Discipline, Mental Skills and the Psychology of Trading

Then the question arises, "why a few win and most don't?"

First, think about this. Every trader has access to the same tools, the same research, the same charts, the same quotes, the same proven trading methods, etc. So, why is it that, with everybody having access to the same stuff, only a few make consistent profits over time?

Well, it’s clear that the common denominator is the PERSON. Yes, YOU!

So, if somebody asked me to list the BIG THREE mental / emotional characteristics that define the majority of successful FOREX traders, I would list:

1. Discipline & Passion

2. Confidence & Courage

3. Patience & Persistence

One could have a great trading methodology and a system, but weak on psychology is likely to fail. Whereas someone with a mediocre trading system, but strong discipline with mental & psychology skills is likely to be on a winning side. One trader I recently interviewed has no clue about Macd, or stochastics or RSIs or Elliott Wave. He has a very simple system of trading the breakout on triangles and trendlines – that’s all he does, and consistently produces over 700 pips profit trading Forex.

He has a simple system, a set of rules, sets achievable and realistic goals – and all he does is follow these simple rules! – No rocket science. Recently one trader told me “I'd read very good books by Elder, Mark Douglas, Toni Turner, Candlestick course by Nison, Edwin Lefevre etc. however, after reading those I was still trying to find the 'secret' to trading successfully and wasnot sure about mysystem. I realised that the 'secret' to successful trading is that there is no secret! I've also developed a system from very effective strategies that suits my psychology and mystyle, and more importantly I have devised a Trading Plan”

DISCIPLINE & PASSION:

Discipline -

Majority of traders are not disciplined in their approach, else they would not be failing. These failed traders simply hate to hear the word Discipline! As Jack Schwager points out in his book, 'The New Market Wizards', "Discipline was probably the most frequent word used by the exceptional traders that I interviewed. Often it was mentioned in an almost apologetic tone: 'I know you've heard this a million times before, but believe me, it's really important'."

Discipline allows you to more effectively plan your work (trades) and work (trade) your plan. Discipline – “Habit of Obedience” – yes the keyword being habit, i.e. have a Trading Plan and make a habit of following it. The golden rule should be No Signal – No Trade.

Passion - We may spend a third of our life working, so you deserve to feel fulfilled in what you do, you do it because you love to do it! – Yes the monetary rewards are the by-product of your success in doing things you love to do.

How can you be naturally successful at something, continue to fine-tune your trading skills, seek the services of a mentor, and stomach the ups and downs of the business and if you don't know WHY you're doing it? As Michael Jordan once said, "If you have a love for the game, your talent will eventually catch up to you." So if you do not have the love for trading, will you succeed?

To sum-up this Mental skill set PAIR (Discipline / Passion): You must be disciplined AND remain emotionally detached from the market.

CONFIDENCE & COURAGE:

On of the basic traits of successful traders is that they believe in themselves first. They have the confidence and courage to stick with their plan, not stray from their rules, go against the crowd if need be, and see the end result (the Big Picture) in their mind.

What does every successful TRADER have in common? From the book, 'Poker, Sex and Dying': "Poker is an explosive game combining money, ego, and emotions. It is not enough to know, have information, and insight regarding your opponent (the markets), you must know of yourself." Therefore within your trading plan, you must have a section about YOU – get to know yourself

In the early days of my trading career, I had faced many a situation where I "knew" exactly where the price was going, had a trading plan, but failed to follow it. Of course, greed, fear, and our other emotions stood in our way. When you let this happen to you...all your knowledge, planning and information quickly becomes useless.

In other words, no matter how good you are at analysing the market, if you don't have confidence, all you're really doing is repeatedly creating experiences to which you will respond with similar frustration and anxiety.