It's been said that trading discipline is extremely important for traders and that without it, success isn't really feasible.
But what is really meant by "discipline"? Isn't it the ability to stick to the plan; and although there may be external or internal distractions, to go on completing what you intended to?
Common sense also tells us that discipline must be the result of a special inner capability or strength to maintain the behavior required to achieve a specific goal. It often entails the suppression of desires or one's need for instant gratification and therefore is closely associated to self-control. So since trading generates ample opportunities for making money we may often be tempted to divert from our original plan and choose the opportunity over discipline. Temptations are plenty, and as Oscar Wilde once noted: "The only way to get rid of temptation is to yield to it."
However, the attitude of discipline isn't only compromised by temptations and opportunities but also in instances of strong emotional reactions. Fear, disappointment or regret may influence our ability to self-control.Discipline is only the end result rather than the main issue
Have you ever tried going on a diet? If you have, then you will know that it is easier said than done. We must restrain ourselves and change habits of eating that most of the times are also very pleasurable. A lot of diets fail, and that's because we are emotional creatures. We need something greater to motivate us than a strict sense of self-control.
That is true for trading as well; in order to increase our potential for success, we need to know our values: who we are, how we want to behave, what we want to achieve, what qualities we want to bring to our decisions and actions as traders. We need to know what motivates us, what fulfills us, what is our ideal trader identity. Only by having a clearer sense of our values, we can really pursue our goals without yielding to distractions.The importance of clarifying your values in trading
To clarify your trader's values, please consider:
- If a powerful change happened and then you had all the attitudes and strengths of your ideal trader, what would you do differently? What attributes we could see that you developed if we were somehow watching you?
- If you were to fast forward several years from today when you would already be an accomplished and successful trader, which character strengths you would have utilized in your trading that contributed to your success?
- What really matters for you in your trading? What do you admire in other successful traders?
- Values are different from goals. They are guides and motivators for our actions and are relevant to how we want to behave and what qualities we want to incorporate in our actions. A value can help us set a goal, which is an object to be achieved.
- Values examples for traders could be perseverance, flexibility, decisiveness, patience, confidence, optimism, realism, self-development, knowledgeability, self-regulation, dedication, objectivity, focus.
A trader has gone through the values clarification stage and has identified the following values that matter:
- A) he wants to cultivate perseverance and resilience towards failures
- B) he wishes to become objectively flexible, meaning to be able to spot adjustments and changes that are needed for his trading plan to achieve better performance. The adjustments must be based on objective data rather than on emotional reactions
Recently, the market has been volatile, and he has been experiencing some losses. He feels disappointment creeping in. He's considering adjusting his trading plan to fit the volatile market, but he isn't sure if this is the right decision. What is going on is that certain external (volatility) and internal barriers (thoughts &emotions) are interfering with fulfilling his values.
Keeping a record sheet could help make things clearer:
|My trading value|| Actions I can take to fulfill it |
Short Term & Long Term
|External Obstacles||Internal Obstacles|
|Perseverance, resilience towards failures|| Short term (next week): |
Focus on my next trade by doing careful analysis instead of focusing on my recent loss.
Long term: Learn new strategies to cope with difficult emotions that arise during trading
|The market is still volatile this week although less than the week before. Even with the best analysis, there is still a great degree of unpredictability.|| Thoughts: If market is volatile, then I shouldn't trade anyway |
I do not want to lose again
Memories: I have lost X amount just in one trade, that was a bad decision. It felt really silly
Emotions: Disappointment, Anxiety, Worry
|Objectivity & flexibility|| Short term: Do an objective cost-benefit analysis of entering a volatile market. Change my stop losses and preferred position sizes in order to prevent losses I cannot afford |
Long term: Devise a new high-risk trading conditions plan
|Time: The more I think about it, the more trading opportunities are missed|| Thoughts: Will I able to be truly objective? |
What if I am mistaken?
Emotions: self-doubt, anxiety
In the example above, the trader finds it difficult to implement the actions that are based on his trading values due to internal and external barriers.
Sometimes, the distinction between internal & external is not that clear, because an external event or situation is subject to interpretation. For example, the notion of "time", in the objectivity & flexibility example, is highly subjective and could just be the trader's perception.
No matter what the obstacle is, we can practice prioritizing our values and values-focused actions because it's through them that we will be led to achieving our goals.
The internal &external obstacles will always intrude, but we can choose not to let them show us the way. In the beginning, this may not always be easy to do, but we can become better at it as we practice more.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.