Discipline

A systematic approach to trading is essential, but does not guarantee success if the trader selectively decides which trades to take. Experience shows that if the trader decides which signals to take, and which to ignore, he usually makes the wrong choices. The key to success is to execute your trading system consistently. Many good systems actually produce more losing trades than winning ones, but this doesn’t matter as long as the trader makes more money on the winners than he loses on the losers. Profits and losses wax and wane, like yin and yang, and losses are an inherent feature of financial trading.

Many books have been written on the subject of discipline. Without exception, they all say the same thing:

Your degree of success in trading is measured by how strictly you follow your system.

Just think about it. What’s the point of having a system (however good) if you don’t follow it?  A trader who does not have enough discipline to control his emotions is doomed to failure. 

Any effective trading system implies the use of a stop-loss.  Stop-loss orders are meant to get you out of a position if the market goes against you, before a small manageable loss becomes a much larger existential threat. The triggering of your stop order tells you that your trade was wrong; but it’s okay to be wrong as long as you are only a little wrong. So a disciplined trader always places a stop order at the time of opening a position, thus removing the temptation of holding onto a losing trade in the hope that it will turn around.  

How many times have you sat glued to your trading screen watching a price move against you past the point you initially marked for yourself as your “mental” stop? Tick by tick, what could have been taken as a small loss grows into a loss that you really don’t want (or can’t afford) to take. You can prevent this scenario by placing your stop order at the time you open your trade, safe in the knowledge that your stop order will take you out of a losing position without undue deliberation.  

When your stop is hit, you wait for the next appropriate time to enter the market. It’s as simple as that!