No discipline seems pleasant at the time, but painful. Later on, however, it produces a harvest of righteousness and peace for those who have been trained by it. Hebrews 12:11 NIV.
If you want to make a living off trading forex or stocks, you’ve got to learn how to become a disciplined trader. There’s just no way around it.
Most traders hop from system to system and broker to broker, looking for that one Holy Grail that will make them money effortlessly. I don’t blame them; trading seminars, forums, and leisurely conversations with buddies are all convoluted with systems, strategies, and all the fancy technical aspects of trading.
As traders, we often forget that the market guarantees one thing, the best system and strategy in the hands of an undisciplined trader ends one way, in huge loss.
It is then fair to state that a system plays a small role in making one a successful trader.
Don’t get me wrong. A system is essential if you want to become a disciplined trader. We shall get to that later.
But, what we know is a system generates trades that have a split probability of a win or a loss—implying that every system or strategy has a 50% chance of making money and a 50% chance of losing money.
If every system has an equal likelihood of making or losing money, then what’s that one thing that tips the odds in your favor? Discipline.
That’s why I prefer that we don’t focus on finding the Holy Grail strategy; instead, learn and understand the psychological makeup and working of the mind.
Only then can we dare the self-destructive and sabotaging demons of habits that make trad
ing a nightmare—a guaranteed affirmation of the statistics that 95% of retail traders lose eventually.
My desire in this article is to remind you and hopefully show you a thing or two that you can master the trader in you and become a disciplined trader.
Here we go.
What is trading discipline?
One evening an old Cherokee told his grandson about a battle that goes on inside people.
He said, “My son, the battle is between two “wolves” inside each of us.
One is Evil.
It is anger, envy, jealousy, sorrow, regret, greed, arrogance, self-pity, guilt, resentment, inferiority, lies, false pride, superiority, and ego.
The other is Good.
It is joy, peace, love, hope, serenity, humility, kindness, benevolence, empathy, generosity, truth, compassion, and faith.
The grandson thought about it for a minute and then asked his grandfather, “Which wolf wins?”
The old Cherokee simply replied, “The one you feed.”
The dictionary definition of discipline – the verb – is to train oneself to do something in a controlled and habitual way.
In trading, we aspire to habitually open and close trades when our trading plan says so without fear or hesitation.
In other words, trading discipline is, training oneself to do what needs to be done, when it needs to be done, and how it needs to be done and must I add all the time.
It’s that simple, yet in the simplicity, a trader often struggles to close a trade when the charts say so, even when a voice in their head is screaming, JOSHUAAAAA, get the fuck out.
That’s the raging battle of two wolves in the head of each trader.
Why do most traders lack discipline?
If discipline is the quarterback of a successful trader, why then are most traders undisciplined?
I believe it is because, as traders, we have not understood and accepted the truth about how the market actually works.
We find the truth so simple, so we seek a complicated answer to our trading problems or to extracting money from the markets.
For every trade you make, there is an equal chance of making a profit or a loss. It’s 50:50.
For every losing trade, there is a chance that the losing trade can turn to a positive. That applies to a winning trade too.
So, to most traders who fear loss, they are hell-bent on that one side of trading, that losing trade, has a fair chance to return, make us money, and stroke our ego.
And so, what does an undisciplined trader do? He breaks the rules. He hopes this one time the market will favor him.
I have blown trading account after another, all the while knowing this truth, yet I do it again and again like a turkey that would never learn the way back to its nest, again and again.
What you are unconsciously doing is feeding the evil wolf fighting against restraint, eventually your equity curve shows.
How do you become a disciplined trader?
By feeding the good wolf within you.
You become a disciplined trader by religiously following the rules of your strategy.
That sounds so simple, doesn’t it?
I want to think the actual act of trading is simple. Certainly, even a 3rd-grade kid can click the buy and sell buttons on a trading platform.
That’s how simple, I think, trading is.
But of course, being able to click the buy and sell buttons doesn’t make one a successful trader.
The market is so erratic that it won’t give you money at the execution of a button.
You need a strategy, a system, and a set of rules to work that system to make money from the trading.
If you don’t have a clearly defined strategy, then you can never be a disciplined trader. How would you be disciplined in any way?
You can’t claim to be a disciplined trader or dream of siphoning money from the markets by jumping in and out of trades based on tips and hunches or the sheer pursuit of thrill. Eventually, that ends one way.
If you have a strategy but struggle to adhere to the rules of the system, then you have an underlying problem. You don’t trust your system enough to follow its rules. So every time you break a rule, you are unconsciously massaging and helping your system.
Eventually, the wolf you feed wins.
So to become a disciplined trader, you need to:
Step one: Create a trading strategy or system and a set of rules on how to trade it.
What we are shooting for here is building our confidence that our trading actions favor us.
A trading system can only be trusted after it proves itself over an extended period of time.
This requires an investment in studying charts and practice.
You’ve got to have some screen time learning patterns. Eventually, some patterns pop out.
Your strategy is born from repeated patterns in your charts.
You then define the conditions or rules of what to do when you see them – your trading plan and trading rules.
Once you are confident your strategy gives you an edge, you will have no trouble following your rules because you know from empirical evidence that over time you will make money.
Step two. Trade. Follow the rules.
If you consider the 20/80 Pareto maxima, then a trading system or strategy accounts for 20% of your trading success. The remaining 80% is the discipline to follow the rules of the system.
The disciple to follow the rules scribbled in your trading plan by showing up each trading day to do what traders do. Trade.
A disciplined trader works within the confines of their trading strategy, meticulously, painstakingly, and religiously following their plan like traffic lights.
If you can achieve this subject level and obedience to your plan, you are will unconsciously stop going through the motions of the indisciplined trader. Motions Like.
- Holding on to losing positions, hoping they will turn into winners.
- Overtrading for fear of missing out, for fun, or make back what you lost – revenge.
- Over leveraging your account.
Motions like these will now be, oh, once I struggled with that.
Crossing over the lane of consistent and successful traders, who.
- Have a strategy and game plan for entering and exiting trades.
- Have and use proper money management while trading
- Consistently and religiously follow their trading plan – they are disciplined.
- Take time to review their trades, learning from their wins and losses.
- They don’t over trade. They’ve learned and trusted their strategy favors them in the long run.
If you are disciplined – all the time – but still struggle to turn a profit, then your trading system is in question. It doesn’t have an edge. Continue long enough, and it will not make sense for you to stick with the rules. The allure to massage the rules will win.
I don’t mind repeating myself; you will only follow your rules to the extent that you trust your strategy.
As a trader, you must be fully confident in and wholly sold –out to your strategy, so much that you trust it to enter a trade when it says so, or shut down your computer after repeated losses.
Mentally, a trader has to get himself in a place where they know that paying with rules would be like playing on the ledge of a 50 storied skyscraper—sudden and permanent death.
Like I said earlier, getting to this place of complete trust, is hard, most traders never get there because of the nature of markets. A losing trade can easily become a winning trade, so one may not see the point of cutting their losses.
To become disciplined, you need to compel yourself to understand that, though that losing trade may return to give you a handsome profit today, tomorrow that one trade will wipe out your account.
And all you need to get to zero account balance is just that one bad trade. One broken rule.
It wouldn’t matter; therefore, if through the year you were lucky that all the losing trades turned to winners, only one trade is what it takes to annihilate your account.
Flirt long often with breaking rules, feed the evil wolf long enough, and you will learn the hard way wisdom in the Chinese proverb, If you go to the mountain often enough, you will meet a tiger.
I never understood the value of this simple truth until I was consumed by depression from massive hits and losses at a price I should never have allowed to pay.
I learned the market doesn’t care an ounce about me. She’s neutral.
She punishes those who are casual with it by giving their money to the disciplined traders who have learned to respect her.
If like me and you have been trading for years, you already know these truths, yet you are still struggling. Armed with a proven strategy, you helplessly break the rules like a drug addict can’t help themselves but snort cocaine.
You wonder, how do I get myself to trust and follow my strategy?
How a trader can develop a winning mindset? A mindset that allows you to follow your rules – to be disciplined.
The first time I entered a stick car, I could never get my right leg work the gas and brake pedals with my left foot on the clutch and, at the same time, keep the eyes on the road and not on what my left hand was doing with the stick shift.
Damn, I never thought I would learn to move a manual car. But, I learned it.
That’s how you develop the discipline you need to succeed at trading.
Like learning to drive a shift car, or playing the piano or guitar, you have to get your mind to work for you on autopilot.
But how do you do that? You ask, how the hell can I work the mind, persuade it – better – hypnotize it to sheepishly stick to my system and adhere to the rules all the time?
You start small, with only the basics.
Then you do it over and over again until you don’t have to think about it any time. At this point, the mind is working for you; you no longer battle with accepting a small loss.
If you are new to trading, this will be an easy thing to do. But, if you’ve been trading for a while, you have to unlearn the bad trading habits to learn good habits.
You stop feeding the evil wolf.
You unlearn old habits by replacing them with new ones. That way, there is no conflict within you.
We’ll circle back to what we’ve already learned and methodically train our minds on the value of discipline to our trading.
How to review trade performance
This involves reviewing historical trades or using historical data to test your strategy.
Numbers don’t lie. Pull out your trading statement for the last three months and critically take a look at
- The number of winning trades
- The number of losing trades
- The size of your average winner
- The size of your average loser
- Your real winning percentage
- Your profit-loss ratio
If you are using journaling software, this information is readily available. A trading explorer like that on forexfactory or myfxbook is powerful enough to give you a snapshot of your trading performance.
Understanding the information from your trading data is critical to becoming a disciplined trader.
It shows hard facts you can wish away. If you are losing more than winning, that’s what you see.
If you care about your trading performance, you will stop and seek answers to why you are losing?
Could it be your system that doesn’t present you with an edge?
Or could it be that you are trading with your gut, without or breaking all rules?
If the problem is with the system, take the next hour or two to review and backtest your strategy.
Pull an old chart and test your system.
Stepping aside from live trading may be a strategy for you to explore until your system demonstrates you can make money.
The best way to root out the problems in your trading is by keeping a trading journal.
Keep a trading journal.
I could bet 95% of traders don’t journal their trading. That’s why most are led by their feelings than the reality of their trading.
In a trading journal, you track each detail of your trading. Logging every trade along with all the thoughts and processes that come with last.
A trading journal will quickly point out to you what timeframes you lose or make more money in. The emotional state when you lose or win, and more.
I use Edgewonk to journal my trading, and I find it amazing in helping me keep check of my trading over time.
You don’t need to purchase premium software to journal your trades. You can start with a free excel sheet or word document or even bond paper.
What is important is, track your trading in detail.
One more benefit I find with my trading journal is, it is therapeutic.
Trading truths that will help you become a discplined trader.
When you have a system that history has proven profitable, you can trust with confidence that over a certain number of trades, say 10 or 100; you will come out on top.
With confidence anchoring your heart, all you need to do is to follow the rules. Follow the strategy.
Experiment for a week or two or fifty-two. Trust that you’ve done the work in creating your system and the set of rules that allows you to extract money from the markets through that system.
Now, like a robot, enter and exit trades when all the conditions in your trading plan fall in line.
Do this each time. Always.
A strategy and confidence in the certainty of the strategy, journaling your trading process, and wrapping your mind around undisputable industry truths will help you become a disciplined trader.
Consider such truths.
You don’t need to over-leverage your account or over trade to make money from trading.
Most traders trade with money they are not willing to lose, or they are so pressed for money and hope their trading can fulfill their needs.
Hoping to return 100% on your investment in a day implies risking 100% of your investment. Is it worth it?
The deception of trading is the fact that you can double or triple or even quadruple your account in one day, but the cost may be your son’s tuition or marriage. Is it worth it?
Free your mind from the pressure on your account.
You don’t need to over-leverage your account.
Think long term – think one to two years of trading.
Suppose you start trading with a $100 account – risking 0.5% of your account daily, aiming for a 1% gain. $1 sounds small, but after one-month trading, your $100 is at $124. After one year of trading, your account is at $1,100, and in two years, you are at $18,382.
If you can grow a $100 to $18,382 in two years, why then rush and risk not only your money but your sanity too.
Show up one day at a time. The days turn to weeks, the weeks turn into months and soon the two years are like yesterday.
If earning 0.5% of an account is small, then start trading with a large account. 1% of $10,000 is $100. $100 a day, in one month, your account is at $12,400 or $1,838,200 in two years.
Do you see the logic?
If you can convince yourself that you can grow a small three-digit account to a7 digit account in 24 months, then you will find no need to risk big.
If you want to grow your account in one day, know that you are guaranteed to lose it. You may get lucky today; tomorrow you may not.
If you show up day after day, dutifully work your system with discipline, feeding the good wolf. Soon you will be ahead of the perk.
At this point, I will recommend that you spend a good portion of your time and resources to learn more about the workings of the mind. Read anything, and everything you get your hands on about the mind will power, and psychology.
We all struggle with discipline. That’s a given. But, you have to know that the markets work by taking the money of impulsive and indisciplined trader handing it over to the disciplined traders.
Also remember, No discipline seems pleasant at the time, but painful. Later on, however, it produces a harvest of righteousness and peace for those who have been trained by it. Hebrews 12:11 NIV.
Discipline produces a bumper harvest of profit to a trader who commits to it.
In parting, you can never claim you are a disciplined trader when every once in a while, you break the rules.
Remember, it only takes breaking rules once to wipe out your account.