Discipline

Perhaps the most difficult thing to master when it comes to trading is discipline. Whether you are day trading, swing trading, trend following, or are a long term buy and hold value investor, discipline is often the Achilles heel of most everyone. It is so easy to talk about discipline yet so difficult to adhere to.

Your research shows you a great trade, but you don’t pull the trigger. The stock price rises to the point you should add to your position, yet you convince yourself not to take “too much risk.” Your stock hits your stop, but you don’t sell. Conversely, perhaps your system says risk no more than 5%, but you risk 50%. Then your account blows up.

So many rules, so rarely followed. This is what trips up many traders. It has tripped me up countless times. I’ve been guilty of all of the preceding issues except risking too much. I almost always fail to take the position size I should. Failing to optimize your position leaves you to make far less money than you should. I frequently fail to sell when my stops are hit. Thus, I often become a buy and hope trader, hoping my position gets back to even. Sometimes it does, sometimes it doesn’t. In any event, the is a weight on my capital and on my psyche.

All of these are amateur mistakes. If you want to be successful at trading you must be disciplined. Being disciplined makes you more of a professional than an amateur. Mark Minervini starts each day stating: I have the ability to do great damage to myself. Alexander Elder applies Alcoholic’s Anonymous principles to his trading. He takes a one day at a time approach to not blowing up his account, or in other words, doing great damage. And, David Ryan quotes the Bible “poverty and shame come to him who refuses discipline.” Proverbs 13:18.

Each of these successful traders practice extreme discipline. To get better at trading and investing we must all strive to do the same.