Everything you need to know about disciplined trader.

Online Stock Trading Guide

Be a Disciplined Trader

Successful trading should be simple. The instructions are laid out for you to follow if you're willing to do the work: Create a trading plan and stick to it. Why is it that success continues to elude so many people, then?

If you ask some average Joe what is the main motivation for traders, the answer to him is obvious: making money. However, those of us who have become involved in the game know that the money alone is not sufficient motive; it's the love for the game itself that drives us, the emotional high gleaned from a successful trade, the knowledge that our success is due entirely to our own actions.

Control Your Mind

The influence of your emotional response cannot be emphasized strongly enough, you must always be aware of it. Don't necessarily try to curb the tendency to respond emotionally, but be mindful of it, notice how you are feeling and understand why you are feeling it. This is good advice in many situations, but the average investor is notorious for making poor decisions for purely emotional reasons. Often, simple cardinal rules of investing (for example, buy low, sell high) are broken by people who think they understand the rules as well as the back of their hand because they make decisions at inappropriate times, when their feelings overcome their ability to reason.

As an example, let's take a quick look at the stock market crash of October 19, 1987, or 'Black Monday'. When the market crashed, anyone who still held investments felt pretty queasy to say the least. People who had stocks generally did one of four things:

  • They frantically sold all stocks they had at any price. The market was flooded with sell orders on Black Monday, but those who took this action suffered the biggest losses.
  • They frantically bought all the stock they could at the low prices. The people that did this were rewarded for their bravery in this particular instance.
  • They ignored it. These people didn't do as badly as the first group, but missed out on some great profits.
  • They took some time to assess the damage and to come up with a new strategy. This group of people fared well from the incident by playing the market and keeping a cool head.

Fear and greed wiped out those who were not disciplined, the people who practiced "Hold and Hope" were also damaged. But those who analyzed the market trend, weighed the signals being given by the various indicators, and acted with discipline to quickly to revise their stock trading strategy, went on to become ultimate winners. What would you have done on that fateful day?

A Remedy for Self-Destructiveness

The lesson is not to panic. Although some people will tell you "Don't think, Act!", this is rarely good advice. Thinking things out calmly and rationally before making a decision will always pay off in the end. Never invest what you can't afford to lose, to do so is to be disrespectful of the risk involved and is often a fatal move.

Be A Mature Trader

To be a mature trader you must defeat your emotions. The main two emotions we are talking about are fear and euphoria. Fear leads to immobilization while euphoria leads to false confidence; both are equally deadly in the trading game. A mature trader avoids fear by knowing that there will always be losses but they are to be treated objectively and reasonably as part of due course. Similarly, large gains should never go to one's head; countless are the stories of new investors who have enjoyed some brief success before suddenly declaring bankruptcy due to overextension.

Building discipline takes, well, discipline. Train yourself on the critical behaviours necessary in responding to market conditions and opportunities, and take measured actions that let you ride the trends into profitability. Sign up our FREE comprehensive eCourse - Trading with Discipline & Confident.


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