TradingTrading Psychology
Why trading discipline weakens or disappears altogether, and it happens that in perspective we see that we did a lot of stupid things?
Let’s start with some clarification. When talking about discipline we will have two things in mind.
The first is discipline as a single act – an act of willpower. The second is discipline as the ability to repeatedly apply willpower which manifests itself in sticking to a specific plan of action. This second discipline is the basis for sticking to the system.
We have twelve basic reasons why our trading discipline falters. Today I will give half of them.
Lack of goals and action plans
Trading is a complex endeavor, and different traders may have different perspectives, strategies and approaches to dealing with psychological challenges. Learning from a variety of sources will give you exposure to different viewpoints and magnify your ability to adapt to different market conditions.
Every trader has his or her own unique set of biases, beliefs and perspectives (often subconscious!). This can color the interpretation of the rules and limit the effectiveness of the tools.
In order to talk about discipline as sticking to a plan, we must first have a plan. Otherwise, we have nothing to “stick to.” We create a plan when we define some goal and the steps by which we can realistically achieve it.
In a narrower sense, we have discipline as the ability to execute a signal correctly. And again, I will “attach” to the terms we use. After all, what does “correct signal execution” mean? Well, it is sticking to the rules set for entry, position management and exit. Therefore, do not talk about discipline if you do not have a good understanding of the following:
- what the signal from the system looks like,
- what proper position management should look like,
- where and according to what rules you exit the market.
To sum up – we do not talk about discipline if we do not have a plan and do not know “to the end” what any of the three stages of the play looks like. Until we know this we have nothing to “stick to”.
I know I’m repeating myself, but again two days ago a trader (more than five years of market experience) with whom I was talking asked me questions about whether he was managing the position properly, perhaps he should have done otherwise.
He asked me, which I do not know his system at all!
This is very common – traders use systems they do not fully understand, do not feel.
Recommendation for action:
By the way, I advised him to take 100 screenshots of complete entries and analyze them (to see what the market can do and prepare action strategies for any eventuality) and then to practice these management strategies on a demo or simulator.
A good system and a good trading plan are like two railroad rails on which a heavily loaded train can run. If these rails are absent or weak then the result will be poor.
A good, well-rehearsed system plus a trading plan is the foundation to which, by adding discipline and more generally inner strength, you will achieve success.
Lack of life discipline, departure from exercise.
There are not two “disciplines” – life discipline and trading discipline, but there is one, and that is the ability to apply willpower.
A trader may have trouble with discipline if he is poorly disciplined in life in general.
With the right exercises, the level of discipline will slowly begin to rise. However, when you stop – it will slowly begin to fall after a while. The level of discipline drops when we laze around for a long time, for example, during vacation trips. Of course, holiday laziness is nothing bad, sometimes it is a blessing 🙂 However, it is also worth imposing on yourself some minimum tasks – like swimming x meters every day, morning jogging, push-ups, tummies, etc. This will keep your willpower levels up. When you return from vacation, you need to take a moment to “get into the cogs” again, and this is also natural.
Experienced traders in such a situation use, for example, reducing their normal rate by half for the first few trades.
Bad feeling, illness
Like laziness and vacations, illness, a cold or a bad mood (such as a hangover) can work. The state of the body has a big impact on the state of the mind, when we have a high temperature, for example, we usually do not think soberly. This also applies to the application of willpower and therefore discipline.
Recommendation
Avoid situations where we have to sit down to the market and we are not in shape. We can figuratively say that the market, the system and… our state of mind pays, so we avoid situations when we have a problem with it.
Overtrading
Overtrading comes in two main forms:
- trading with too high a stake,
- executing too many positions during a single session.
The first form gives an emotional disorder (just entering too high a position is already a violation of discipline) the second causes fatigue followed by loss of concentration.
Recommendation
The recommendation can be only one – we avoid such situations and treat their mere occurrence as a serious warning and a reason for immediate departure from the market, because something is wrong with us.
Fatigue
Fatigue from earlier work, for example, or fatigue from sitting for hours waiting for a signal. Often it doesn’t make sense because, say, we’ve let one pass and the next one may be in an hour or two.
Recommendation
Set your alarm clock for 30 minutes, no more, and lie down, preferably in bed. Sometimes I find that I get up after 12-15 minutes, my brain is calm and rested, as if I were starting the day over again. Try it out at the earliest opportunity.
NOTE: no more than 30 minutes, because if you get sleepy you feel worse and concentration is worse.
The second thing – use professional solutions and replace bright screens with dark ones with dark backgrounds. They are less glaring to the eyes and you will tire slower.
Exercise your eyes’ focal length. Exercise your eyes every hour – look out the window at some distant point on the horizon, then move your gaze to the window frame, do this 3-4 times. The exercise counteracts cumulative eye fatigue due to constant focus at close range.
Regular breaks. While sitting in front of the platform, take breaks of about 10 minutes each hour. Don’t sit for more than 3 hours at a time; most people have trouble focusing after 3 hours. If you want to sit more – do two sessions with a longer break – but use it by going for a walk, lunch.
When taking a break, change the type of stimuli – that is, turn on a computer game or watch a movie, you won’t rest that way. Ventilate yourself, your brain needs oxygen. Swapping the trading platform for a game or movie and continuing to sit in front of the computer is a bad idea, it’s best to ventilate yourself. Lack of oxygen makes us tire faster, hence the need to ventilate the room. “Cigarette during a break” is a mistake.
Force air circulation in an enclosed room. A good solution is a small fan that forces air circulation in the room. It gives air movement, meaning we breathe easier and tire slower. Can be used all year round, including winter.
Loss of faith in the system
Loss of discipline can be caused by loss of faith in one’s own system. That’s why I talk so many times about comprehensive testing and exhaustive learning of the system. The point is to have confidence in the system, in yourself, in your understanding of the market. This confidence comes through competence – comprehensive learning and practicing of the system.
Here, once again, I want to draw attention to simplicity – the more complicated a car you have, the harder it will be for you to master it. So keep it as simple as possible.
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