Ten Common Reasons Traders Lose Discipline And How To Avoid Them.

By | August 24, 2012

There is very little that is new in the world of trading psychology but mastering the basics and mastering our mind is essential if we are to develop as highly efficient traders. The following are common discipline issues and suggestions to counteract them. Discipline is needed if you are to succeed as a Equity,Commodity or Forex trader

1. Boredom and a need to trade for the “buzz”

Try to use dead time between trades for things like self improvement training i.e. read a book by your favorite personal development guru or learn to meditate/practice Yoga! Anything that keeps you in the right frame of mind for the job of trading. A positive mindset will have a positive impact on your bottom line over time.

2. Trading when tired.

One of the great things about trading is that we can close for business whenever we want. If you are not in the correct mindset for trading then shut the shop! There will be no customers banging on the door shouting for you to open up.

3. Not taking a loss well and revenge trading

Very common and something we always need to be mindful of. I find it best to stop trading after a couple of losses in a row and refresh the mind. Everybody has a different tolerance level to losses and you should observe your actions in this area and look to improve.

4. Loss of confidence.

If you are suffering from lack of confidence it may be worth cutting your position size and slowly working your way back to an optimal frame of mind. It is also vital that any strategy employed has been adequately tested before trading it live.

5. Over confidence.

I find it also pays to step away from the market if I feel over confident. A common trader phrase is “I can afford the loss as it’s a great month so far”. No! Only take the trades that fit your trade plan criteria and don’t needlessly give back winnings.

6. Pressure to earn money to pay the bills

The harsh reality is that scared money is often lost money and an alternative income stream should probably be sought it you need a regular pay check. The market will always be there so put yourself in the right position to benefit from what the market can give you and don’t take trades that do not match you rule criteria.

7. Over leveraging a position.

Eventually this will bite you. The market has a habit of seeking out inefficiencies and you may get lucky a few times but eventually it can result in a string of big losses. Be the Casino and work your edge. Only risk a small pre-defined percentage of trading capital on any given trade as the markets are full of hidden surprises. These surprises usually happen when you think you have a certainty.

8. No trading plan.

Any trading plan is better than no plan. Commit to writing a simple plan which is easy for you to follow. Modify it only during times when you are not trading. It should be something that helps you make decisions under pressure and take away from the irrational “heat of the moment” scenarios which can happen when trading financial markets. Without a trading plan that we commit to following we can easily make rash judgments which will ultimately have a negative effect on our finances.

9. Trading when working through general “life issues”.

Life has a habit of giving us random issues to deal with and we need to recognise that these can affect trading performance. Please see point 2 again and shut the shop when you need to.

10. Fighting a trending market.

The old sayings that “the market is always right” and “markets can remain irrational longer than you can remain solvent” are oh so true. We should be looking for ways to align ourselves with the market forces and not get into scenarios where you are trying to be right. See point 3 again. If you take a counter trend position and the market proves you wrong this time just take the loss and move on.

An awareness of the above will put you in a much stronger position to benefit from what the financial markets have to offer.

2 thoughts on “Ten Common Reasons Traders Lose Discipline And How To Avoid Them.

  1. Subra

    Great article. Amateur investors should read this regularly as discipline is very difficult to set.

  2. Jai Mittal

    Dear Barmesh sir,
    excellent article like always. all points make sense only that they are very difficult to follow. discipline is the biggest challenge in the market, i think. once conquered you start an all new journey.

    regards,
    JM

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