How to Improve Your Trading Discipline

2021-12-10 | Taylor Horton

When I embarked on my journey to become a full-time trader, I was fully unaware that I was really embarking on a self improvement journey. Many folks, myself included, are drawn to the markets because of the unmatched financial potential they have to offer and may not realize what they’re truly in for. 

What I’ve learned over the last 10 years (often the hard way) is that what separates successful traders from the 95% that fail is discipline – discipline in your daily trading routine, discipline in the setups you scan for and execute, and discipline in how you manage positions. That’s the key, discipline in every aspect of your game. That’s why I’d like to share my tips for how I’ve improved my trading discipline over the years and how you can do the same. 

Disciplined Trading Starts with a Plan

Behind every successful trader is a successful game plan. This is where disciplined trading starts. As a trader, you need to know exactly what your “job” is. For example, my job is to trade weekly, 3-day, and daily squeezes in stocks that fit my bullish trend criteria. I sell credit spreads, with entries taken at the 21 EMA, and I take profits at the 2 to 3+ average true range (ATR) keltner channel extensions. That is my job. 

Clearly defining my job leads to better trading discipline on a daily basis. I know the exact setups I’m looking to trade, I know the exact entries and exits I want to take, and I don’t waste my time looking at anything that isn’t my setup. Trading is my career and trading these setups is my business. Therefore, anything that doesn’t fit my criteria is none of my business.

One of the most common reasons that new traders struggle is because they’re constantly jumping from strategy to strategy. Lacking discipline in their trading, they wake up each morning without a clearly defined game plan, and only once the market opens will they start to look for the “trade of the day”. Every successful trader I know has their setup defined, and they have the trading discipline to focus on nothing but that setup.

I highly suggest dedicating your next 20 to 25 trades to a single setup/strategy. Not only will this allow you to gain a true sense of whether or not the strategy works for you, but it’ll also force you to run your trading business like a professional trader. Pick a setup, scan for that setup, trade that setup, and have the discipline in your trading to do absolutely nothing else. 

Consistency and Discipline Go Hand in Hand

As mentioned, new traders tend to struggle because they’re all over the place with the setups they trade, the strategies they deploy, and the indicators they rely on. This “flavor of the week” mentality doesn’t lead to the trading consistency we’re all after. In trading (and many things in life), consistency and discipline go hand in hand.

Trading is a game of probabilities, or in other words, a numbers game. Making this numbers game work in your favor is actually rather simple. You need a good win rate (70%+) and you need your losses to be less than or equal to your wins. It really is as simple as that. However, achieving these kind of consistent returns in your trading is near impossible with a lack of discipline in trading. 

Above, I described my job as a trader and the setups I trade. There’s a reason for this laser-focused discipline on one setup; it works. Trading this setup, I’ve been able to consistently make this game of probabilities work in my favor. Here’s the ugly reality though. As soon as I lack discipline and stray from this setup, my consistent results get tossed out the window. The success isn’t in “me”, it’s in the setup and the strategy. My role is to simply focus on nothing but the strategy, so I can keep the consistency going. 

If your trading results are all over the place, it’s likely a reflection of your process (or lack thereof) and lack of trading discipline. Without the discipline to approach your trading like a professional, the numbers game will fail to work to your benefit. 

Emotional Discipline Equals Trading Discipline

When it comes to emotions, all of us as traders struggle in this department at one point or another. And while managing those human emotions will always be a part of the game, truth be told, it doesn’t have to be as hard as some folks make it. 

Emotional discipline in trading is directly correlated to your overall discipline as a trader. If you begin to operate on FOMO or greed, it’s incredibly easy to start breaking your rules, straying from your game plan, and focusing on things that aren’t your job. Managing emotions begins with a simple commitment. 

The commitment we must all make, which we discussed above, is to focus on nothing but the setups that fit your trading game plan. Part of your game plan should be clearly-defined rules for how you’ll manage each trade. Greed, FOMO, etc., are all a result of a lack of sticking to your rules and a lack of emotional discipline in your trading.

With my rules, I know exactly where my entries and exits will take place, and I know exactly when I’ll cut the trade for a loss. There’s no mystery, and I don’t have to rely on my emotions to make these decisions. I simply follow the rules. I can’t explain how much this has helped my game over the last few years. I don’t make the decisions, my rules do. I’m simply the robot that sticks to the script, no questions asked. Emotions play a role when we rely on ourselves to make difficult decisions. Remember, your human nature and natural tendencies won’t work in this game. With that being said, these emotions tend to stay under control when we’re working from a rules-based approach. 

If you want to practice discipline with my setup / strategy, follow along in the Compounding Growth Mastery where I send trade alerts, review the market conditions, and discuss our game plan to maintain discipline and consistency for clean, actionable setups.

 

FAQs  

Q: What is trading discipline? 

A: In a nutshell, trading discipline is emotional discipline paired with clear trading strategy and consistence.   

Q: How do you build discipline in trading?

A: Key components of building a trading discipline: have a trading plan, know how often you want to trade and what asset classes, choose a strategy and stick to it.  

Q: How important is discipline in trading?

A: “A short answer would be: very important. Over the last 10 years I’ve learned that what distinguishes successful traders from the 95% that fail is discipline.”