Discipline – is a key trait of every successful trader. You may mistakenly think that only people with exceptionally high IQ or special education can make good money in the financial markets. But Forex is not that complicated – it’s not like quantum physics. Anyone can get enough knowledge in a short time to start earning money from trading. But not everyone can develop enough self-control. According to research, about 80% of trading losses are associated exactly with the lack of discipline. Now, let’s analyze the actions, that can help a trader build more self-discipline.
2. Cut your losses short, let your profits run.
This rule seems obvious at first sight, but wait until fear and greed come into play. When these two greatest enemies take over, a trader starts to move his Stop Loss level (“Just a few points, to avoid losses”), to keep a clearly unprofitable position (“I already invested so much in it, it would be a shame to close it now”), to exit a winning trade too early (“The growth will end now, and I will lose everything I earned”). To avoid such situations, you need a trading plan.
3. Create a trading plan and stick to it no matter what.
Before you open your first trade, you should have a trading plan. Make sure that you keep a cool head when you create your plan. Build it in accordance with your trading and risk-management strategy. Ask yourself these questions:
Why should I open this trade?
When and under which circumstances do I need to open this trade?
Where and why should I set my Stop Loss and Take Profit levels?
What part of my deposit can I possibly lose in this trade?
Does this trade fit into my trading strategy?
If you hesitate to answer at least one of these questions – don’t place the trade. If you are in a foul mood, avoid opening any positions as well.
4. Trade only if you are in a good mood.
Maintaining self-discipline is much easier when you are in a good mood, feeling relaxed and calm. Determine your ideal state of mind, that gives you a mental edge for trading, and try to enter the market only when you feel that you are in your trading “zone”. If, on the contrary, you feel that you are about to lose self-control, take a break from trading for a little while, have some time to yourself. The market will open again tomorrow.
5. Don’t jump into every trade.
You may think, that every trade idea you missed for some reason – is a lost opportunity. But taking risks, making wise trading decisions and jumping into every trade, opening random positions – are two different things. The market will provide you with limitless profit-making opportunities, but if a trade goes against your trading strategy, don’t open it out of greed, simply because you want to earn fast.
6. What do you expect from the market?
Take a moment and answer yourself a question – what do you expect from trading? Do you want to make some quick cash? Or do you want to earn a lot? Maybe, to become successful? Or get your dose of adrenaline? But answer honestly. If deep down inside you know, that you are only in for adrenaline rush or merely to create an image of a successful person – there are cheaper and easier ways to do it.
7. Never trade with money, you can’t afford to lose, and more importantly – never borrow money for trading.
It may seem to you that your strategy is perfect and flawless. You invest every last cent or even worse – you borrow money. What’s the big deal, next month you will get it back and earn interest. Or so you think…
The risk of losing all your money may trigger emotional and mental hijacking, when everything may go out of control, making it impossible to maintain discipline. Most likely, all you will get is a monthly text message from the bank that it’s time to make a payment and a couple of years working in a job you hate just to pay off your debts. Self-disappointment often leads to desperate attempts to win back your losses as soon as possible, which in this state of mind only results in new failures.
8. Have the courage to admit defeat, learn from your mistakes.
Traditionally, Forex articles tell us that fear and greed are the most dangerous emotions for a trader. But there are others, even stronger and bitter. Regret and resentment, feeling guilty, that you failed your loved ones by investing money and losing your deposit. Low self-esteem can be a result of unfortunate trading decisions. The feeling of anger when the market reversed one pip away from your Take Profit level.
Blaming yourself or feeling sorry for yourself will do you no good. Your regrets won’t fix anything. Just learn from your mistakes, draw the right conclusions and move on. Next time you’ll be more prepared for such situations, and you’ll know how to avoid it. Consider it as an expensive, but useful trading lesson.
9. Don’t let success go to your head.
Positive emotions are as dangerous as fear and greed. They can make a trader arrogant and too cocky. He quits on his strategy, violating his risk-management plan, and trading goes off-course. No matter what emotions you’re experiencing, always stick to your trading plan.
10. Choose a trading strategy that fits your personality best.
Sticking to your strategy will help you avoid most of the trading risks. Having a trading strategy is like having a battle plan at war. But the most important thing is to choose your strategy wisely. There are dozens of articles and books, describing various strategies, you just need to find the one that fits your character best. If you like to take your time and think when making a weighed decision – super fast scalping may not be your best choice. Medium-term trading and investing, on the other hand, may be perfect for you. If you stress out when you see losing trades, try not to use strategies like Martingale. On second thought, don’t apply such strategies in any case – they all have one weak spot – very poor risk management.
11. Develop your risk management plan and stick to it.
Here are some basic rules. Risk no more than 2% of your total deposit or enter the trade only if Take Profit exceeds the Stop Loss at least 2-3 times. Adapt your risk management rules according to your personality and your trading strategy. How often do you open new positions? What is your percentage of profitable trades and how much can you afford to lose? Determine the amount of risk you are comfortable with. Think of the ways to ensure maximum adherence to your risk management plan.
12. If you can automate your trading strategy – do it.
Trading robots have one main advantage over people – they are not driven by emotions. Sure, a robot will be less flexible when making trading decisions, which can place some limitations on your strategy. But the robot will observe your risk-management rules no matter what.
If your strategy is programmable, you won’t have to face any discipline-related problems – the robot will maintain discipline for you. Besides, you can’t sit at your desk monitoring trading charts 24/7, and the trading robot doesn’t need to rest – it will work and make money while you sleep. Of course, writing an algorithm for your trading robot and learning how to use it requires knowledge and may take some time. And if we are talking about forex scalping robot, your broker’s execution speed is of utmost importance.
13. Pick your broker carefully.
Choosing the right broker is essential for a trader. Don’t use services of fly-by-night shell companies. Try to pick a reputable company, which has 10 or more years of experience in the industry. Such brokers won’t risk damaging their well-deserved reputation. They have a vast customer base and generate enough revenue, so they don’t need to use any shady methods.
Novice traders often underestimate spreads, commissions and overnight swaps, but it would be a good idea to compare different brokers and the rates they offer. Choosing the right account type is also important – sometimes it can be more beneficial to invest $100 more and get more favorable trading conditions. Don’t forget to make sure, that your broker is regulated and regularly passes an audit, pay attention to its client success rates.
14. Stay motivated
Trading can be hard and risky, but there are a lot of examples when people did make their dreams come true. Warren Buffet who managed to earn billions of dollars from the stock market stands as a vivid example. One of this most popular tips is “Be persistent!”