By Rob Colville on September 12, 2014 in
It’s always adjectives like “consistent,” “confident,” and especially “profitable” that we use to describe the trader we ourselves want to become. It’s far less common, though, to hear people aspire simply to be a disciplined trader. But why is that?
Now, admittedly, it’s not very “cool” or “sexy” to be billed only as a disciplined trader, but that’s too bad, because consistency, confidence, and profitability often result from it, and let’s face it, everybody wants to be known for that!
It’s the disciplined trader, afterall, who trades almost mechanically, free from fear and emotion, and with more clarity and less stress than the majority of traders out there. And what’s not cool or sexy about that?
It isn’t especially hard to become a disciplined trader, either. While it takes time and the desired results to become confident, repeating simple trading rules and proven methods—like the ones that we’ll cover here—can help anyone become a more disciplined trader in their own right.
While the talking heads on TV and those wily marketing messages often tout “trading secrets,” it’s truly the simple things that build a foundation for successful trading. The disciplined trader closely adheres to these rules, much like the laws that govern the land, while inexperienced traders routinely break them, often at their own peril.
In a way, it’s kind of funny that in an age of “trading secrets” and “top-secret strategies,” being a disciplined trader simply takes an unwavering commitment to some pretty basic tenets, none of which are very secretive at all:
Risk Only an Acceptable Amount per Trade – It’s certainly no secret that trading is all about the preservation of capital, both physical and emotional, and as we’ve studied here before, once either runs out, it’s game over. That’s why rule #1 for most any disciplined trader is all about risk: never trade excess capital or use money that you can’t afford to lose.
“Never risk more than 1% of total account capital on any trade” is a good general rule, and is consistent with the Lazy Trader methodology as well. By limiting capital exposure, we also eliminate the possibility for a devastating loss from which we can’t easily recover. That helps temper costly biases and minimize the impact of fear and emotion because the worst-case scenario for any one trade is already known and deemed acceptable in advance.
Trade the Best Set-ups, and Leave the Rest – It’s simple advice that works both in and out of the markets: do more of what you’re good at and less of what you’re not. When it comes to trading, that means trade only the set-ups that satisfy each one of your precise technical and fundamental requirements, and don’t force trades that don’t follow the rules!
Be selective in the market(s) you trade, too, and don’t constantly bounce from one market to another while trying to be a “jack of all trades.” Whether it’s pivots or pin bar reversals in the forex market, or opening gaps in equity indices, the disciplined trader will trade only their “go-to” markets and set-ups, and never commit even a drop of hard-earned capital to any that don’t fit their eye and their style of trading.
It’s essentially just a “yes or no” kind of thing, and there is no wiggle room when it comes to trade selection. Perhaps more than anything else, that’s what it means to be a disciplined trader.
Never Do Anything “Just This Once” – Whether it’s a function of risk, trade selection, or money management, a disciplined trader doesn’t stray from their proven trading plan or make exceptions, even in the rush of emotions that often accompany live trades.
Not even “just this once” is it OK to trade without a stop, or move one to give a losing trade more time and space to turn around. Likewise, it’s never OK to trade extra size trying to recover recent losses, make up for a missed trade, or capitalize on that one “perfect” set-up.
By trading with exact, military-like precision, the disciplined trader executes decisively and with confidence, and without the fears and second-guessing that can often wreak havoc for less-experienced traders.
What is it that makes great traders tick? In reality, the best traders aren’t necessarily the smartest people in the room, or the richest, or the ones with the newest trading tools and software. The best traders likely are the most disciplined, though, and that’s a quality that every trader can emulate.
It takes an unwavering commitment to doing what works, protecting capital, and never allowing fear or emotion to factor into the decision-making process. So instead of just focusing on being profitable, think about your methods and being supremely committed to them. You’ll be a more disciplined trader for it, and are likely to be more profitable as well.