Trading with discipline is one of the toughest trading skills to acquire, but it is undoubtedly the most important skill you need to succeed in the market. It is what differentiates consistently profitable traders from the struggling ones. People tend to think succeeding in trading is about having the best trading strategy, but it is not true — those that succeed in trading are those who trade with discipline.
You can give two traders the same strategy and money management rules to trade in the same market at the same time, and they will have different results. What caused the difference in results is their trading discipline. A lack of discipline is the cause of most trading mistakes, such as jumping the guns, chasing trades, not using a stop loss or widening it during a trade, taking profits prematurely, overtrading, revenge trading, and others.
These mistakes often cause unnecessary losses that could have been prevented. New traders often make these mistakes because they think that profits come from having a winning trading strategy and have not realized that successful trading mostly depends on trading with discipline. No wonder a great majority of new retail traders lose their capital and leave the game.
So, in this post, we will be discussing those qualities that help the successful traders to trade with discipline and remain consistently profitable, setting them apart from the rest. There are many of them, but here, we will take a look at the following 17 popular trading wisdom followed by successful traders:
1. Knowing one’s personality and choosing a suitable trading style
One of the basic things that can help you in your trading journey is to understand your personality and the style of trading that will suit you. There is an adage that says, “Man know thyself.” Are you the type who loves to work under pressure where things are happening so fast and can make quick decisions? Or, are you the fellow who loves to take time to understand things and think them through before making a decision?
You need to ask yourself those questions and answer them. Your answer would determine the style of trading to adopt. As you know, there are different trading styles:
- Intraday trading: Done on the lower timeframes, you take multiple trades within the trading day and close all your positions before the end of the day. You place your trades and monitor them on the lower timeframe, so you are constantly analyzing the market.
- Swing trading: Here, you keep your trades from days to weeks. You do your analysis on the D1 and maybe H4 timeframes, so you are not glued to your trading screen all day analyzing the market.
- Position trading: This is a long-term trading style where trades can stay for many weeks, months, or years. Your analysis is on the weekly and daily timeframes.
If you are thrilled by the prospect of monitoring and analyzing the market all day, you go for intraday trading, but if you prefer to take things slowly and think them through, go for swing or position trading. You are likely to be trading with discipline if you choose the style that suits your personality.
2. Having a detailed yet simple trading plan
To trade with discipline, you must have a trading plan and be ready to follow it. A trading plan is a set of rules you make for different aspects of your trading. Your trading plan should cover your trading strategy, risk management parameters, trade management plan, money management rules, account growth plan, and your schedule for reviewing your strategy, as well as the markets to trade, the type of market condition, and possibly the preferred market session.
Your trading strategy should state the market and the preferred trading session for it. Then, it should have the rules that govern your trade entry — the criteria that must be met before you enter a trade. There should also be rules for your exit, including your possible profit targets and criteria for your stop loss level, which can be in pips or the price structure beyond which it can be placed.
Your trade management rules should specify when you move your stop loss to breakeven and whether you trail your profit or not. If you’re to trail the profit, you should specify the parameters for the trailing stop. Your money management rule should specify the percentage of your account you risk in a trade (preferably 1%). Then, you will use the dollar value and the number of pips for your stop loss to calculate the right lot size for your account size.
There should also be a written plan for your account growth. Are you going to withdraw some of your profits every month or retain all of them for your account growth? What you do should be clearly stated. Finally, you must state how often you review your trading results. It could be after 30 or 50 completed trades. Whatever you choose, write it down and also put down the parameter to review and what to do with the result from your review.
When you have all these documented in your trading plan, you will leave no room for making important decisions at the heat of the moment. You already know what to do in every step, which makes it easier to follow your plan. If your plan is not detailed, it will be difficult to follow, and you will find it harder to maintain discipline.
3. Choosing the market session to trade
The forex market is active 24 hours of the day and 5 days a week, but there are three main market sessions, which overlap to give the non-stop market. They are the Asian Session, which includes the Australian, Japanese, Hong Kong, and other Asian markets; the European Session, which consists of the London, Frankfurt, and other European markets; and the American Session, which includes the New York and Canadian markets.
Depending on the currency pair traded, the Asian session is known for having lower volatility than the European and American sessions. The largest volatility is seen around the London Open, the New York Open, and the rest of the period of overlap between the European Session and the American Session.
So, you should know the kind of volatility that is best for your strategy and then choose the market sessions that suit it. It is easier to stick to your trading plan when you are trading the right market for your strategy because the price movements will be similar to what you are used to. If you trade a strategy meant for a less volatile market in a highly volatile market, the trading rules will not make sense, making it difficult to stick with the plan.
This is particularly important if you are an intraday trader because the intraday volatility changes can affect your trading. If you are a swing or position trader, you may not bother because what will matter to you will be the full day’s price action.
4. Using a checklist of your trading rules
While you must have a detailed trading plan, you should have a checklist for certain aspects of the plan, such as the trade entry criteria. Before you enter any trade, you go through your checklist to make sure that the trade setup meets all the rules for your entry.
This way, you are less likely to make a serious trading error like entering a trade before the setup is completed or chasing a trade that has moved beyond your normal entry point. These are the kinds of errors that encourage indiscipline if the trades go your way, as you will be likely to repeat your actions due to the unmerited reward.
So, even if you know your entry rules by heart, it’s good to have your checklist with you whenever you trade. Just looking at it reminds you to stick to your rules, thereby helping you to maintain discipline.
5. Trusting your trading strategy
You won’t be able to effectively implement your trading strategy if you don’t trust it. Trading with discipline is only possible if you have confidence that your strategy can make you money when you diligently execute it with consistency so that your edge in the market can play out.
But to develop that trust in your strategy, you need to test it yourself and be sure that it has a positive expectancy before you use it to trade real money. Testing your strategy doesn’t just mean to back-test it with previous price action — though that may be quicker to get enough sample size. You need to front-test it on a demo account by trading the market in real-time.
After you have traded enough sample size, you analyze your results and calculate the expectancy using the win and loss rates and the average size per win and loss. A good positive expectancy shows that your strategy can make money if you execute it well. With this realization, you can focus on executing your strategy with discipline.
6. Not chasing trades
Sure, it can be really tempting; we have all hard that temptation — monitoring a potential setup and waiting for it to complete so that you enter a trade, but with a little distraction, you missed the ideal moment to enter a trade. As you watch the price zoom off, you may want to go ahead and place the trade.
That would be chasing the market, and in most cases, it doesn’t end well. But even if the trade does end well and make some profits, that would be reinforcing an error, which surely harms your trading discipline. If you continue repeating that mistake, you will eventually get burnt.
One of the reasons you should avoid chasing trades is that it messes with your stop loss. When the price is extended from the ideal level for your entry, you will find it hard to find a suitable price structure behind which you place your stop loss, or you will have to risk more pips to place the stop loss at the intended place.
7. Risking only 1% of your account capital per trade
This is very important as it helps to protect your trading account. As a beginner trader, it is better to risk only 0.5% of your account per trade, or even better, start with a micro account or nano account where you can trade micro and nano lot sizes respectively.
Apart from protecting your trading capital, which is very important in itself, risking a little amount per trade will help reduce the attachment you have for the money at risk because the bigger the money you risk in each trade, the more your emotional attachment to the trade, which can lead you to start making decisions out of emotion rather than following your trading plan.
In other words, when you risk a little in a trade, you will be in the right frame of mind to trade according to your plan. So, you will be trading with discipline.
8. Using a hard stop loss at all times
You must have heard this a thousand and one times, and we can’t stop emphasizing it; always use a hard stop loss whenever you place a trade. It makes things a lot easier for you. Don’t be deceived, using a mental stop loss is very difficult. You may not be able to pull the trigger when you see those ugly red pips.
At that stage, your emotional brain may play a fast one on you and put you in the hope game — you will be hoping that the price turns back in your favor while it keeps moving against your position, incurring more red pips.
One of the reasons traders don’t use a hard stop loss is the fear that their broker trades against them and will likely trigger their stop loss before the price gets there. While this can happen, it is quite rare. Moreover, if you are using a reputable broker, you won’t have to worry about such dishonest practices.
9. Accepting losses
Be ready to accept losses without feeling angry or sad because, in this game, there is no way to avoid losses; they will come and may even be back to back — streaks of losses. You must have what it takes to withstand the drawdown and still take the next trade setup that completes.
Your ability to accept losses can help you a lot during a period of drawdown when things are tough. You should take comfort in knowing that your strategy has a positive expectancy, so after the streak of losses, the wins will eventually come if you are consistent in taking all the trade setups that meet your criteria.
The problem will arise if you start cherry-picking the trades to take based on how you feel or become afraid to take your trades. That will distort your sample and make your edge not to play well. You are trading with discipline when you accept your losses and focus on executing your trades.
10. Having a clear trade management plan
This should be a part of your trading plan, but it needs to be clear in your head. You need to know what to do when your trade is open in the market, and if necessary, write them down on your trading desk. Do you prefer passive management where you set your stop loss and profit target and wait for the price to hit either of them or active management where you specify when to move your stop loss to breakeven and how you want to trail your profit?
If you are a beginner, the passive approach may be easier for you to apply, as you would only need to set the necessary parameters and go. You don’t have to bear the emotional torture of monitoring the market as the price gyrates up and down. Trading with discipline becomes easier since you know it can only be either of the two outcomes — a win or a loss — and you don’t have to watch it happen.
11. Keeping it simple
Making your trading simple is a vital skill that can help you to trade with discipline. From your trading strategy to your trade management plan, learn to keep everything simple. That way, you make it easier for you to follow your own rules and maintain your trading discipline. When your strategy is too complex and complicated that even you, the creator, get confused trying to implement it, sticking to your plan becomes very difficult.
It is better to trade with only indicators if that would make your entry and exit rules simple and clear. There is no need to use price action patterns if you don’t yet understand how to read price movements. Even with the indicators, the fewer the number of indicators you use, the more simple your rules will be, and the easier they will be to implement. Leave complicated price action trading for the experienced folks until you master how to use them yourself.
12. Having a trading journal
Successful traders keep a record of all their trades so that they can go through them from time to time to know what aspects of their trading they need to improve. If you desire to be successful like them, you have to do what they are doing, as there are many benefits to keeping a trading journal.
Apart from having a record of your trades which you can refer to when you need to, recording each of your trades in a trading journal gives a sense of seriousness to your trading, which pushes you to stick to your trading plan. As you are documenting a trade and its parameters, you are already judging your actions — whether it was according to your rules or not.
13. Doing periodic reviews
This is about the main reason why you document your trades with all the necessary parameters — entry criteria, exit criteria, the outcome, and the rest. You will use these parameters to analyze the results of your trades at some point to know how well your strategy and plan is working and whether you will need to tweak them a little.
It is important you determine how often you do the reviews, but it has to be at regular intervals. The best approach is to review your trading results after you have completed a specified number of trades, which will be your sample number. A sample number of 30 and above is fine. During your review analysis, try to find the current expectancy of your strategy to know if it is still good enough.
14. Setting physical reminders
It is not easy to stay disciplined when trading, as emotions can run high some times. But you have to stay cool at all times if you are to be trading with discipline, which is very necessary to remain consistently profitable. So, it may be helpful to put some reminders in your trading room and around your trading desk.
The reminders can be inscriptions on cardboard papers that you paste on the walls or keep on your trading table, which reminds you to stick to your plan and focus on the execution process. You may also have some mental reminders that you repeat in your mind all through your trading day.
15. Not following the crowd
Be independent. Don’t do things because others are doing it. This is especially important if you belong to a traders’ forum, such as you have in Forex Factory and Investing.com, where many different traders discuss their opinion of the market. You can easily get carried away and start trading other people’s opinions and abandon your strategy, especially if you haven’t yet trusted your strategy or you’re passing through an inevitable period of drawdown.
As a rule, do not follow the crowd until you are sure that what they are doing makes sense to you and your situation. One of the things about such forums is that you have traders with different styles dropping their opinions. If you are a swing trader, for example, what use would you have of the opinion of a scalper or day trader?
16. Doing your own thing
If you are an active trader — you trade by yourself — learn how the market works and focus on your progress. Don’t listen to those self-proclaimed trading gurus that try to sell their signals to you. You will never learn to trade by following someone else’s signal.
It’s a different thing if you want to be a passive trader or an investor. In that case, you can analyze the results of top traders on eToro or other copy-trading platforms and copy the ones that know what they are doing. But if you want to learn trading, focus on yourself and learn how things work.
17. Putting your personal life in order
Sometimes, we bring issues in our personal life to our trading desk. The truth is that you cannot trade properly if your mind is disturbed in any way — whether it is from personal life or somewhere else. So, make sure you put your personal life in order so that your mind is settled when you are approaching the market. Without clearing your mind of every disturbing issue, trading with discipline may be very difficult to achieve.