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Trading Discipline
As traders we constantly hear about Discipline. One of the problems is the
actual definition of what it really means.. It is almost illusory.. This is
where the problem begins and ends.. Most traders don’t put enough emphasis
on this subject. They rather put all their time on developing systems and
trying to find new and exotic indicators. Traders that haven’t developed
the necessary skills of discipline are doomed to fail. They might succeed
for a period of time but that is just LUCK.
TRADE DISCIPLINE IS THE MOST IMPORTANT ASPECT OF TRADING.
A good system without discipline is not capable of success and ironically a
poor system with Discipline is more capable of success.. Funny ..
Now that maybe we are beginning to see the importance of Discipline how do
we put it into practice?? Discipline can be learned and enhanced. There
are levels and a structure to Discipline. These levels mesh together and
form a matrix. To put it in a format easily digestible is:
1..One must be diligent in keeping his data up to date. This way you will
generate valid signals.. This doesn’t mean the trades will work but they
will be a valid signal. There are many corollaries to this.. what if the
trader is too busy to keep his system up to date.. then he/she must figure
out a way that works for them or not trade that system. As a broker I have
seen so many traders make this simple flaw.. or even traders who don’t even
have to maintain a system that receive signals from either a trading
advisor or an advisory service and can’t follow the instructions. They try
to override the signals and second guess the advisor they are paying a huge
sum. The difficulty comes for them when they are in a drawdown . After 3
losing trades on to the next advisor or system. The only answer I have to
this is LET SOMEONE NOT CONNECTED TO THE FINANCIAL OR EMOITIONS OF YOUR
SYSTEM TRADE IT FOR YOU. They will be objective and will follow the rules
the way they were meant to be traded.
2.Pulling the Trigger. seeing an opportunity and actually taking the
signal are 2 complete and separate issues. May be the trader can keep his
system up to date but seizing an opportunity is a different story. Maybe it
is fear whether it is fear of a loss or even a fear of a win. Either of
these two will prohibit action. Once one has experienced a loss they will
try to avoid it. The same goes for the trader who really doesn’t want to
succeed. They might feel they don’t deserve the success. This is a much
harder issue to address than one who is afraid of a loss.
Simple ways to overcome these phobias.. One way is .. find a trading
partner.. someone who will make you honest with yourself and be
introspective or HAVE SOMEONE ELSE TRADE YOUR SYSTEM FOR YOU.
This is a quick test of Discipline .. ask yourself these questions:
1. are you losing money when your system says you should be making money??
2. is your performance identical to your systems?
3. you made money and your system lost money??
Be introspective .. look deeply at your wins and losses.. study the reasons
of the losses.. was it because of emotion?? An error? Lack of capital?
Disorganization?? How about your wins..
Another idea is to a trade diary.. write down how you feel after you put
on a trade (special situations before you put the trade on ..problems with
the kids or spouse).. the time.. date .. the reasons for entry… and be
specific.. time.. date the trade was closed .. reasons for exit… then
examine this a week after and look for patterns.. It could be that you
had a fight with someone and were nervous or even that you listened to
someone while you were trading.
Discipline can be as easy as following your signals or as complex as you
want to make it.. KEEP IT SIMPLE .. BE EASY ON YOURSELF..ONCE YOU HAVE
TAKEN THIS STEP OF REALIZING … SUCCESS IS NOT TO FAR OUT OF HAND..
WITH DISCIPLINE COMES THE POTENTIAL FOR SUCCESS IN TRADING.. RISK IS
REDUCED ..PROFITS ARE POSSIBLE AND DRAWDOWNS MIGHT BE REDUCED..
Andrew Abraham CTA
Angus Jackson
www.angusjackson.com
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