Trader’s Discipline or why everyone has their Way of Financial Losses

Trader's Discipline:
Friend! Partner. Or ... enemy?

Usually the concept of «discipline» presupposes the mandatory implementation of rigidly established rules, norms, laws. The modern financial market − is a multifactorial mathematics, distributed in time, combined with intuition and psychology.

This means that understanding of the requirements of the market and trading strictly by the rules should provide the trader a positive result in each transaction.

For whom this article is?

... It is mandatory recommended to all who want to have permanent personal protection for their money, and − for free. Trader's Discipline, by analogy with the usual order, involves a whole system of the «penalty points» and «punishments».

Traditionally, the main negative is a financial loss, then − in terms of the degree of harm to the trader there are: psychological breakdown, loss of health, crisis of confidence and other physical and psychological problems. (here − the classics of trading on this subject!)

The strategy of survival in the financial market is on three pillars − money management, self-control and optimal conditions for trade. Violation of any of the principles leads to disaster.

We begin with the most important factor.

Financial Trader's Discipline

Money management is much talked about and written, shown and warned, but in real operations it is used by no more than 10% of traders. This is just the «statistical» percentage of the players who actually make a profit. Inefficient management is the main reason for losing money, and even experienced and technically savvy traders go through this (webinar on the topic of the trading discipline).

Do you want money? Be prepared to comply with the following rules:

  • The volume of each transaction should be «comfortable» not only for deposit, but also for the trader personally. Otherwise, if the trading lot exceeds your «emotional» level, then every point of the current loss will cause a panicky desire to close position. The right to increase the lot you need to earn with the stable results!
  • The optimal number of the transactions for the period: when you receive a planned profit (or the maximum allowable loss) − trade stops.
  • Strict risk control in each transaction: without an obligatory level of Stop Loss/TakeProft in market is not included.
  • Constant monitoring of the load on deposit and compliance with loss limit − in general for period and for individual transactions.
  • Trading only during a period of the stable liquidity: in a «thin» market and in times of the market uncertainty, new deals are not opened, already opened − we strictly control.
  • Partial profit-taking − as an additional method of controlling losses.
  • Refusal to use dangerous methods of the trading: martingale, averaging losses and so on.

Only after acquiring sufficient experience in the trading strategy you can try to include, for example, professional hedging tactics, riskier assets, intuition and complex fundamental analysis. But even then the observance of the rigid management is mandatory; this will save you not only a trading deposit, but also nerves.

By the way, let's just talk about health ...

Psychological Trader's Discipline

None, even the most effective trading strategy cannot do without losses, primarily because of the human factor. Today traditional clients of the psychotherapists − are all kinds of the financial losers, including losing traders.

The key success in trading is emotional discipline. If the most important was the presence of the mind, then many more people earned money.
Victor Sperandeo

In general, the psychological state of trader suffers from three problems: ambition, panic and self-deception.

Unreasonable ambitions quickly disappear when the first losses are received − and there is no more effective cure for this disease. However, successful traders retain a reasonable level of ambition − this is an excellent incentive for continuous development.

The ability to panic depends on stability of trader, and most often it is corrected in one of the three ways: a temporary stoppage of trades, additional training or a final exit from the market.

The problem of the self-deception is solved simply: trader should not lie to himself and really observe discipline in each transaction. If you secretly tighten your favorite cigarette, but at the same time you all claim that you stop smoking, you will never get rid of a bad habit.

If you learn how to take current losses as a statistical probability, then in the future you will have the strength to conduct a thorough analysis of your actions, adjust your trading strategy and reduce potential losses.

Even non-observance of the discipline in everyday life adversely affects trade decisions, so a trader should increase the level of household self-control (costs, promises, habits, working regime). This tempers the psyche and strengthens ability to trade strictly on system. So do not miss the next stage ...

Household Trader's Discipline

The majority of the newcomers consider trading as an opportunity for quick and comfortable earning, and therefore expect profit as a result of the winning, rather than the full-fledged work. As a result, even the small household discomfort leads to real losses and to a greater stress.

The cure for such problems is simple: trade should be organized as an effective workflow, regardless of your experience and the size of the deposit.

This means that ...

  • Do not attach yourself to the external conditions. Trading − is solely an individual occupation, so you need to create comfort conditions yourself.
  • We need to organize a workplace for ourselves with the maximum psychological comfort. Regardless of whether you work in a large office or at home, you need to exclude all factors (information, personal, household) that distract from the market. The trader does not have a rigid work schedule − this fact should not break your habitual way of life or cause conflicts in your environment.
  • Unconditional point of the household Trader’s Discipline should become a trading plan − the result of its implementation should stimulate the trader to actively stay in the market.
  • You need to analyze your transactions, trading behavior and psychological state, regardless of the outcome of trading operations. Therefore, the trader must keep working records − trader's diary, trading report, transaction protocol − in any form. Your personal discipline of trader should bring more money than the market take from you.
Either write something worth reading or do something worth writing.
Benjamin Franklin

So, you think that you are ready for independent trading? What’s the problem?

Trader’s Discipline as a method of self-development

The financial market is always an absolute freedom and absolute risk. Even if it is carefully calculated and technically justified, there is always a risk of loss, and you need to accept this as a basic truth: the fact that part of your transactions will necessarily be unprofitable.

The market constantly presses on the trader by a lot of the random factors, but your self-control should not turn into fear of the transaction, as well as unreasonable persistence shouldn’t turn into the obstinacy. You have to be disciplined in trade, but you do not have to be a robot (see three steps to trader's discipline).

Look at it this way: you will never check your correctness until you open a trading position − the constant expectation of a more reliable «chance» postpone your earnings. Completely no risk is only at an undisclosed trade. No trade − no income, even if you think correctly.

Do not overcomplicate your analysis, do not skip the entry point, if your trading system allows this. Market is indifferent about you − it goes wherever it wants and will always be right. Simply, it punishes those who play out of the rules and violate the Trader's discipline.

I am not a product of my circumstances. I am a product of my decisions.
Stephen Covey

An excellent incentive to continue trading − getting at least a small profit, but − every day. Profit, as a confirmation of your correct decision, is much more effective than the result of any financial «punishment».

And what is the result?

From the moment when transaction is opened, result of the spent trading day is determined by your behavior. It is necessary to make a personal instruction and begin day with its study; with the acquisition of experience, the Trader’s Discipline should, first of all, be conscious, not just rigid.

Do not enter the market without preparation and do not allow critical losses − you should always be able to analyze errors and return to market. If your Trader’s Discipline is brought to automatism, then at the end of the day, your small income will bring a stable profit. And if not − prepare for losses.

Try It Yourself

Trading psychology is one of the essential pillars of the Forex success, so even if you are an experienced trader, you shouldn’t dismiss a trading psychology advice.

Do you need a comfortable space in order to take control over your emotions and get prepared to the live trading?

Simply Forex Tester for free. In addition, you will receive 23 years of free historical data (easily downloadable straight from the software).

Grow your patience, boost your trading skills, learn to avoid psychological traps without drawing your live account.

Share your personal experience of the Trader’s Discipline observing. Was this article useful for you? It is important for us to know your opinion – leave your comments below!


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