Discipline in Key to Making Profits Trading Stocks

When stock trading, discipline can be the difference between a profit and a loss

Your stock trading education must include discipline. You can have the greatest system in the world but if you cannot follow it, what is the point?

I must admit, I have a hard time disciplining myself to follow one trading plan. I enjoy the exploration of different trading systems and ideas. As I gained understanding, it was clear to me that the actual trading part can be considered like the routine task, repeating the same things over and over while the exploration of different trading strategies is more like an adventure.

Once I totally understood my inability to stick to one trading plan, I began to work
toward developing a basic entry technique which I could use in different time frames.

While reviewing my notes, I came across a comment which I wrote on October 21, 2010. It went as follows:

I am aware that I enjoy creativity—building stock screeners—and do not enjoy
consumption, which is the actual trade, likely because trading is work and
requires a lot of time and management once I am in the trade. I am now
aware of this and am taking steps to integrate easier trading into my daily
life.

One way to do this is to commit to some type of schedule or routine which you follow any day in which you will be trading the next day. The idea of a schedule was first brought to my attention by Jake Bernstein in his book The Investor's Quotient. Your trading day should likely start the night before with some type of prep so you know what you are going to trade the next day. In the morning you would have a routine prior to the opening of the market. This would be followed by a routine you follow while the markets are open and you are trading. Finally, you would have some process to end the day and review your trades.

Discipline to Sell

Ask yourself this simple question, would you sell the stock shown in the picture below which is in an obvious bearish downtrend or hold onto it? If you cannot sell a stock with a stock chart which looks so bearish you may want to rethink your trading ambitions or you may want to rethink how good your discipline is.

According to Van K. Tharp, in "Trade your way to Financial Freedom", psychology and discipline account for approximately 60% of your trading success. Tharp talks about people who can make money using a random entry system provided they use proper money management and self control. This experiment showed that the discipline to follow a system was more important than the system itself provide of course that the system has positive expectancy.

If you set your sell stop and then move it down as the stock starts to go below your sell point, your will-power needs some work.

The first loss is generally considered to be the best loss.

You need personal control in all areas of trading:

1. Stock selection for purchase
2. When to buy the stock
3. Amount of stock to buy
4. When to sell the stock
   
5. Record keeping
   
6. Emotions

Can you control your trading? Look at your trading account. 

If it is increasing, it is because of you.
If it is decreasing it is because of you.
If it is staying the same it is because of you.
You are the driver, the decision-maker. Your results are due to you.

How do you increase your understanding of trading psychology? That is up to you. Self-control is an inner game. The profit in your trading game is a result of your inner world. Check out some of the inner game books by T. Harv Eker and Robert Kiyosaki reviewed on the self help pages.

Record Keeping Requires Discipline

No matter which time frame you trade, you will need to identify a way to keep track of your trading. You may find that keeping trading records is monotonous and something you are likely not going to do. Record keeping is part of the consumption component of trading. For myself, I find that my record keeping is not bad but could always be better.

I tend to document where I get into and out of a trade, directly on the charts. Over the years, I have traded different strategies. When I look back, sometimes I question why I even got into a particular trade. When it is well documented I understand my thought process at the time. When it is not documented well, sometimes after looking at the entry and exit, I have no idea why I took that trade.

One of the things I did not historically do was to write down my thoughts and feelings I had during the trade. However, after reading Denise Shull’s book, Market Mind Games, I now sometimes record my feelings and emotions regarding the stocks I am selecting. I still need a bit of work in this area.

Terms of Use and Website Agreement