. It is not difficult to develop strong discipline if the trader is dedicated and follows their rules.

Achieving Consistency: Patience and Discipline

Patience in trading is essential, as it is a must to wait for the right trading opportunities to align with your trading strategy. It involves not rushing into trades or overtrading.

Being patient allows traders to avoid impulsive decisions and enter trades only when the odds are in the trader’s favor. As a result, it helps in capital preservation.

Discipline Directly involves sticking to a well-defined trading plan and adhering to rules and risk management strategies. It helps traders remain consistent in their approach and avoid deviations from the strategy, often driven by emotions like greed or fear.

These emotions are real and the main cause of traders’ demise.

Can You Succeed Without Discipline in Trading?

As we have mentioned, trading is a complex task that requires powerful discipline and a special emotional mindset to become successful. It is possible to take a few trades with huge lot sizes and make a profit purely with lack. However, if you are planning to become a trader, then you will need a trading strategy, risk management rules, and discipline to do the same activities every day. Imagine going to a job and doing different things every single day, there is a substantial chance you will fail to meet the final goals and daily targets. Trading is similar, it takes dedication, discipline, and patience to follow the trading strategy and be consistently profitable.

The four fears mentioned above are the primary cause of the majority of traders losing money. Only a disciplined mind can keep these fears under check and become successful in the long term.

FAQs on Trading Discipline