The Battlefield of discipline in Trading

Friday, October 22, 2010

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DISCIPLINE
You need to understand that no amount of goals setting without discipline can lead to success. You cannot succeed in trading without discipline. No one can succeed in any business let alone trading without absolute discipline. Discipline is the bedrock of successful traders. It's the discipline that separate human accomplishment from human failure, successful traders from unsuccessful traders, winning trades from losing trades. It allows you to stay glue with your goal and desire. I really believe you and I cannot be exceptionally happy without discipline, in the same way we cannot be exceptionally organized, wealthy, and intelligent without any form of discipline. In my own views and few traders I have interviewed, trading system is rated far below discipline and money management in the ladder of success in trading business. The best place to meet people of great achievers, investors, traders, writers, lovers, fathers, etc is the club of discipline. It's the only parameter that separates you from million traders. A discipline person knows he must be willing to dedicate 100% of his time and other resources to the success of a chosen profession. No matter what it takes, he's willing to endure. The ability to execute each trade as planned is discipline. When you follow through your trading system and plans, you exercise good discipline. The trading system may be well back-tested and reliable, its discipline that will makes it work and effective. No system can be 100% accurate and generate 100% winning trades at all time thus during the drawdown, its discipline that will make you take the loser quickly and move to next trade, stick to the system as long as you believe in workability and reliability that in the long run it will generate profits. The discipline of the trader manifests in his decision taking. When you are trading, always remind yourself that discipline in terms of acceptance of the outcome of the result in whichever way is taking responsibility. You must accept the risk before you open any position. Trading should be treated like a business, uplifting yourself from realm of unconscious state of emotional and rational incompetence to mental and emotional state of competence is as result of proper preparation and discipline. When you get into a tight place and everything goes against you, till it seems as though you could not hang on a minute longer, never give up then for that is just the place and time that the tide will turn says Harriet Beecher Stowe. My experience has really helped to make simple classification of discipline in trading. Emotional, System and Professional Discipline. A trader may not be perfect in all but should strive to improve every day.

Emotional Discipline
I have read books upon books about how to remove emotion from trading yet I have not seen anyone who has successfully removed emotion from trading. I have only seen people who are aware of their emotion. You cannot totally remove emotion from trading - never. But since you understand now that your self-awareness is the most important discipline factor, you can use any level of your emotion to your advantage (conscious and unconscious). There is logical distinction between being aware of feelings and acting to change. The emotion authors, writers, and other traders are trying to explain is the unconscious emotion. These two emotions need not be generalized as emotion cannot be totally eradicated in trading. The way to work it out is through discipline and understanding by bringing the unstable unconscious emotion to stability. The moment emotion comes into awareness, evaluation set in.

From psychological point of view it's understood that unconscious action is brought into awareness, it registers in the cortex and the cortex can evaluate things anew, decide to change the outlook. Feeling (emotion) is part of decision making, analyzing it makes it rational. Traders more often than not are deceived by price actions of the market by the force of buyers and sellers who try hard to push the price action to their desirable position. The price might not be true value of a particular underlying instrument but the force of emotions by buyers and sellers at that particular time caused it. Since trading the markets are zero-sum transactions it is not mathematically possible to ever know with certainty that any trade assumption or guessing will be right except later after the position has been opened. However as price discounts the true state of the market at any particular time, a trader should understand that the price is there because that's where it should be and it's caused by the force of demand and supply. So if you as a trader feel indifference about the current price, the ability to remain in stillness and calmness position in spite of the price action movement without force of emotion to take unjustified trades is what I refer as Emotional Discipline. You must at some point in the market 'Stand down'. Do nothing other than watching the force of other buyers and sellers in the market. When you are emotionally disciplined you will stay with the principle of stillness, calmness and avoid chaos caused by other traders especially when you cannot digest element of understanding in prevailing market direction. Remember we fear what we don't understand.

Professional Discipline
No one knows all. Nobody has all the answers. Knowing that you do not know anything is far wiser than thinking that you know a lot when you really don't. A professional trader knows what he doesn't know, his weakness and make up for it. This ability of a trader to know what he doesn't know and discipline himself to seek knowledge and education for improvement in order to be a better trader not minding the cost is what I called Professional Discipline. It's a known fact that only 3% of readers read a whole book starting from chapter one. Same goes to what is being learnt or taught. The only 3% traders who strive for improvement everyday reach the professional level. To reach professional level education is the key and the only way. Nothing happens until it is discipline. Indiscipline vision is a chatter vision, indiscipline traders are failed traders. Professional discipline begins with your mind. You have to unclutter your mind from prejudices effect of the market. Direct your focus and attitude on the main thing that is happening not what you think should happen in the market. Strive to be a better trader, work on yourself and attitude.

System Discipline:
The common saying by traders and analysts is Plan your trade and trade your plan, yet only few traders stick to this simple rule. The premise of system discipline is your ability to discipline yourself to trade your system, accept the risk and outcome of your trades, win or loss after you have tested the system. The best trading system often seems idiotically simple to some traders who are unaccustomed to this sort of trading. It's the system discipline that espouses your edge after considering available mathematical facts and variables and emotional detachment from the market. Perhaps in the world of trading, no matter how discipline you are, you will experience losers. Your system will fail to generate profit. This is not new; all trading system has drawdown time. Accept and improve on it. Remember failing or losing trade is a step closer to a winning trade. Be strategically discipline and know when things are not working, thus stop. I am no better in this regards or victim of any of the discipline like other behavioral patterns of market participants. Be a wise trader who learns from mistakes of others.

Enemies of Discipline
Fear! Fear is a form of negative or positive instruction from the brain. With fear blood goes to the large skeletal muscles, such as in the legs, making it easier to flee. You want to flee from what you fear because you lack disciple. Fear is an enemy of discipline. Everybody fears one thing or another; Dr Susan Jeffries admitted and says ' As long as I continue to stretch my capabilities, as long as I continue to take risks in making my dreams come true, I am going to experience fear in fact we all fear what we don't understand. This is usually caused by ignorance or lack of understanding. Un-disciplined mind will not be patient to learn what is necessary especially in trading or analyze his fear. Fear is analysed as the greatest enemy of success in life, it's the enemy of traders. Traders have many fears such as fears of losing, fear of missing out, among other fears. This is detailed in the last edition of this magazine. There are other fears known to man such as

Fear of Failure
This is the most prevalent form of fear. All new traders have this form of fear at one point or the other. When a trader loss a trade and experience drawdown in his account beyond what he could imagine, fear gripes him and his interest of trading dwindles, he loses the drives and desire to trade again. He automatically avoids trading. This fear is caused by lack of discipline. You need to learn all you need and move on in the business. You are afraid because you don't want to fail again. Henry Ford was once asked by a journalist about advice he would give to aspiring entrepreneur, he said 'He should double the rate of his failure'. The only way to do that is doing what you afraid of.

Fear of Success
The fear of success comes from not believing that you are destiny to succeed. Earlier in my life, I fear success as undesirable element, as if it's meant for certain people until I had a turnaround in my academic. I struggled to champion a course and I succeed in doing that while those I believe to be smart are no smarter than me either. How in hell am I sabotaging victory myself, robbing myself the joy of success through fear of success? I never realized that I am not doing any good to myself neither my society admitted success as my virtue. The fundamental cause of this is your background and self-belief. Don't rob yourself of success because you deserve it. It's your nature. Everybody deserves to succeed. Stop thinking that the world will expect more from you when you succeed, the world will pay you for what you bargain. On the other hand, fears could be analysed and worked on because it could be a good source of spotting future danger. In this case it should be seen as stepping stone not stopping block.

The Fear of Unknown
Have you ever wanted to do something and you never did? Have you ever wanted to place trade after your analysis and held back? All this is caused by fear of unknown. You don't want to because you don't know what is likely to happen. When you're afraid of what you don't know, you're more inclined to almost implement a new trading strategy. For instance, you'll open a live account and then not quite follow through on everything you learned from the demo account experience. You're afraid of what will happen if you just let the strategy fly with real money. That's a good way to lose your live account. You look for confirmation here and there because you fail to analyze your fear. Yes, I have felt like this in some many ways during trading, I have overcome this by just analyzing my fear a bit more and understand why I am afraid of pulling the trigger. You will not be comfortable giving in to this kind of fear because it's an enemy of disciple. You fail to place a trade because you are afraid, some minute later you see price action swinging rapidly in that direction and what next - you bite your finger and you look stupid for not taking such trade. Now, you are angry with yourself and force yourself to take a trade, this time it swing against you and say, I know it will. This market is always against me. Doing all this will not help you as a trader, in fact it will ruin you fast as a trader. Why not start even if you may think you would fall.

DISTRACTION
If you are a trader, you would agree with me that you have lost some trades due to distraction from family member such as kids, spouse or relative if you are married while if unmarried distracted by friends, siblings, fianc? etc. Little wonder I have, when loss is insignificant and when it is, you surfer it alone. Distraction is what you experience when trading and you will feel like doing other things like sleeping, strolling, or gisting even surfing the internet. You experience different form of distraction in one way or the other in your life especially when you are not concentrating on the job at hand at the moment.

Does it mean distraction is bad at all? I don't think so, too much distraction is bad, and little sometimes might be good and refreshing. I have in many ways allowed myself to be distracted a bit from work at hand which I found to be very comfortable with. This is dangerous as we will all agree but remember there is always time to the most important thing. It's all about managing yourself. Little distraction means a lot in trading and life because it's lack of discipline and concentration, how many of us have been allowed to be distracted from a project just in time and never finished such project again, thousand. That's what distraction can lead to. Trading is now moment business especially if you are an intraday trader nobody knows what is likely to happen next so allowing yourself to be distracted can be detrimental, you have to stay focus. Avoiding distraction in your trading means doing the most important things like trade analysis, news reading, working on the chart for other purposes, writing the article or book you want to write. You need maximum concentration without internal and external form of distraction during that moment. If you are discipline enough you will avoid dangerous distraction.

DELAY
When you are allowed to be distracted you have delay in finishing the project because your distraction will make you procrastinate what to do. Procrastination is a form of delay, the act of putting off what you are supposed to do now. I am guilty of procrastination in many ways, I understand it consequence, and I worked at it everyday. I live in now moment for days and do little that count just to avoid procrastination and hesitancy. I want to be dependable, I want to finish up what I have started with deadline but not putting much pressure on myself. I want to work and have fun. I've been told that sometimes, you just can't think clearly about a project until the very last minute. I accept that as valid as this has happened to me many times. At the last minute I seem to have the mental resources to complete a project, doing this will make you happy either because it lacks character building or saps your characters. Discipline is the enemy of delay. When you are discipline as a trader you ultimately avoid delay to the last minute before preparation. You don't wake up at the time you want to trade but a little more before the time. For instance, when I decided to trade Asian Session, I just need to take a little nap before waking up. I would wake more than two hours before the Asian session begins just to avoid rush or delay in planning my trades. I try as much as possible to avoid delay, procrastinate my sleep for another hour just to take advantage of the Asian market and wake up at the middle of the night for my analysis. In order for you to succeed as a trader, (forex or future) you will need to let go some bad attitude of delay and procrastinate what seem unimportant for what is important. I learnt how to use procrastination to my advantage when I listened to Now Habit Audio Program by Neil Fiore PhD. You may want to do that also. Many a trader prefers staying in a losing trade far too long just to avoid losses. This means they are procrastinating what is more important - the exit even when they know that the potential f winning such trade has diminished. This can drain your account faster than anything. I am writing from experience, I have lived with such habit and I know how it could affect your trading also.

DESPAIR
When you trade currency online for a living, you're going to get burned severally. That's the blatant truth because you cannot with degree of certainty and accuracy know what will happen most of the time. You will be right at times and get screwed up sometime. At times like that, it's easy to lose hope. You feel like quitting every day, you feel like the market is against you all the time. You feel hopeless at certain point. Well, in trading especially when you are starting with little knowledge you are likely to experience that, but when you lose hope, you lose everything. You've beaten yourself. The best solution to this is to get the help you need to improve your discipline and your trading abilities. It's not enough to just have a positive attitude, and falsely believe that everything will turnout okay. You have to get up, do something and force yourself to take actions. Most of the time I recommend people getting a coach or someone who take them accountable for what they do.

DESTITUTION
Just as lack of hope can rob you of potential future monetary and professional gain from trading, destitution can rob you of discipline. In "Trading for Living" and "Come into My Trading Room", Dr. Elder recommended starting trading with minimum of $25,000 - $50,000. To my understanding that is the act of tackling destitution problems in trading because a trader with insufficient trading capital or no saving at all should anything happen in trading is opening a new chapter of bankruptcy in his life. Lack of fund available for trading is one the major cause of indiscipline. I know this to be true because I have been in that shoe especially when your lifestyle depends on the outcome of the trades. Trading encompasses other expenses other than your trading capital. Internet, computer malfunction, home expenses, power or electricity bill, water and other utility bill are part of the incurables. If you run out of money, your trading account surfers that's why some professional recommend trading with the money you can afford to lose.

Destitution will rob you of trading discipline and endanger your account. When you have bills to pay at the end of the month you are likely to over-trade. Over-trading will drain your trading account faster than you can ever believe. The pressure to pay bill will trigger unusual impulsive and explosive emotion that can be ruinous to your trading decision lifestyle and affect people you love most in your life. So when you are pressured to perform due to inadequate fund, it's better to avoid trading totally till you have cash down to sustain you. Exhaustion is caused by over-trading.

Abiodun Babalola


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