Trading discipline isn’t a matter of just deciding to be disciplined


The other day, Brett Steenbarger posted something which I think really is worth some thought and follow-up. Brett made the following statement:

We talk about losing discipline in trading as we might talk about losing our car keys or our way out of a forest. But losing discipline is not about a simple act of forgetting. It is an active process of refusing to act upon one’s knowledge, of blotting out uncomfortable realities.

One of the big gripes I’ve always had with trading psychology discussions is that most of them in some way boil down to the idea that discipline is the key to trading success. I won’t argue that discipline is important. You need to execute your plan consistently to expect consistent results. Otherwise, you’re just shooting in the dark. As Brett says, though, it’s not as simple as saying “Be disciplined.”

When I first read The Psychology of Trading, Brett’s first book, my major thought was that finally someone went beyond the whole “Be disciplined” mantra. In that book I felt like he addressed the deeper issues, the root causes why people failed to achive trading discipline. Most of those were psychological, as the title would imply.

I’m not really qualified to speak with any authority in that regard. What I can say, though, is that from what I’ve seen many people struggle with the discipline when they attempt to trade in a way which doesn’t fit their personality or situation. I’m talking about things like folks with a low tolerance for drawdowns employing trend trading systems, or folks who don’t have the ability to follow the markets steady attempting to day trade.

If you’re having a problem with sticking to your trading plan (assuming you have one – which is another topic all together), then take some time to understand why that is. Don’t just think it’s something that you can pick back up again when lost. There’s generally a reason for the problem. Figure out why you lose it and work on the root problem.

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About the Author
John Forman, author of this blog, has traded for more than 20 years, is a professional market analyst, and authored The Essentials of Trading. He is an active participant in trading forums, consults for trading related businesses, as published literally dozens of trading articles, and has been quoted in a number of books and in the media.
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  • Tyro

    What did you think of “The Psychology of Trading” overall? I’ve felt psychology is overblown so haven’t read it yet but “Enhancing Trading Performance” was an excellent book. Steenbarger’s comment about a lack of discipline often being a symptom of a mismatch between a trader and the trading style really opened my eyes. It cast my problems day trading in an entirely new light and the next week I dropped day trading entirely and turned to swing trading and my results have finally taken flight. A few gems like that can make a whole book worthwhile.

    I too don’t have any psychology background, but I heartily agree with you that, in my case, the struggles I had weren’t solved by psychology but by finding a better match for my abilities. I believe that the idea of working on your weaknesses may be a good idea for an elite performer but for the rest of us the best results come when we find a way to minimize the consequence of our weaknesses while focusing on our strengths. We’d be more successful and much happier.

  • http://www.theessentialsoftrading.com John

    Tyro: While I definitely find Brett’s first book a refreshing change from the more common “just be disciplined” dogma spewed by so many others, I think he probably included enough of the same primary content in ETP to suffice for those who’ve read that book.

    I’m hesitant to agree with you on your feeling that “psychology is overblown” without really knowing what that means. Do I think some folks improperly place it on top of everything else and claim it’s the most important thing? Yes, I do. Brett does too. That said, do I think psychology is important in trading? Absolutely – as it is in all performance activities.

  • Tyro

    John,

    Thanks for the feedback on his first book.

    re “psychology is overblown” – I’ve heard people say that “trading is all psychology”, that mastering psychology and discipline is the single most important factor in trading, that emotions are the single greatest block to trading success, that emotional skill is more important than picking entries and exits, money management, and risk management. There have been a number of books that are solely devoted to psychology and typically fall into this trap.

    I know that Brett has specifically attacked these views (http://www.traderfeed.blogspot.com/2006/12/three-pervasive-myths-of-trading.html) which is why I was interested in his books in the first place. Framing trading as a performance activity does help put psychology and other factors into their proper place – you need to achieve some minimal level of competence but ultimately trading is about trading, not mind games.

  • http://www.theessentialsoftrading.com John

    The thing I would say about psychology is that it’s not something which will really positively impact your trading much, but boy can it destroy it.

  • http://tradingadviceblog.com Mo Christiensen

    In my experience, trading is like a stool with three legs – system/method, money management, and mindset. If any one of them is missing or ignored you fall over!

    I’m the first to agree that trading is not all psychology, but I’m also the first to point out to traders that I speak to, not to underestimate its importance.

    Perhaps part of the issue is that the word psychology has such negative connotations. Perhaps if we talked in terms of thinking strategies or mindset it would be better?

    Many traders have potentially profitable trading systems with a great edge that they just can’t trade successful because they haven’t learned to address the big mindset issues – accepting risk, not needing to be right, staying objective so that they don’t see things in the charts that aren’t there etc etc. These issues keep contributing to their inability to be consistent.

    My philosophy is find an edge (and continue to make sure it is an edge), put in place sound money management strategies – and then put every ounce of your effort into refining your ability to execute that edge consistently by working on your mindset (and everything that entails).

    All the best

    Mo

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