Follow Discipline- Be a Better Trader

Oct 30, 2023

Hi traders,
It's been a while since I have written something on trading psychology. So, here is small writeup that may help some traders in conquering their endeavors.

I won't and I can't discuss all the psychological aspects but would like to throw some light upon a few important ones.

You must have heard a lot about What-nots of trading- Do not fear; Don't be greedy; Don't lose your edge; Don't lose patience but there is little on What-should be done to avoid these limitations.

As per my experience, there are two paths that lead to same destination (trading success). Path1 is hit and trial method. I am sure most traders follow this path and suffer. It could be due to lack of awareness or knowledge of the stock market. This ignorance leads to greed >> losses >> fear. Eventually, ignorance develops indiscipline habits if you are not following the cautious approach and learning.

Majority of traders fail to understand the need to learn before they lose their entire capital.
Some of them strive to learn and improve slowly. The latter has good chances to reach their destination but there is no certainty.

On Path2, traders seek help from other. They know that they do not have enough knowledge about the markets and there is someone else who has better knowledge and that someone may help in making the former profitable. Unfortunately, most of the so called knowledgeable are involved in fraudulent activities and it's difficult to filter out good one. Fake Ids, fake PnL screen shots and edited videos are a common practice on social media. There are only a few genuine people and those who are able to find those good mentors or guides are just lucky.

Having a good mentor or knowledge is just primary, the real journey begins after that. Earlier you were fighting with someone else in the stock market but now with all the knowledge that you have, you are fighting with youself. You just realize that the real limitations are within oneself and hence psychological in nature.

I won't delve into those limitations as you all must have read about them at one point or the other. However, I would like to briefly discuss a few solutions to them.


🚀You must have an edge that works. When I say Edge, I mean a strategy or plan. A plan that works means a plan that may not work all the time but most or the time. It could also be a plan that works only 50% of time but with better risk to reward, at least 1:2. The best way is to find/devise such a strategy and backtest off market for its accuracy and intricacies.
Basically, a strategy has three basic elements: Entry, Exit, Stoploss and Trailing stoploss.


🚀You must fix maximum loss per day or maximum number of losing trades per day or maximum profit per day. This is particularly for day traders. If you are in front of the screen all the time, there are higher chances of overtrading. So, you have to learn the habit of discipline yourself with a few trades only. By the end of day you will see that only a couple of trades would fit into your trading plan. If you take a large number of trades per day, you will surely gain nothing by the EoD.


🚀Also its important to book profits when available. You would often notice making good profit in your first trade, losing some part of it in the second, and then closing a third one in a loss. It needs to be realised that the first good trade was enough to call it a day.


🚀Try not to turn a trade in good profit into a losing trade. The problem occurs when you have say, 5000 unrealized profit and then it reduces to 3000. Now you want that 2000 back ignoring that you are still making 3000. This is where trailing stoploss works. Develop a habit of using this locking mechanism so that even if something goes wrong, you still realize gains in a winning trade.


🚀When your trailing stop is hit and stock still resumes in your predicted direction, "do not re-enter". Try to find a second trade later that fits your setup/strategy.


🚀After taking entry, it's important to fix your stoploss as per your strategy. Do not reverse your trade just because your stoploss is hit. This may lead to worst trades in most cases.


🚀Its not bad to buy something that is cheap. You can buy it if it fits into your strategy. Just keep your position within manageable loss limits.


Although these points look simple, yet I am sure that in the beginning you won't be able to follow these few points religiously. It would need a lot of time to follow this discipline. The journey may be difficult but only a strong trading psychology will make you a better trader.

Do boost and share your thoughs in the comment section.

Oct 31, 2023

Note

Even if you have well back-tested trading plan ready, your emotions may lead to buying too early or buying too late; not taking the SL because last time market reversed after hitting your stop or taking SL too soon and then re-entering; taking profit too early or too late. These are the mental aspects of trading.

At the later stages, trading is more about managing emotions like fear and greed, staying disciplined, and making rational decisions. I am not saying that it is possible to master trading psychology, but its realization influences your trading.