TRADING PSYCHOLOGY
traders see themselves as being ill-disciplined, and talk at length of their poor discipline. This will in all likelihood merely compound matters, reinforcing their problems with negative self-imaging. It is important to understand that discipline is a general term, an umbrella for a variety of different trading behaviours, and that very few traders have challenges with every one of these behaviours. Indeed in most cases it is one or two areas that are the major obstacles to moving their trading on to the next level.
It is useful for us as traders to be aware of the components of discipline and to be able to specifically define our challenges so that we can seek the required methodology to address
them. When a car breaks
down it is very rare, if ever, that the whole car fails – it is usually one or two component parts. But some component parts
are obviously more important
and have a greater impact on overall operation than others when broken; this is the same for us as traders. Isolating your specific challenges will help you target and defeat them, as well as keeping your discipline difficulties in perspective.
So when do traders lose discipline? Reasons Why Traders Lose Discipline
”Investing is not a game where the guy with the 160 IQ beats the guy with the 130 IQ… Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing.” Warren Buffett
There follows a list of times and events where traders are prone to losing their discipline. I have broken them down into five core headings; strategy, mental,
emotional/psychological, situational and
personality. STRATEGY • Not having a clearly defined strategy with an edge
FX TRADER MAGAZINE April - June 2014 33
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is the first typical problem here. Having this is a pre-requisite to successful, consistent, disciplined trading. Without one it is actually impossible to see if you are being disciplined or not, as there is no accountability as to whether you followed your plan and stuck to your strategy – not having had one in the first place! Without having clearly defined trading opportunities, you are trading in a more random and haphazard fashion, which will quickly lead, if not there already, to dangerous ill-discipline. Trading a time frame, style or market that does not match your talents, skills, risk tolerance, personality or interests is another problem. If you are trading in a way that is not best suited to you, and particularly if this is a long way off-course, then cracks will appear and elements of ill-discipline will occur. This isn’t a problem with yourself as a trader, but arises simply because you and your strategy are out of line. For example, someone who is trading a short time frame, but who is a much more analytical and slower
thinker and decision-
maker, may find that they have challenges in taking trades with sufficient speed. To make matters worse, they then get frustrated that they missed out, and end up getting in too late and chasing the trade.
“With no strategy, you can never gauge discipline, or, truly, success.”
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