day trading discipline

Discipline And Day Trading

Discipline is the practice of making what you do into a habit. As a day trader you're often faced with making certain decisions. Discipline implies the need to act consistently, in a reliable manner, and in accordance with the pre-determined trading strategy set forth in your trading plan.

Having a trading plan or system is critical to the exercise of good discipline, as it normally imposes certain parameters and sets out certain criteria which dictate how trading decisions should me made and what needs to be done in certain trading situations. Self Discipline is all important.

Lack of Discipline

Day traders who suffer from a lack of discipline will allow their emotions to rule their trading decisions. This often leads to bad decisions and unacceptable trading losses. In order to day trade successfully, you must develop a trading plan and consistently stick to that plan. You must avoid a "seat of the pants approach" to day trading. Exit the market when you have reached your profit target and don't let emotions like fear and greed influence your trading decisions.

Many inexperienced day traders demonstrate lack of discipline by being afraid or reluctant to take losses. They hang on in the often vain hope that the price will go back in their favor. Often, however, the price goes against them even worse and the trader's initial small loss in the trade becomes a large one.

Likewise, some day traders often get greedy if the trade goes favorably for them and are reluctant to take profits off the table. They think the trade will do even better, and they can make even more profits. However, the trade may subsequently reverse, causing their gains to dwindle or become losses. The Lesson: Fear and greed are two emotions that should play no role in the life of a disciplined day trader.

How To Apply All This:

Discipline requires that you:

Trade on the basis of trading plan or system and not on the basis of your emotions or rumors.

Take a profit when you're supposed to in accordance with your pre-determined system

Take a loss when you're supposed to in accordance with your pre-determined system.

Don't trade when there's no need to (over trading; trading for the sake of making a trade, trading to be in the 'action') These are all foolish reasons to trade.

In his book, Come Into My Trading Room, Alexander Elder lists a number of examples of a well disciplined trader. To summarize, he explained that the disciplined trader ordinarily does all of the following:

- develops a unique trading plan or system based on his or her own personal techniques;

- constantly grades his or her own adherence to a chosen trading plan;

- keeps accurate records of all trades entered into;

- is self-reliant and rarely shares information or listens to advice from others;

- finds the time to learn as much as possible about his or her chosen market;

- monitors the chosen markets every day even if he or she is not actively trading; and

- learns new ideas to improve trading methods, but does not use them before testing them

If you exercise these qualities of discipline, the likelihood of achieving day trading success will be much greater. By following these guidelines you set yourself apart from the average day trader and move closer to being in the elite of day trading: a disciplined long term winning trader!

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