March 6, 2020

The Problem of Discipline in Trading + Infographics

The Problem of Discipline in Trading + Infographics

Surprisingly, the main reason for destroying deposits is not an ill-designed strategy or a harmful money management method, but just a trivial lack of discipline among traders themselves.

But why don't we follow our own rules? After all, most of us are tech-savvy people who should be very good at it.

Reasons for Trading Discipline Violation

As for me, the key reason for it is a market misperception. We do not take it seriously – even slightly “carelessly”. Therefore, looking at the rules of our own strategy, we allow ourselves to change them “on the fly”.

Besides, many of us are simply not used to work for and report to ourselves. We don't know how to be a strict judge to ourselves.

On the other hand, this is a problem of our mentality. Two obsessions we even don't always guess about are found deep in our consciousness. These are: the thirst for freebies and “I'm smarter than other people”, “I don’t make mistakes”, “I’ll get lucky”, “It won't happen to me”.

We'll tell you a little bit about one trader. After a month of training in trading, he already believed that he could make money since he had read a lot and always stood out from the others – at least, he thought so. He was sure that others didn’t understand something, and he already knew all about trading.

The phrase itself – “All traders destroy their first deposit” – encourages you to do everything to prevent this from happening particularly to you. Therefore, when you incur your first losses, you have a fear, and then you say: “Discipline? No, I haven't heard of it”.

We think it's obvious that discipline is essential. For example, traders are also rated for their achievements in sports when they are hired in some companies. This is an excellent criterion of their discipline and competitiveness.

To know your enemy, we suggest considering the most common disciplinary violations in trading.

Disciplinary Violations are Inherent in any Strategy

If you don’t make these mistakes in trading, we can guarantee you that you will be “killing” your deposit for a very long time no matter which it is in succession.

How to Solve the Problem of Indiscipline

Observance of discipline is strongly influenced by fear and other emotions – most often, the fear of making a losing trade which entails “awkward body movements” in front of a trading terminal. One need to be cold-blooded to harness own emotions, and it is also important to realize the following things:

There is a 50% chance that each newly opened trade will be a losing one. Otherwise, if for example 60% of your trades are the losing ones, it will be the regularity and you will be able to profit from it trading in the opposite direction from these losing trades. So the question is: “How can one destroy own deposit if the chance of making a losing trade cannot be higher or lower than 50%*?». There is only one answer – non-observance of discipline that results in almost deliberate destroying of a deposit. * Commissions are excluded and it is assumed that SL=TP.

Think carefully about the words written above. As for us, when we realized this, we overcame all fears found in trading.

Here are a few more recommendations to help you be a disciplined trader:

  1. Enter the market only when you have got a signal and set a specific SL/TP (they should be set immediately).
  2. If something went wrong, close a trade and don’t open an additional one – it will prevent you from being held hostage by a losing trade.
  3. In the rest of cases, “hands off the terminal”. Let the market decide by itself on whether your forecast was correct, stay out of the trading process, let a trade be closed by SL or TP, and only then work on your errors.

In addition, observance of discipline is strongly influenced by publicity. When a person understands that his/her results are watched from the sidelines, he/she begins to behave in a more demure and rational manner. For example, one can keep public reports on some online forum for traders or, alternatively, print the following inscription on A4 size paper: “I don’t observe discipline”. Every time you don’t observe it, make your mark on the paper. Sooner or later you will feel ashamed that you’re so irresponsible and couldn’t cope with such a trivial task. It may sound ridiculous, but sometimes it's just such simple methods that yield good results.

And the last thing: if you don't observe discipline, you'll end up leaving the market and hating yourself for not being able to cope even with yourself, let alone the market.

If your deposit is suddenly destroyed while you’re disciplined, it will make you even stronger and more self-confident.