Consistency and Discipline
For me, consistency and discipline are two closely related character traits that are essential if you are to be a successful trader (or investor). Trading is about analysing data and making decisions. Each time you buy or sell a financial instrument you are making a decision, informed or otherwise, about the prospects for that particular financial instrument. As trading revolves around decision making, it follows that you need to be decisive if you are to be successful.
In my opinion, the only way you can be decisive is by applying a disciplined and consistent approach each and every time you engage with the market. The easiest way to do this is by having a detailed and robust trading plan (we will discuss trading plans in more detail later). A detailed trading plan lays out, plainly and simply, what you will do in certain situations that the market presents. It is a detailed set of instructions that will help you deal with each and every situation that might arise.
The reason why a disciplined and consistent approach is necessary for success is that most of us mere mortals get caught up in the emotion of trading, i.e. fear and greed plague our decision making. We may be able to avoid the consequences of these uncontrollable emotions for some time but eventually, they catch up with us and destroy our resolve and - worse still, our capital.
The common examples of fear and greed are;
- Holding onto losing positions for too long and/or,
- Taking profits on winning positions too early
When traders find themselves in losing positions a whole host of fear elements kick in; fear of losing money, fear of being wrong, etc. I once had a client say to me, ‘Chris, I haven’t lost anything yet because I haven’t yet closed my position’. I really struggled with helping them because it was fear that was getting the better of them. At that point in time, they could have taken a small loss but because they feared taking a loss and because they feared being wrong, that loss ended up being much, much bigger.
New traders must learn to accept losses and take them on the chin. The only way to do this is to have a clearly defined set of rules for exiting losing trades and having the discipline to apply those rules consistently.
Just as big an issue is not letting profits run and closing out of winning positions too early. Many traders, new and experienced, are unprepared when they find themselves in a winning position. When they see a trade in profit, they begin to worry about giving back those profits. They get greedy, thinking about what they are going to do with winnings and close their trade as a result.
Often times this ends up costing them a lot of money by not allowing for the trade to make even more profit. Once again, the only way to overcome this issue is by having a clearly defined set of rules for managing winning trades and having the discipline to apply those rules consistently.
One of the major factors that I attribute my success to is my disciplined approach. At the start of my trading career, I certainly did not always have a disciplined approach and it is no surprise that during this time I lost money. Only once I developed my trading plan, by laying down clearly defined rules and then having the discipline to apply those rules consistently, I began to make money.
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