Discipline

FTSE Beater

Experienced member
1,518 4
Hi all


Just found this article and it made interesting reading:

Your psychological mind set is likely to play a larger role in your trading career than your chosen technique or any other details associated with your day-to-day practice. Indeed, discipline is just one attribute of trading psychology, but it just so happens to be the most important psychological factor that affects a trader's success.



There are four components of discipline that I believe are absolutely essential to a successful career in trading:

1) Training and practice - Never content to rest on his or her laurels and accept the possibility that his or her trading ability has peaked, the successful trader is always involved in education, training, and practice-- decision-making skills must be continually enhanced so they exhibit the automatic, lightning-quick qualities of a computer but with the benefit of superior human judgment.

2) Controlled behavior - The successful trader has an extraordinary amount of self-control. Never letting emotions take over when entering or exiting a trade, the disciplined trader is largely immune from panic and does not let euphoria cloud judgment when trades go exactly as (or better than) intended. A trader's emotional state should be the same on the days on which he or she makes $50,000 as on the days on which twice that amount is lost.

3) Trading rules - Similar to the last point, the successful trader has developed a set of trading rules that are religiously followed. If his or her style of trading dictates that a trade must be exited once the stock reaches its upper range, the trader will exit that trade at that exact price and will not wait a moment longer.

4) Punishment - The final essential component of the discipline of trading is that trading possesses a self-punishing feedback mechanism. If a trader breaks his or her trading rules and strays outside of the guidelines for controlled behavior, his or her edge will inevitably be lost. The punishment may be quick, as it is in the case when the opportunity for profit is sabotaged by the trader's momentary loss of focus. Punishment may also be longer-term, which occurs when the trader gradually strays from his or her trading rules. This may bring success at first, but it turns to failure the further away the trader strays from his or her established pattern. Whatever the exact circumstances, a trader who fails to exhibit the qualities associated with discipline will surely lose, whether quickly and painfully in the short-term or slowly and gradually over the long-term.



In his book, Come Into My Trading Room, Dr. Alexander Elder quotes ten demonstrable examples of the behavior of a disciplined trader. To summarize Dr. Elder's ten points, the disciplined trader does the following: keeps accurate records; demonstrates, with only minor and short losses, positive performance greater than 25% return per year; develops a unique trading plan based on his or her own personal techniques; never shares information or listens to advice from others; learns as much as possible about his or her chosen market; constantly grades his or her own adherence to a chosen trading plan; devotes as much time to the markets as possible every trading day; monitors the chosen markets every day even if he or she is not actively trading; learns new ideas to improve trading methods, but not before thoroughly testing them; and finally, follows his or her set of rules as though life depended on them.

Phew! You are forgiven for thinking that these ten behavioral essentials are a rather tall order for successful trading. But this is exactly the point--trading is difficult work and serious business. Successful trading is impossible if you take things with only a modicum of seriousness. And disciplining oneself requires time, patience, and a great deal of hard work. A trader has to observe, learn, and analyze long before turning thought into action.

If you are one of the few human beings that possess the qualities of discipline that I have outlined, you are well on your way to trading success. But if you start dabbling in trading only to realize that you are slipping on any of Dr. Elder's behavioral tenets, stop and take stock of your actions. Ask yourself what it is that is causing you to stray from your disciplined path. If you are able to adjust your pattern to get back on track, more power to you. If, however, you are not able to quickly reign in control, you may want to give second thoughts to your trading endeavors. The trading profession offers much potential for handsome rewards, but the punishment for stepping off the straight-and-narrow path of rigid discipline will inevitably lead to financial ruin.
Originally posted here http://www.investopedia.com/articles/trading/02/110502.asp

The 2 statements in red above I can't understand. How can you learn new ideas if your not willing to listen :confused:
Sorry Dr.Elder sir but I think you have this wrong.

I do agree with the rest of the article though. If only I understood this 2 years ago, but if I knew that I probably would have given up trading a long time ago :rolleyes:

All IMHO
 
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Newtron Bomb

Experienced member
1,602 86
Interestin article you dug up FTSE Beater....

I think what elder is trying to say is that a successful trader should have their own mind and make decisions based on their own judgment... so to make a successfully decision you need to colate as much information as is feasible based on your trading methods.


The life of brian springs to mind
Brian saying to the crown "... your all individuals, be individual..."

The crowd then shouts "...WE ALL WANT TO BE INDIVIDUALS TOO!"

or something like that ;) :LOL:
 
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Mr. Charts

Legendary member
7,367 1,184
I'd agree with Bomber.
Elder means don't be swayed by the views of others and only apply new methods after thoroughly testing them for yourself.
I would add that you should "hear" the opinions of others, but only to assess sentiment and test approaches live going forward, not merely back test.
I like the "super moderator" title, ftse-b!
Richard
 

FTSE Beater

Experienced member
1,518 4
Hiya NB and Mr.C

Yes, I can see what you mean :)

I have to say this is the first time I've been called Super Anything :cheesy:
 

china white

Established member
979 12
something to remember

lads/lasses,

just came across some funny info - pasting it here word for word. I am not sure if the numbers r correct, but it's definitely worth reading IMO:

Will Day Traders Ever Learn?
There's nothing like a 60% return in less than a year -- as we've
seen from the Nasdaq -- to make some people think they've got the
Midas touch. Yes, the day traders are back. It seems like some people
never learn. To attract this lucrative business, many of the
brokerages are lowering commissions for customers who make between
108 and 250 trades a year, depending on the company.When we
say "lucrative," we emphasize that this is lucrative for the brokers,
not the traders. Even during the bull market of the '90s, only 11.5%
made a profit, at least according to a study by the North American
Securities Administrators Association.

According to managers of day-trading firms cited in a Washington Post
Magazine article published during the bull market, about 90% of day
traders "are washed up within three months." Most traders will lose
all of their money." A principal of a day-trading firm even admitted
that "95% [of day traders] will fail in the first two years."

We leave you with these words from the Securities and Exchange
Commission: "Day traders typically suffer severe financial losses in
their first months of trading, and many never graduate to profit-
making status. Given these outcomes, it's clear: Day traders should
only risk money they can afford to lose."
 
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FTSE Beater

Experienced member
1,518 4
Hi China White

An interesting post.
Yes 90% fail, because it can take years to learn to trade properly, most give up and move onto "easier pastimes". It would be interesting to know the percentage of those who survive the first 2 years go on to day-trade for a living. I wouldn't be surprised if it's around 75% who successed.

When all is said and done. Those 10% that make it, take their living from those 90% who fail. Harsh, but that's trading.

Just my thoughts
 

stevem12

Active member
135 1
Is it just me, or is anyone else sick and tired of all these articles telling us we are bound to fail?

I realise newcomers have to be warned, and that most people fail, BUT, ultimately that is teir own fault. They quit before learning how to do it.

We all have to learn how to do everything in life, and as the saying goes " Quitters never win and winners never quit!"

Just because something is difficult to master doesn`t mean you shouldn`t try does it?

Did anyone ever tell a child, don`t try to ride a bike, 99.9% of kids fall off a lot to begin with?

Just my little rant ;)
 
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FTSE Beater

Experienced member
1,518 4
stevem12 said:
Is it just me, or is anyone else sick and tired of all these articles telling us we are bound to fail?
Hi Stevem12

Not really - It makes, making it a lot lot more satisfying :p

Also remember, that those who come out with these statements are either part of the long term buy and hold lot who are still holding losses from year 2000 trades or those who are trying to grab the headlines. :rolleyes:

I love the example of bikes, and I'm pretty sure the same 90% stats apply to those who play poker, but those stats are never mentioned!!

OK, my little rant over ;)
 

china white

Established member
979 12
to be quite honest I love being told that its bl**dy gloom and bl**ding doom and I'm bound to fail - just LUV hearing that and proving to the contrary! :) FTSE Beater - completely agree with u - its those who survive first 2 yrs that become creme-de-la-creme (excuse my French!) :)
 

china white

Established member
979 12
Have a smile - we all need it! :)

In 1923, who was:
1. President of the largest steel company?
2. President of the largest gas company?
3. President of the New York Stock Exchange?
4. Greatest wheat speculator?
5. President of the Bank of International Settlement?
6. Great Bear of Wall Street?

These men were considered some of the worlds most successful of their
day.
Now, 80 years later, the history book asks us, if we know what
ultimately
became of them.

The answers:

1. The president of the largest steel company, Charles Schwab, died a
pauper.
2. The president of the largest gas company, Edward Hopson, went
insane.
3. The president of the NYSE, Richard Whitney, was released from
prison to die at home.
4. The greatest wheat speculator, Arthur Cooger,
died abroad, penniless.
5. The president of the Bank of International
Settlement, shot himself.
6. The Great Bear of Wall Street, Cosabee
Livermore, also committed suicide.

However, in that same year, 1923, the PGA Champion and the winner of
the most important golf tournament, the US Open, was Gene Sarazen.
What became of him? He played golf until he was 92,
died in 1999 at the age of 95. He was financially secure at the time
of his death.

The moral:

Screw work. Play golf.
 

china white

Established member
979 12
perfect article by Ruth barrons Roosevelt - enjoy! :)

In my years of coaching traders and investors, I have seen many
kinds of self and profit-defeating behaviors. One would think it
would be easy enough. Find a winning strategy that gives you an
edge. Test it to make sure that it works. And employ the strategy
consistently. Some do that, to be sure. But others become their own
worst enemy on their way to success.

Traders and investors hang onto losing positions until the enormity
of the loss overwhelms them.They sell their winning positions
quickly , while the trades go on to make enormous profits. They write
trading rules, only to violate them. They get greedy and over-trade,
only to lose all their money. Some simply can't pull the trigger on
a trade or investment. The opportunities slide right past them as
they remain immobile and disappointed.

John Smith (not his real name) came to me after a year of watching
the markets. He said he wanted to support himself by day trading the
E-mini S & P.He had only taken three or four trades in the past year.
His proven system offered him 15 to 20 trades a day and made money on
paper. He had the idea that if he studied enough, he could pick out
the winning trades and let the losers ago. In fact, those few trades
he had taken had been losers. Time and money were slipping away. It
costs money just to sit there day after day doing nothing.

John said he was learning by watching the market. I suggested that
what was learning was how not to trade. I suggested he start each day
setting his intention to actually trade, and that he leave the screen
as soon as he let the first trade go by. He agreed, but was unable to
do that. He sat there watching, telling himself he was learning about
the market. He had developed a comfortable spectator sport.

When fear is stronger than desire, fear dominates. John feared losing
money, and he feared being wrong. Each time a signal came up, he
imagined that if he took the trade, it would be a loser. Imagination
is stronger than will power, and so he was unable -no matter how
determined -to put the trade on.

Over the next three months, John began to trade. First, he mentally
rehearsed taking all the trades. He shifted the belief that losing
made him a loser was wrong, to the belief that losing is a natural
part of the game and that not taking all the trades is wrong. He
shifted his imagination from losing to winning by asking himself
whenever an entry signal came up, "What if this trade is a big
winner?"

Most importantly, he learned to set a new intention when he began
each day's trading.He shifted his intention away from losing or
making money to following his system. He understood that the long-
term consequences of following a winning strategy consistently was
indeed wealth creation.

He developed what I call emotional inoculation through actual
trading. At first he only took one trade a day, then two, then three,
and finally all of them. Each time he took a trade, it became less
significant and easier to do. Today he makes a nice living with his
trading.

End of quote
 

AGB

Junior member
32 0
China White

Thank you for posting the article from Ruth barrons Roosevelt.

When I read it I felt as though someone had been sitting at my shoulder for the past few months!

It is encouraging to know that it is not just my problem.

I now know what I have to do to get over it.

AGB
 
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