The Winning Trader is the Disciplined Trader

Discipline is the bridge between goals and accomplishment. Jim Rohn

If you read enough you've probably heard the saying; "The winning trader is the disciplined trader". What that means in its basic form is you outline a specific trading plan and you follow it. Sounds simple enough, however people differ in terms of their ability to maintain self-control and discipline, especially in difficult market environments. In Neil Simon's play the "Odd Couple" Felix Ungar and Oscar Madison illustrate perfectly the stark contrast between the disciplined and the undisciplined. Felix was the neat freak, everything had its place and everything belonged in its place, Oscar on the other hand was sloppy and impulsive. But even though Oscar was undisciplined he showed signs of discipline in certain areas. Oscar was a well known sports writer and he had to show an acceptable amount of self control and discipline in order to put out his column every day. So even if you are an undisciplined person in terms of personality traits you can show discipline when completing specific tasks. And of course we are talking about the specific task of trading / investing in the markets successfully.

The lesson here is that you don't have to be disciplined all the time. You only need to be disciplined when you are putting on or taking off a trade, not during all your waking hours. Just understanding this can take some of the pressure off. Secondly it is a good idea to have a detailed trading plan written down. Specify exactly what signals will tell you to enter a trade and what signals will tell you to exit. Many traders make the mistake of leaving some of these factors unspecified and unwritten, they just "wing it". This approach will cause problems for discipline. When you don't know what to do specifically, that breeds sloppiness which leads to the loss of self control. As an added benefit to writing down your rules and writing down your reasons for each trade is that you create a log, a journal, which over time you can refer back to and learn from. You will be amazed over the next year what you will learn not only about trading but about yourself. I can't tell you how many times I've looked back and said to myself - did I really think that back then?

When you are getting ready to trade make sure your energy level is high and your stress level low. When you are tired and worn out you have little energy left to focus on managing your tasks. Be relaxed, rested, and energized. If you aren't you'll tend to make careless unnecessary mistakes!

It's healthy to be skeptical and overly cautious while planning your trade, but once you have outlined your trading plan, you must execute it with confidence. You can't question it. You can't second-guess your decisions. You must execute your plan as if you are absolutely positive it will succeed. You can mull over its success later, after the trade is through. So don't minimize the importance of self-control and discipline. The more disciplined you can trade, the more profits you'll realize.

Reprint from a May 2005 PrudentTrader Newsletter