Trading Discipline

Develop Consistency - You can create a mind set of consistency by developing beliefs which support you in obtaining this result. In order to develop consistency, there are a number of things which you must do, including identifying your edges, defining the risk in each trade in advance, and accepting the risk to be able to exit a position when a defined loss level is realised. These and key mindsets help traders work through the issues they face in taking a trade, making the trade and executing their exit from the trade

Trading is a Probability Game - You cannot be a perfectionist and expect to be a great trader. Your losses (that you hope will return to breakeven) will kill you

This positions the trader as a reactive trader instead of a proactive trader, which increase the level of emotion the trader will feel in reacting to market movements. A written trading plan helps make a trader more systematic and objective, and reduces the risk that emotions will cause the trader to deviate from his plan.

Not taking profits on winners and Letting winners turn to losers - Again this is a function of not having a properly thought-out trading plan. Entries are easy but exits are hard. You must have a plan for how you will exit the market, both on your winners and your losers. Then your job as a trader becomes to execute your plan precisely.

Great traders do not place their own expectations on to the market's behavior, whereas poor traders expect the market to give them something - The market does not know who you are and owes you nothing. Period. When conditions change, a smart trader will recognise that, and take what the market gives.

Emotional pain comes from expectations not being realised - When you expect something, and it does not deliver as expected, what occurs? Disappointment. By not having expectations of the market, you are not setting yourself up for this inner turmoil. The market does not generate pain or pleasure inherently; the market only generates upticks and downticks. It is how you perceive and respond to these upticks and downticks that determines how you feel. This perception and feeling is a function of your beliefs. If you are still feeling pain when taking a loss according to your plan, you are still experiencing a belief that your loss is somehow a negative reflection on you personally.

The Four Major Fears - Fear of Losing Money, Being Wrong, Missing Out, Leaving Money on the Table. All of these fears result from thinking you know what will happen next. Your trading plan must approach trading as a probabilities game, where you know in advance you will win some and lose some, but that the odds will be in your favour over time. If you approach trading thinking that you cannot take a loss, then take three losses in a row (which is to be expected in most trading methods), you will be emotionally devastated and will give up on your plan.

Recommended reading: Mark Douglas, "The Disciplined Trader" and "Trading in the Zone."
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Above article was written by PSG in one of their newsletters. See www.psg-online.co.za