Discipline and trading

One of the key points of trading, and one of the most difficult to accomplish, is tight discipline. Although in trading, discipline is not a sufficient condition to achieve success; however, it is strictly necessary, even for those who decide a buy and hold strategy.

Trading discipline in stock market

In a way, there is no enterprise in human life that can be successful without discipline. Even, Anzac troops (Australian and New Zealanders fighting in World Wars under British Crown), famous for their undisciplined behavior, but also for their bravery in battle. Their undisciplined was just for the formal aspects of the normal military life, but they compensated that behavior with extreme “discipline” when fighting in the front.

When you had an Anzac soldier by your side you “knew” that position would not be deserted and would be defended until the end.

Before, we use our discipline we should have a trading plan, which should be as “rigid” as possible in terms of entries, exits, risk management and, in general, when and why we are going to trade.

If we choose to buy in X, when our “indicator” tells us, we should know at what approximate price we are going to be out whether we win or lose.

The best advice is, of course, using stop loss orders, but some traders with a lot of experience might try mental stops (with experience you can get to that level of discipline).

Once we have our trading plan, we can start trading. It may seem easy at first, but when you start trading you realize that it is very difficult to stand firm when the prices are moving fast and you encounter new situations.

Symple steps to trading discipline

With our plan we prepare our attacking and defensive points, but when we trade for real the plan may not work out as planned.

Not all trading systems work, and even less when we are novices and start trading. We may think many ways of beating the market our first years, but even when we try them with discipline, we fail.

Trading discipline day trading

That is especially true for those who try “day trading” or “hour trading”. Even with a “good” trading plan and with a lot of discipline, they are going to fail.

Discipline is not enough to win in “day trading”.

However, where we have a bigger chance of succeeding is in longer periods, the longer the better.

It is also necessary to follow a strict discipline and a plan.

For instance, if we have a system that is long in some stocks, and that system tells us to get out when the 180 days moving average is broker, we just do it without hesitation.


We should not follow our emotions when we trade, not hope, not revenge.

Hope, revenge and Trading

Hope and revenge are two of the lowest emotions that ruin many traders. A trader, or an investor, should never be carried away by emotions.

His trading should be based in cold thinking and reasoning, which does not mean we have to be “robots”.

Revenge is something that many traders experience – me included – and they try to recover what they lost previously. People tend to adopt martingale techniques.

Things may go well once, twice, or three times, but eventually it will go wrong, and we will go bust.

Vengeance should be used in a cold way. A long-term trader or investor “knows” that the time will come when he will be able to recover his losses. But he waits patiently.

A short-term or day trader – where emotions rule – will quite often break his own rules and start overtrading trying to recover his losses. Those traders eventually do not end up very well. Things like this happen thousands of times everyday to many traders all around the Globe.

Hope and revenge sometimes come together since every time we look for revenge, we “hope” this is the good one. Even worse, when we have “hope” and let run a losing position. A lot of people even try to double their bet when things go wrong. A recipe for disaster.

Hope is not bad per se.

We should have hope for a better future and hope to find a good system or trading technique that allows us to become professional traders some day. A good trading system is something that usually comes up after a lot of years of experience and thousands of battles.

Discipline and automated trading

The most popular way to eliminate the emotional part of trading is that of automated trading. That sort of trading is quite a fashion today, but I have to say that I have seen countless people going bankrupt following “good” automated trading systems.

Automated trading systems that were good (more than 100% per year) went bust in a matter of months or weeks. The algorithms stop “working” eventually quite often.

There are not many people who can build a good trading system for the long run. That is something that William Eckhard told us in “The New Market Wizards”.

Let us say that out of one hundred systems that are published as long-term “winners”, 99% of them will fail (I think it is even more than that, close to 100%). Hundreds of thousands of traders who purchase the systems or the signals fail as well.

It is true that automated trading eliminates the emotional component of trading and, therefore, sorts out the discipline problem, but it does not mean that it will work. It is quite likely that it will not work in the end.

The fact that automated trading systems are the most “disciplined” in the Wolrd does not make them good long-term systems.

An experienced trader or investor most probably has incorporated his own discipline when dealing with the markets. That is something that you just learn as years go by.

When a trade goes wrong we just get out, and that is it.

There should not be moments of doubt saying for instance: “should I wait two more ticks”.