Discipline is a very frequent problem for traders; we imagine everyone goes through it at some stage in their career. In working with student traders over the years, we have noticed a fact that we think explains one of the reasons for this lack of discipline. When we watch student trader’s trade, they tend to sit very tolerantly and give details to us what they are seeing on the chart in front of them. When they see a valid setup come along, they can rather happily tell us what the setup is and how they plan to trade it, and then they will perform the trade accordingly.
While the equivalent student is trading without help, they begin taking all sorts of off-plan trades, setups that aren’t really setups at all. It seems that the dissimilarity when trading alone is that the trader unexpectedly has no accountability. If they have someone looking over their shoulder keeping them in check, everything is well. They know that if they take an off-plan trade then they will have to explain to us why they did so when it all goes terribly incorrect.
Trading at home alone, the trader is accountable only to themselves, and they are most likely not going to give themselves the same hard time we would if they didn’t follow their trading plan to the letter!
Consequently it seems that one of the settlements of trading for a living, that autonomy from the boss, can in fact be an obstacle at times. Short of hiring a manager to stand watch over them, what can a trader do to overcome this lack of accountability in their trading? One method we advocate is to give a running explanation out loud throughout the trading conference, as if talking to an adviser.
Make clear what you are seeing on the chart, where you think a trade is setting up and why, how you will enter, how you will manage the trade, and where you will be exiting wherever the price afterward goes. When talking out loud you use a different part of the brain than when simply thinking to yourself, and that can have surprising consequences; it’s easy to talk yourself into a trade that you want to take even though you know it’s not quite right, but talk through it out loud and you’ll hear yourself making excuses and promptly see the error you are about to obligate. I know talking to yourself sounds a little odd, but it really works.
One more option for making yourself more accountable for your trades is to join a chat room. There are loads of them about, a lot of free ones as well as some paid ones which call trades in real time. If you find a civilized room and commit yourself to calling your trades in real time, knowing that you will have to explain to the room exactly why you just took that really stupid trade will really make you think twice about taking it in the first place.
There are many more interesting ways of increasing discipline as a personal skill.