Self Discipline

Trading success is all about discipline. The discipline to take the trade in the first place and even more importantly to take the loss when necessary. If you possess the necessary discipline to follow a profitable methodology it can lead you to financial freedom. The freedom to make as much money as you need trading for a living and work at a profession you love. You can do it all with the right amount of discipline.

Let’s break discipline down into a two part process:

1. Preparation
2. Execution

Preparation covers several aspects, such as mental preparation; thinking through the risks of each trade and most importantly, knowing when and how to get out of the trade. These aspects are crucial. Getting in most of the time is much easier than getting out. I’ve always said that I would rather be out of a trade wishing I was in it, than in a trade and wishing I was out of it.

When the market is closed, we should be preparing ourselves mentally for the next trading day. One of the most important things NOT to do is making compulsive trading decisions while the market is moving. Your preparation prior to the market open should consist of your trading plan for that trading day and you should not deviate from the plan. If you do, you are not maintaining your discipline. If you did not plan to trade a particular stock that suddenly spikes up on news, then our advice is, do not trade it, despite the overwhelming urge to get in on the action. You make get lucky and make a fast buck, but at the same time, you are proving to be a very undisciplined trader.

The execution part of discipline involves preparation for the actual trade entries. Doing the technical analysis and fundamental work needed to enter a trade with a reasonable chance at profitability. We at STHQ are technical traders, trading on pattern recognition and technical indicators. Each pattern or indicator we trade has its own probability of success and each pattern has its own measurement of risk control. We have a plan for executing every trade we make and we must follow that plan. If we deviate from the plan, then we are not disciplined.
Combining the execution process is risk control and profit protection. Finely tuned execution skills are going to account for a great percentage of your success in trading.

For the most part, risk is the only thing we can control in the trading process. Sometimes, we can’t even control risk when there is news released on a stock we own and it gaps down, but that is rare, so other than that type of thing, we can certainly control the risk of our trade most of the time.

Profit protection requires monitoring the price action in order to reduce risk as soon as possible. Once a trade begins to work, it is good money management to take steps to reduce risk in the trade. If we control our risk the probability of getting a winning streak is increased. If we don’t control our risk, the probability of financial ruin is certain.