Discipline
Discipline in trading is a virtue and fundamental in this business. They go hand in hand with 2 other virtues, they are patience and temperance Patience to know when to make a move, avoiding panicking whilst trying and temperance to be able to accept that some operations weren’t completed, they will come back later and that they are part of trading.
Having this virtue as early as possible is a huge advantage when someone wants to become a trader. Because it means that in the values that we have learned since are little, the respect of the rules, patience for things to come and temperance for things that we may do not like are included. All of this, makes up the discipline that we must learn to properly work as a trader.
As I said, having this virtue since a young age really helps, however, if we don’t practice it from a young age we can learn it as adults. But it is a task that takes a lot of time and dedication.
The pillars of discipline are:
- Respect
- Patience
- Temperance
Respect is all about respecting set guidelines to operate in the open market, having a clear frame on how to view various financial markets and when to enter or leave them. Because it is a survival issue and at the very instant that I stop following this guidelines or operational framework, I have a problem, because I don’t know when to leave the operation.
If I break the established rules I don’t have a framework on where to follow them. For example, it’s like a field for practicing soccer. If I start erasing the lines that determine the various different areas, when the ball went out of the field, if the foul was inside or outside the penalty area, I won’t be able to determine this because the lines that mark the field are gone, and from that moment I am already lost..
In trading, losing the respect for the rules that define an operation, means losing money that can be as big as the same ego that caused this issue. Because it meant that I said to myself that I knew more than the set rules and the market itself.
When this happens, in general a vicious cycle starts to form in our minds. New rules start appearing and trading isn’t going our way. The loss of my account is increasing and it will grow as big as my ego and as much as my account lets it be.
For this cases I take into consideration three rules that I learned in a course in the US, in which the best operators in the world were part of. To always keep them in mind, I have them written in a glass beside my personal desk.
This rules are:
- Rule No. 1: Don’t get a loss Get out of control. / Don’t let small loss became a giant horrible pain.
- Rule No. 2: Follow your system./ Respect your method never changes it. / Be discipline and try your trading as a Business.
- Rule No. 3: Keep baking profit.
Rule No. 1
Rule one says; Don’t get a loss get out of control. Meaning that you shouldn’t let a loss get out of the set parameters. Meaning don’t let a small loss become into a huge pain. Don’t let a loss get out of control means: don´t let a loss miss its output parameters.
This usually happens in two ways. One is that the stop loss goes beyond the initial mark and goes contrary to what I believed in my prediction. So, it goes beyond the 0.5/2% that I originally set and how far this loss could come once I move my original stop loss. This depends on how much attention I pay to my ego, that let me into moving it in the first place.
The other way is to fix an imaginary stop loss from which I get off. When entering the market, no physical stop loss is placed. In my mind I go on moving that imaginary stop loss to feel that the loose is temporal. But whilst doing this I won’t realize that the loss can increase and can get out of control
This is why this first rule is so important. Because if we have control over our loses and we don’t try to recover the losses very quickly and with the size of the bigger operations that the risk management determines, i will be in conditions to move on with this that is call trading in the financial market. On the contrary, I will live on thinking that the market is at fault, the method or a news that appear, when in reality all of that is what the work demands to be controlled. If we have to go through a loss, it is in the defined parameters.
Rule No. 2
Rule number two says: Follow your system. / Respect your method never changes it. / Be discipline and try your trading as a Business. You should study, analyse, from statistics, when you’ve actually felt comfortable with the system and you win more than you loos.
Then, you will be working with a method that you shouldn’t let go, always keep in mind it rules and never abandon what the risk management determines with the operation.
This rule states that you must never forget that trading is a business and not a game. You should never get excited for a gain or a loss in middle of the working day. You should set certain boundaries like when to enter and leave, limited risk of gain and loss, have a time for analyse, know what is happening and once this is all managed you should enter the market.
Thus, it can be summarized that in every decision I make in trading there is always Discipline. Trading is a job that one can think is fun, one in which a lot of money can be earned in a very fast way, but after sometime we find out that it is like any other job.
It is based on statistic, in the analysis of information, in the application of a methodology that meets with certain standards and procedures. That’s what trading is about.
Discipline is something that, in my understanding, is made up by values that are born from respect to the rules that are set. If I respect and I value, value the discipline and recognize what my methodology tells me. I will be able to accept the losses that may happen,
because they are part of a set parameter.
Rule No. 3
Rule number three says: Keep baking profit, meaning keep banking what you gain; once a very experienced trader in the US told me but I didn’t pay full attention to it. But when I started to practice it, I saw how important it was, and since then I haven’t stopped.
It is about something as simple as draw back the money that was gain during the trading. This brings up 2 issues, one of them is, on a weekly bases to save money on a transfer, I draw back what I earned from my trading account into my bank account, this makes a subtle difference in my mind about the money in my account versus the money in the trading account.
The most important things is that the money that I have in trading is a preset quantity and that the money that is lost does not affect the pay of the rent, money, basic needs, because trading with this money puts in an enormous amount of pressure when entering
into the market.
Having a clear idea that one thing is the money in my personal bank account and another is the money that is going into trading, it is essential to do it on a weekly bases. This reinforces that each week I go to trade and I control how much money I want to withdraw
from my account, knowing the quantity that goes for trading is money that lets me do operations and if I lose it, it won’t affect my life.
For that reason, banking the money gained gives the trader a personal financial order that is very useful, that lets him see week after week where he is standing regarding his trading.