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
- 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
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.
Next: Risk Management