There are many great qualities a trader might have. But without self-discipline even the most skilled technical analyst will lose their money, not being able to control their behavior and risking more than they should. But how does one build self-discipline, especially when it comes to trading?
The steps that are described below might seem simple — and they are, at least in theory. However, following them may help fundamentally change your approach to trading and considerably improve your discipline. These are the important components to more mindful and deliberate trading.
Refocus your attention
If your eyes are always on the prize, you might be getting too caught up in the idea of earning. While technically it is the goal of any trader, contrary to what you may think, focusing on positive outcomes is never helpful or productive. Why is that?
Concentrating on the outcomes makes it hard for traders to control their emotions.
When considering outcomes to be the most important thing, traders skip all the other steps, trying to get to the finish as fast as possible. They get reckless, double their investments trying to recover losses. They do not pay attention to analysis, the only goal is to succeed. If this approach sounds at all familiar, think about how you normally trade. Do you make a checklist, do you plan your strategy in advance? If not, most likely, you are giving into emotions.
Changing the focus from “earning money” to “learning and testing strategies” will help you value what’s actually more important. Change your focus and concentrate on improving your method and practicing more, rather than getting quick outcomes.
Make risk management a habit
Money or risk management is a set of steps or actions one does before, during and after every trade. These steps are needed in order to control the trader’s balance and attempt to manage the risk as well as the potential loss from deals.
While it should be obvious that evaluating risk is crucial, many traders disregard risk management completely or partially, only doing what’s convenient, and not what’s actually necessary.
It’s true that certain money management techniques seem counterintuitive: for instance, cutting the investment amount or setting a take profit level. Why would a trader want to cut their own profits short? The purpose of this, though, is to ensure that the trader is protected from the worst case scenario: loss of the whole amount instead of even a minimal return.
Making risk management a habit is important, since it helps traders to regulate their behavior in the stressful trading environment. Money management involves studying the market, keeping a journal with records regarding deals and their outcomes, utilizing instruments such as Take Profit and Stop Loss, preferring more secure trading methods over more risky ones and many other details.
Learn to accept loss and draw conclusions
Self-discipline shouldn’t end with the end of a deal. Being able to control emotions means being able to not just take losses calmly, but also make sense of them. Analyzing deals and understanding what went wrong is key to improving your trading approach.
The emotional side of a loss can be tough to cope with, but if you change your focus from the result to the learning process (see first paragraph), it may allow you to understand your mistakes and do better next time, instead of dwelling on the loss. Accepting that losing is part of the process might be easier with time, especially if the trader utilizes a practice balance to check their theories.
So what is the secret to self-discipline?
The solution to emotional trading and lack of discipline is action. Instead of overthinking, try to physically change the way you trade: get a paper journal and start writing down your trading plan, map out your approach, write down the money management strategies you will be applying, write down your losses and the possible solutions. Make yourself consciously aware of these things, putting them right in front of you.
While trading will always remain risky and somewhat unpredictable, taking your trading experience in your own hands and making the most out of planning will help you manage it in a much more mindful way.