Discipline, Mental Skills and the Psychology of Trading
Are you searching for answers to become a master trader? Or are you still trying
to be a profitable trader? Trading is not easy as most people think, why is that
out all those who try, over 90% fail?
My trading experience expands 2 decades, and also being a trading mentor I have
also interviewed many traders, many of them have struggled to earn any profits
after so many years of trading and yet they continue to fund their trading
Most traders do not realize that successful trading comes from a belief and
confidence within oneself. It's an attitude! It's thinking like a winner. It's trading
to win, not trading to lose. The fact is, trading, as all of you should know, is a
zero sum game. You either are a winner or a loser. Why does a trader let his loss
accumulate? Why does a trader snatch a profit and not let it run? When you are
wrong, why don’t you admit it? All these answers come from within. It's trading
psychology not technical knowledge. For anyone preparing a trading plan, the
first thing you must do is to get to know yourself. This may seem silly, but 95% of
trading plans that I have seen do not cover this important aspect.
Then the question arises, "why a few win and most don't?"
First, think about this. Every trader has access to the same tools, the same
research, the same charts, the same quotes, the same proven trading methods,
etc. So, why is it that, with everybody having access to the same stuff, only a few
make consistent profits over time?
Well, it’s clear that the common denominator is the PERSON. Yes, YOU!
So, if somebody asked me to list the BIG THREE mental / emotional
characteristics that define the majority of successful FOREX traders, I would list:
1. Discipline & Passion
2. Confidence & Courage
3. Patience & Persistence
One could have a great trading methodology and a system, but weak on
psychology is likely to fail. Whereas someone with a mediocre trading system, but
strong discipline with mental & psychology skills is likely to be on a winning side.
One trader I recently interviewed has no clue about Macd, or stochastics or RSIs
or Elliott Wave. He has a very simple system of trading the breakout on triangles
and trendlines – that’s all he does, and consistently produces over 700 pips profit
He has a simple system, a set of rules, sets achievable and realistic goals – and
all he does is follow these simple rules! – No rocket science. Recently one trader
told me “I'd read very good books by Elder, Mark Douglas, Toni Turner,
Candlestick course by Nison, Edwin Lefevre etc. however, after reading those I
was still trying to find the 'secret' to trading successfully and was not sure about
my system. I realised that the 'secret' to successful trading is that there is no
secret! I've also developed a system from very effective strategies that suits my
psychology and my style, and more importantly I have devised a Trading Plan”
DISCIPLINE & PASSION:
Discipline - Majority of traders are not disciplined in their approach, else they
would not be failing. These failed traders simply hate to hear the word Discipline!
As Jack Schwager points out in his book, 'The New Market Wizards', "Discipline
was probably the most frequent word used by the exceptional traders that I
interviewed. Often it was mentioned in an almost apologetic tone: 'I know you've
heard this a million times before, but believe me, it's really important'."
Discipline allows you to more effectively plan your work (trades) and work (trade)
your plan. Discipline – “Habit of Obedience” – yes the keyword being habit, i.e.
have a Trading Plan and make a habit of following it. The golden rule should be
No Signal – No Trade.
Passion -We may spend a third of our life working, so you deserve to feel fulfilled
in what you do, you do it because you love to do it! – Yes the monetary rewards
are the by-product of your success in doing things you love to do.
How can you be naturally successful at something, continue to fine-tune your
trading skills, seek the services of a mentor, and stomach the ups and downs of
the business and if you don't know WHY you're doing it? As Michael Jordan once
said, "If you have a love for the game, your talent will eventually catch up to you."
So if you do not have the love for trading, will you succeed?
To sum-up this Mental skill set PAIR (Discipline / Passion): You must be
disciplined AND remain emotionally detached from the market.
CONFIDENCE & COURAGE:
On of the basic traits of successful traders is that they believe in themselves first.
They have the confidence and courage to stick with their plan, not stray from
their rules, go against the crowd if need be, and see the end result (the Big
Picture) in their mind.
What does every successful TRADER have in common? From the book, 'Poker,
Sex and Dying': "Poker is an explosive game combining money, ego, and
emotions. It is not enough to know, have information, and insight regarding your
opponent (the markets), you must know of yourself." Therefore within your
trading plan, you must have a section about YOU – get to know yourself
In the early days of my trading career, I had faced many a situation where I
"knew" exactly where the price was going, had a trading plan, but failed to follow
it. Of course, greed, fear, and our other emotions stood in our way. When you let
this happen to you...all your knowledge, planning and information quickly
In other words, no matter how good you are at analysing the market, if you don't
have confidence, all you're really doing is repeatedly creating experiences to
which you will respond with similar frustration and anxiety.
How do you achieve confidence? You gather knowledge, practice discipline, and
grow as a person. The more you learn about the markets, your approach to
trading the markets and, more importantly, yourself...the more effective you
become as a trader. The more effective you become, the less fearful you are.
Confidence is the lack of fear. When you are confident, you can win.
PATIENCE and PERSISTENCE:
In this day and age of instant gratification, people want thrills without risks, wine
without alcohol, more money without effort, beer without
belly and yes, a profitable trade without doing homework.
The market knows better than you and I, don't rush to trade, you have to have
patience and wait for the right signal – A golden rule No Signal – No Trade.
The successful trader realizes that patience pays! Every successful trader has a
special talent for 'watching and waiting' and waits until trading behaviour has
dictated when to enter the market. The prudent FOREX trader specifically applies
patience to his/her advantage by:
Listening To The Market. The market is continually donating valuable trading
information, and you must get into the proper frame of mind where you are in
reality taking your orders from the action of the market itself or the signals your
trading system is sending you. Your judgment will become poorer from the very
time that you decide you know more about the market than the market itself is
telling you, and you throw patience aside and give in to fear or hope.
Sitting On The Sidelines While Waiting For a Trend to Develop. It has often
been said that looking at one's screen during the trading day is like sitting in
front of a slot machine and trying to resist gambling. Successful traders in the
FOREX have learned that they cannot buck the major price trend of the
individual currency-pair they are trading. You still don't want to let impatience
cause you to trade against the trend.
While patience is important not only in waiting for the right trades, it's also
important in staying with the trades that are working. You must know how to
wait patiently for the optimal time to sell. Selling a winner too early is not going to
allow your account balance to increase exponentially at an ideal rate. So, this is
where the 'persistence' mental factor comes in as well. You can be 'patient' until
the cows come home but if you don't persistently control your impulses and don't
persistently follow your exit rules, and then your profits won't balance out losses
"Be patient with winning trades; be enormously impatient with losing trades.
Remember, it is quite possible to make large sums trading/investing if we are
"right" only 30% of the time, as long as our losses are small and our profits are
large." - Dennis Gartman
Success in trading depends on education to learn the critical technical analysis,
trading techniques, sound money management habits, and how to control your
emotions. The education involves many stages, individual self-study, group
lessons, classroom study, and constant practice. This takes you to a near
professional level. Then, they add one more dimension, individual mentoring and
coaching to rise to the absolute top and remain there over their professional
Do you really need a mentor or a coach? The best golfer in the world thinks so!
Tiger Woods pays his coach over 1 million dollars per year! Yet he makes over 50
million dollars per year. In fact, all professional athletes have coaches to help
make them better. The reason you choose to spend the money on coaching is to
shorten that learning curve over which all traders have to travel, while increasing
your levels of success; it is a cost of doing business. Remember if you are or want
to be a professional trader you are in a business.
Today’s traders are lucky in that, they have many facilities and resources
available. When I started trading 2 decades ago, there were very few resources
available to a retail trader, few had heard of a Trading Coach or a mentor, no
Internet and indeed no public boards such as T2W – trading was lonely.
After 10 years of trading, overall I was a loser. This period included major
Stockmarket crashes, such as the 87 crash, and the 91 Gulf war. Trading was
tough. My trading took to a new level, when I went to the Trading Expo in USA
and was introduced to a Trading Coach.
I sought the services of a coach; the main focus of my coach was Psychology, an
area that I had totally ignored all these years. My life as a trader was to change
forever and I have not looked back, trading has become so easy and I am able to
pick an iron-clad trade with great ease.
As I have often said, ignore the trend at your own peril; today I add if you ignore
the psychology of trading you may not succeed.
“Failure is a man who has not learnt from his blunders, if you are able to cash on
that experience you are on the path to success” – Jay Lakhani
BY Jay Lakhani