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Discipline: "Habit of Obedience"
This is
the part of the definition of discipline of most relevance to day traders, the
key word being "habit". At its simplest, in the context of day trading,
discipline is the practice of making what you do a habit. As a day trader is
often faced with making certain decisions, discipline implies the need to act
consistently, in a reliable manner, and in accordance with the pre-determined
trading strategy or system set forth in your trading plan.
Have a
trading plan or system is essential to the exercise of good discipline, as it
normally imposes certain parameters and sets out certain criteria which dictate
how trading decisions should me made and what needs to be done in certain
situations. Habitually following your plan is what is meant by the exercise of
good trading discipline, which, in turn, will help you realize the best expected
results possible from your plan. If you find that your trading plan or system is
not meeting your expectations, despite habitually following it for a reasonable
period of time, good discipline requires that you be prepared to review it and
make any adjustments or fine tuning necessary for future use.
Lack
of Discipline
Day
traders who suffer from lack of discipline often allow their emotions to rule
their trading decisions, which often leads to bad decisions and unacceptable
trading losses. Never allow your emotions to rule your trading. In order to day
trade successfully, you must develop a trading plan (subject to any changes to
it that you feel may be necessary from time to time) and consistently stick to
such plan. You must avoid a "shooting from the hip" or a "seat of the pants
approach" to day trading. Get out of the market when you have reached your
initial objective and do not let emotions like fear and greed influence your
trading decisions.
Many
inexperienced traders demonstrate lack of discipline by being afraid or
reluctant to take losses and to get out of a stock when it goes down, in the
often vain hope that the share price will rise again. Often, however, the share
price tumbles even lower, and the trader's initial small loss in the trade
becomes a large one. Likewise, some day traders often get greedy if the share
price rises and are reluctant to take profits off the table when their trading
plan or system suggests they should. They think the share price will rise even
more, and they can make even more profits. However, the share price may
subsequently drop, causing their gains to dwindle or become losses. Fear or
greed are two emotions that should play no role in the life of a disciplined day
trader.
What
It All Means
In short,
discipline requires that you: Trade on the basis of trading plan or system and
not on the basis of your hunches or emotions Take a profit when you're supposed
to in accordance with your pre-determined plan Take a loss when you're supposed
to in accordance with your pre-determined plan Don't trade when there's no need
to (over trading; trading for the sake of making a trade) If you exercise the
qualities of discipline outlined above, the likelihood of you achieving day
trading success will be greatly enhanced.
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