Trading the Forex with Discipline.
Have you ever wondered what the difference is between a trader who manages to make the right choices consistently and calmly compared to one who constantly seems to be on an emotional roller coaster, umming and ahhing about how to conduct themselves in the forex markets?
Simple – Discipline!!!
No matter how you eventually decide to trade the forex markets being disciplined and having a rock solid set of rules in place, is a must! They are your guiding hand and a source of structure which the Forex markets do not impose upon us and something we have to do ourselves.
What would it be like if we had no rules in our society? -absolute chaos!!!
So we are used to being restricted and guided by set rules, even if we do not always completely agree with them, they help to impose structure in our lives.
Now because trading the forex doesn’t really have any rules, it’s basically a free for all. You can trade with robots, indicators, price action, so pretty much anything goes and the markets do not really care. This absolute freedom to do what you like is what can excite many new traders and suck them into trading. Little do they realise this is probably the biggest reason why traders get their accounts drained so quickly.
Once the market gets into your head and starts playing with your decision making. Every time you have to make a decision or enter a trade you will begin to second guess yourself, you basically lose control.
That little voice in your head goes into over drive and rather than being a calm and controlled trader you will probably be a complete nervous wreck, checking the charts frequently to see what the trades are doing.
Breaking out of this mental torture is not as simple as flicking a switch back on. You almost have to start again and reprogram your brain to be able to resist the markets temptations, like over thinking trades, fiddling with trades and taking too many trades etc……
Rules Rules Rules
Rules are the glue that keeps traders stuck together. They give traders the structure they need to be consistent in all areas of trading.
The best way to instill discipline back into your trading is to have very strict rules written down, these rules must cover every aspect of trading and be decided upon before even entering a single trade. The rules you choose upon are only going to be as strong as the ability you have to follow them through.
It’s completely pointless having rules that you just don’t follow or respect.
The misconception that trading is all about the trading strategy is very common, trading looks from the outside like a very simple format, sell when price is expensive and buy when price is cheap. The biggest area traders tend to brush over when evaluating their trading results is actually their mind set and discipline.
The routine of a trader who hits a losing streak is to automatically look at the trading strategy itself and make alterations or even change strategy completely. Instead, it’s worthwhile looking into the mind-set you have and whether you are trading with a steady hand or making trading too personal.
It’s all about becoming the complete trader, someone who knows their trading strategy inside out and who has complete control over their mind. These traders are going to have a much better chance than someone who simply tries to wing it and makes decisions on the fly.
A lot is talked about trading from the gut and yes once we reach a certain level our sub conscious does give us clues to whether or not a trade is the right choice to take. We must harness these emotions but also have in place basic ground rules to keep everything solid.
Take for example a top sportsman, now they can train and train all day long but in those high pressure situations their mind-set is what gets them through the challenge and helps them perform as they should do. Trading involves the same processes, we need to be able to make the correct decisions on a very consistent basis, the market is a very ruthless environment and any weak decisions will be punished.
Analysis of trading.
Being able to analyse your trading results is a great technique to find out any faults or weaknesses in our approach. This can only be carried out accurately if we are consistent in our approach to taking trades and how we manage certain trades, like trend trades or counter trend trades. How on earth can we analyse what’s working well and what’s not if we are all over the shop?
Examples of rules we can put in place.
1) Before entering a trade, we should always produce a trade plan to follow, this will include information like: Entry point, stop loss, where to move to break even, where to place take profits, etc… N.B. the trade plan should always be written before you enter into the trade.
Incorporating a trade plan will reduce a lot of decision making whilst in a trade, as it’s much harder to be clinical once entered into a trade.
2) Removing ourselves from the market, what I mean by this is to not follow every pip movement by sitting in front of the charts. The trade plan holds all of the decisions we need to make and so watching a trade is going to only increase temptation to alter the plan. Altering a trade plan once in a trade is a big no, no.
How can we expect to be consistent at trading if we can’t even follow a simple plan?
3) When to look for trades and on what time frame is a key issue, we can’t go trawling through the charts for setups on random time frames. If we decide to stick to just the daily charts to begin with, these are the only charts we can use.
It’s very tempting to jump into the markets because of the feeling of not wanting to miss a trade. Trying remove this sensation is a challenge and yes it’s hard when a trade you passed up on turns into a corking winner, but who cares there will always be another trade around the corner. The feeling of being rushed and forced to trade is a confusing emotion. Instead focus on the exact criteria required to validate a trade.
4) Not allowing other traders to affect how you trade, this boils down to your own confidence in your approach. If you take a trade and see another trader mention why it’s maybe not such a good trade, these comments should have no bearing on your trading at all. Letting others influence you is another mind game you need to conquer.
5) Having exact rules regarding the actual structure of the setups you want to trade, this is very important. If a setup forms and does not exactly meet the criteria set, we have to pass it up. You may ask “surely there should be some give and take” but I say “no”, if the criteria is not met the trade should be ignored.
Being consistent in every aspect of your trading will breed consistent results. If you lose your consistency you are basically trading blind and hoping a trade will work out is not going to cut it in the forex markets. We need to be clinical and professional, no buts!!!
So what can you do to change and improve your discipline surrounding trading?
Here’s a few simple tips to get you started:
1) Start by getting some rules in place, regarding the setups and where to look for trades.
2) Produce a trade plan each time you enter a trade and stick to it.
3) Try not to get too emotionally attached to trades. Each trade is just a number in a long list of trades you take. No single trade is more important than the next.
Remember, discipline is something that comes with time and is going to be a tough challenge but I guarantee if you can trade with discipline on your side the forex markets will be a lot less daunting and stressful.
I hope this article has got across just how vital discipline is to become a consistent trader and helps you on your trading journey.