Tips to trading with discipline (Part 1)

Discipline is arguably the differentiating factor between the good traders and the best traders; or even the profitable traders and non-profitable traders.

· 4 min read
Tips to trading with discipline (Part 1)

In a previous article titled "Can I trade full time for a living", we had spoken about the advantages and disadvantages of being a full-time trader and also what it takes to be a full-time trader. In that article, we had mentioned that the secret of successful traders isn't any magic indicator, but having the passion to succeed in the field along with intense hard work, practice, and discipline, just like any field.

While it may sound obvious, it is important to speak more about this aspect of trading, as this is arguably the differentiating factor between the good traders and the best traders; or even the profitable traders and non-profitable traders.

Backtesting your strategies

While a good strategy, in theory, is a great starting point, it is not enough to be a profitable trader in itself. A lot of strategies tend to fail when tested in the real live markets, simply because strategies are based on past performances and recurring patterns, and the market does not show one recurring pattern always.

That's why it's important to backtest your strategies on different market days, on different market conditions, and even on different scripts, so you can get a hang of when your strategies work and when they don't.

Sticking to your plans

Taking an impulsive decision based on how the market is performing in a small time frame can act as a major distraction to your plans. Your plans are a result of hours of backtesting and thinking and you do not want to enter a trade with an untested strategy simply because of your emotions.

Besides, what's the point of having planned so much if you take trades based on your emotions and intuition alone?

Accepting a loss

Arguably the biggest reason why most traders fail in their overall trading journey is their inability to say "alright, this trade has not worked out. Let's take a small loss in this one and move on", despite most investors, traders, brokers, businessmen advising so. Know that as a trader, you are not here to fight with the market; you are here to ride the market and make money as it goes up or down. And it's very natural that you just wait for the price to come back to the previous levels because you don't want to feel wrong in your decision. However, being wrong in the short run is completely alright and is part of the game.

No batsman can hit a century in every innings, sometimes even Virat Kohli gets out on a duck.

Before entering any trade, ensure you have a stop-loss set, which is an amount you can afford to lose in that particular trade. Either specify a hard stop-loss to your broker or mentally set one and follow it if it does hit the level.

Taking time off on bad days

There is no single trader on earth who does not have a bad day. Even the best traders can get rattled by the market and this is the very nature of the trading game. However, when things are not going right, you need to ensure that you don't get agitated and try to revenge trade. A very good piece of advice given by top traders is to walk away from your trading system when things are not going well, take some time off and come back later with a fresh mind, whether that is the next day or even the next week.

Staying humble despite winning trades

Many newbie traders who have given up trading had similar stories: make a few winning trades, get overly confident in one wrong trade, and lose all their profits. For example, a trader making profits on a capital of ₹10 thousand immediately jumps his capital up to ₹1 Lakh. The trader goes wrong on that trade and loses all the profits he had collected over the last few trades.

Trading is difficult. Very few master it, so when a trader is doing well, it’s natural to feel a sense of accomplishment and pride.

However, too much pride often leads to disaster. Understand that your success is only a result of following the right processes, and one of the right processes includes proper position sizing i.e. not suddenly increasing the trading capital, for the very reason the example showed.

Conclusion

Your analysis and strategies are not enough to be a successful trader. Trading is 99% a mental game and it is important to have the discipline and the mental strength to keep up with the game.

There are many more rules of thumb people have to keep in mind to ensure they don't blow up their trading account and their confidence, and that will be discussed in part 2.

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