Trading in the Doghouse: Why a Punishment System Pays off

That wasn't like him at all. He knows better, but rules are rules, and there are consequences for breaking them. And if that sounds to you anything like Forex trading, well, good; because it should!

The very same concept of having a reward and punishment system to help new traders promote only desired behaviors is every bit as valid. You break a rule, you get punished…simple as that!

Now hopefully your consequences don't involve a whack on the nose, or not being allowed in the bedroom that night, although if they do, tell me, how does that work for you? All jokes aside, though, what is your reward and punishment system for trading, and perhaps more importantly, are you doing a good job enforcing it?

Takeaways

• Learn to focus on what you can control to be successful

• How rewarding yourself helps become disciplined

• Why trading rules make you more successful!

Don't Just Have a Punishment System, Enforce it!

I have to say, at first, I got angry, and then I looked to make excuses for why it happened, why it wasn't his fault, or whether I should let it slide "just this once."  Inevitably, we all face those same thoughts and emotions following losing trades or anytime we break a rule, right? That's a natural reaction, and our way of trying to dodge the punishment system. After all, nobody really wants to face difficult truths, or own up to the fact that they were wrong. As humans, we're not programmed to want to punish ourselves—or our dogs—but this is one way that trading often requires us to go against natural instincts.

See also: Conventional Trading Wisdom That Contradicts Itself

Make sure you're not rationalizing your own bad behavior or faulty trading habits! If you ran a stop, chased after news and economic data, or traded a sub-par trade set-up or one that's not normally part of your arsenal, it's not enough to say, "OK, I know that was wrong and I won't do it again."

Rules are rules, remember? And that's why you have to enact your punishment system and pay the price for what you did. Even more than that, though, this is how you ensure that you learn from the mistake, give yourself real incentive to not do it again, and truly improve as a disciplined trader.

So whether you have to shut down and not trade anymore that day, or maybe even that week, then so be it. If it means you have to relegate yourself back to demo trading to work on specific trading skills and use proper discipline, then so be it. You have rules for a reason, and a punishment system in place to make sure you follow them. So really ask yourself, "Am I being strict enough when it comes to trading by the rules?"

And Have a Reward System, Too

Let's not be one-sided and only talk about the bad stuff! Indeed, having—and actually using—a reward system is also a great way to promote desired behaviors. It's a natural and much-needed complement to any punishment system…plus it's much more fun to use! A word of caution, though: Don't make yours be all about money! Try not to specifically reward yourself for achieving "x" amount of money in your account, or having a certain number of winning trades, or booking a certain winning percentage. That could make you alter your methods in pursuit of those objectives, and potentially cause undue risk, produce losing trades instead, and make a greater need for your punishment system in the process.

It's actually much better to minimize money and end results, focusing instead on the factors you can control and the overall process that produces results. You can use monetary rewards, but do it for such things as one full week's worth of perfect plan compliance, where you trade your trading strategy precisely and right down to the finest detail for an entire week, with no exceptions. You may not even win every trade—nor do you have to with scalping trading—but when you follow the rules, you get rewarded, and that's what a reward and punishment system is all about!

Conclusion

So my dog was bad, and then I was mean. Basically, everybody lost when you look at it that way. It's like in trading, after you make a mistake and it ends up costing you money, you can't help but think that the monetary loss is bad enough, so why make it even worse by imposing a punishment system? Well, that does make sense, but the answer is because it's all in the interest of continually learning and improving. In the markets, and in the world of dog training, every trading mistake—when handled correctly—is a learning experience that shouldn't adversely affect the entire month or ruin the year. Everyone will get over it, and then be even better for it! And besides, just look at that face…it's gonna be hard for me to stay mad at him for long!