Trading Discipline: Why You Don’t Have It……And How to Get It.

October 6, 2010
by Jason Stapleton, Head Trading Coach, 4xtraderslive.com

It’s the “thing”. When you break it down and cut out all the noise, all the talk about trading systems, EA’s, psychology, money management and risk management what trading really comes down to is discipline. It’s the one thing that will make or break you as a trader. Winning system? Without discipline you won’t follow it. Tight spreads? Without discipline you will still over trade costing you a fortune in broker fees. Lightning fast internet connection with a spit second new feed? Without discipline you will constantly miss good trades due to you own indecision.

But this is nothing new. Everyone knows you need discipline to be a trader. The question is HOW.

I’ve always believed the best teaching tools come from real life. So I want to talk to you for a little while about something else in life that takes a great deal of discipline with roughly the same success rate as trading…….weight loss.

Nearly everyone reading this article can identify with a waistline that’s become a little………unflattering. At some point the sight of yourself as you pass by the mirror on your way to the shower becomes too much for even you to tolerate. What follows is a process that is all too familiar.

1. Tell friends and family you are thinking about losing some weight.

2. Listen to those people give you advice about how best to lose the weight. (Most are overweight as well.)

3. Get several new books by current authors covering the latest strategies for achieving your goal.

4. Buy a bunch of new stuff like a blender, vitamin packs, health foods, new running shoes, exercise shorts and a gym membership.

5. Decide to start in a week or so.

6. In a month, get the credit card bill for all the stuff you bought and decide to get started.

7. Religiously follow your diet and exercise program for a full week.

8. Start to see some results.

9. Give yourself a “cheat day” to reward yourself.

10. Go right back to your old eating and exercise habits.

11. Put all your weight back on.

This has been the process for nearly every dieter in the world at one point or another. So let’s talk about the WHY. WHY is it so hard to stay disciplined when dieting? Let me frame the scenario differently. Let’s say you want to lose some weight and you decide you are going to cut out the sweets. NO MORE SUGAR! No more soda pop or candy. No dessert or treats after meals. On its surface this seems to be a very simple, rational and effective plan for losing some of those unwanted pounds. How hard to you think it would be to follow?

Most people would say, “Sure Jason, it sounds simple. But it’s a lot harder than it sounds.” True, but let me add a critical piece of information. You’re stranded on a deserted island. See what I mean? With no access to processed sugar it becomes easy to follow your rules and stay disciplined.

But let’s change our scenario one last time. What if you worked at a pastry shop? Not just any pastry shop but the kind of shop that would rival Le Grenier a Pain. Every day you show up and create some of the most delicious morsels ever devised. You get to smell the aroma of fresh baked sweets as the waft through the kitchen. The display cases are lined each day with every conceivable guilty pleasure. Occasionally you poke your head out only to find the patrons of the shop enjoying the fruits of your labor. You see the look of satisfaction on their faces as they devour every last bite.

Get the picture? So how long do you think you could stay disciplined and committed now?

Traders, your commitment to follow your trading plan and stay disciplined is just like a commitment to cut out sugar. The problem is……….

The FOREX market is you bakery.

Each and every day you sit down to trade your commitment to follow your trading plan will be tested. You’re on a diet in a pastry shop. The market will seek at every turn to challenge your resolve and attempt to push you out of your comfort zone causing you to make impulsive emotional decisions rather than disciplined, planed ones.

Many people will tell you it is wrong to look at the market as a living breathing entity, “The market is not out to get you.” the saying goes. But I find in this case that it serves the analogy well. The “market” is the representation of every trader’s decision as a specific point in time. That’s all. But the market rewards risk and punishes those that follow the path of least resistance. This must be the case in order for markets to function.

Because of this simple truth we can deduce that in order to succeed, we must have the strength of our convictions since they will no doubt run contrary to many in the market.

Remember 90% of traders lose money. If you want to be part of the 10% look at what the 90% do, then do the opposite.
Ok, if you’re still reading I’ve kept you in suspense long enough. So how do you stay disciplined given the overwhelming temptation to do otherwise?

Discipline is an emotional quality. To have discipline means you have fixed yourself in a course of action and are unwilling to deviate from it. Having discipline starts with commitment. Even this first step causes people some problems. A lot of people think they are committed but most are not.

“There’s a difference between interest and commitment. When you’re interested in doing something, you do it only when circumstance permit. When you’re committed to something, you accept no excuses, only results.” -Art Turock-

Step one to staying disciplined; Are you truly committed? If not, you must make that commitment if you ever expect to succeed. This first step while simple acts as an anchor to your trading. The commitment to succeed is what allows your mind to focus on a goal. This is a moving target. As one goal is achieved a new commitment to a new goal must be set allowing you to continue your journey.

In NLP and NAC (psychological processes) we actually call this an “anchor” You must literally change your perception of reality before you will truly create lasting change. Again, using the weight loss analogy; People who ultimately achieve lasting results have shifted their reality. Often this comes from a doctor visit when they are told they have diabetes. For some it comes after a heart attack, or after a child expresses concern for their wellbeing. Whatever the catalyst, something changes in the individual at a fundamental level that literally alters their perception of the world. Their new reality causes them to view their decisions differently and shifts their focus of what’s important.

But if blowing up account after account doesn’t do the trick how do we create this anchor? I find that a lack of trader discipline is the result of 2 specific things.

1. A Lack of direction

You simply don’t know what you’re doing. This sounds a little hash but the cold hard truth is most traders simply don’t have the education, understanding and experience to have confidence in what they are doing. If you’re struggling with discipline right now I would venture to say you really question if there’s something you’re missing. Some piece of the puzzle you don’t yet have.

2. Lack of/Unprofitable Trading System

This one get’s misunderstood. I don’t mean to suggest most traders don’t have a winning system. What I am saying is that most traders don’t KNOW if their system is a winner or loser.

They have never done any of the hard work necessary to test and verify the system they are trading. I would venture to guess that most of you reading this article have not tested the system you are currently trying to follow for any length of time. For those of you who think you have let me ask you a couple of questions:

Over the past 300 Trades,

What is the expectancy of your system?

What is the average DD given your money management strategy?

What is the maximum DD

What is the average number of losing trades?

What is the maximum number of losing trades in a row?

What is the average Risk/Reward Profile?

Given your money management system what was the ROI over the past 300 trades after accounting for slippage and commissions?

If your answer includes the words “about” or “roughly” you’re wrong. You should have exact figures. WHY? Because having those figures gives your mind something to anchor to when the going gets tough. It provides a foundation for you to build your trading house on.

If you know, for example, that your system produces 4 losing trades in a row on average and that you had a maximum of 7 losing trades in a row over the sample testing period, you have a base line. When that 3rd 4th and 5th losing trade come you can have confidence that if you are disciplined the losses will soon end. Not only were you prepared for this drawdown, you were expecting it. You knew it would come. And now that it has you are prepared for it mentally.

When this happens your reality literally shifts. You can now change what kind of effect your decisions have on you emotionally based on how you now view your trading. Instead of “winning brings me pleasure and losing brings me pain.” You now have a new reality. “Following my rules brings me pleasure; not following my rules brings me pain.” This is much the same way someone who used to overeat due to a love of food now eats healthy because of a love for their health. They have shifted what brings them pain and pleasure based on how they view the world.

Imagine how different your results would have been over the past several months if you had simply applied some if this knowledge. But alas, you’re trading journey has gone largely the way of the 90%. See if this sounds familiar. (Not unlike the dieter.)

1. Get interested in FOREX and find a chat room where you tell others of your interest.

2. Listen to those people give you advice about how best to trade FOREX. (Most are losing money hand over fist.)

3. Buy several new books by current authors covering the latest strategies for achieving your goal.

4. Do OK in a demo account, decide to go live.

5. Blow your account out in a month

6. Attend a seminar, buy a $97 EA that promises you millions while you sleep, join a signal service or a live trading room.

7. Decide to get serious and create a plan to follow

8. Religiously follow your trading plan.

9. Start to see some results.

10. Get cocky.

11. Slip back into your old habits

12. Blow your account out again.

The secret to gaining discipline in your trading is having confidence in what you’re doing. That comes from KNOWING. Not hoping or believing but KNOWING that if you follow you rules with consistency and discipline that you will achieve consistent results.

Now if you don’t have a winning system or any idea how to test the one you have, then we have more to discuss. But that will have to wait for another article. Until then I wish you every success in trading and in life.

Good Luck and Good Trading,

Jason Stapleton
Head Trading Coach
4xtraderslive.com