On paper, day trading seems straightforward. Buy an undervalued asset, set your target price, and sell when you get there. It may sound simple, but it’s so easy in practice. Even traders who know what they’re doing can make mistakes. What makes you buy too late and sell too early? Why do traders sometimes chase after investments their mind tells them to ignore? To find the root cause, we first need to ask the most crucial question: why is it hard to stay disciplined as a trader?
Why is it so Difficult to Maintain Trading Discipline?
In reality, there are many different factors to consider; some are investment-based and others investor-based. People aren’t robots. We are all unique, feel different emotions, and perhaps more importantly, have different goals. When asking the question “why is it hard to stay disciplined as a trader,” here are some factors to take into consideration:
The best traders know how to tap into their instincts while ignoring raw emotions. These emotions may be tied to trading or could just be a part of their everyday life. Learning to filter out “peripheral” issues that can put you in an unfavorable state of mind is a solid foundation for your trading career. You need to practice staying cool when considering an investment. Unfortunately, this is easier said than done.
Whether we like to admit it or not, as humans and as traders, we very often get bored. As a trader, if we are all honest, have you ever taken a position because you had nothing else to do? How often did it seem “sensible” to buy into a new position immediately after selling the old one? Perhaps this is best illustrated in the saying:
“The devil makes work for idle hands.”
Don’t trade just for the sake of it, just because you’re bored. The key is knowing when to stop. Maybe we should all restrict ourselves to a certain number of positions every day. Would that work?
As strange as it may seem, your underlying health can have an outsized impact on your trading. If you suspect that your mood, or underlying health issues, might be preventing you from getting into the zone, it may be time to withdraw temporarily from the market. First and foremost, make sure to take care of yourself.
Contrary to popular belief, there is nothing wrong with having a bit of an ego. Confidence goes a long way, so long as it doesn’t rule your life. The moment that you believe you “know it all” is likely the first stepping stone to disaster. That moment you stop listening to the market and start listening to your own flawed ego is the beginning of the end for many.
Lack of experience
If you can keep a clear head while those around you lose theirs, you could have a successful trading career ahead of you. You can read all the books, take all of the online courses, and speak to experts and mentors aplenty, but you can’t buy experience. You can only get experience by actively trading and inevitably making mistakes. If you’re able to learn from your mistakes, you’re on the right path to becoming a successful trader.
Whether investing or planning your career, you need to stay organized. Successful traders will have not only an entry point for their next investment but also an exit point, even before they have parted company with any cash. Even when traders keep the entry and exit points flexible, an underlying structure helps respond to market movements.
To put it another way, if you don’t know where you are going, how will you know when you get there?
Whether we like it or not, it is difficult, if not impossible, to step away from your everyday life and go into “trader mode.” Consequently, if you have a relatively busy/complicated lifestyle, this can impact trading results; unless you can compartmentalize. Sometimes this can depend on your ability to set boundaries and make time. Don’t let your family and friends distract you from trading, but don’t let trading distract you from your family and friends.
We are all different!
Even if a particular trader is exceptionally successful, that does not mean that their approach to trading will suit your character. Every trader has their own way of thinking, reacting, and determining their long-term targets and aspirations. Find an investment strategy that works for you!
A Few Tips to Maintain Discipline
The above reasons should explain why it’s hard to stay disciplined as a trader. If you can master ways to maintain your focus when trading futures, options, stocks, and commodities, you’ll likely have the most challenging part of day trading figured out. There are a few ideas to consider:
All work and no play is unhealthy
In order to maintain any degree of trading discipline, you need to be alert, energized, and above all, healthy. Removing yourself from what can sometimes be high-stakes trading situations may allow you to return later with a different perspective. Don’t make the mistake of neglecting either your physical or your mental health. As you’ll see later in this article, sleep deprivation can cause massive problems. You need to be relaxed, rested, and focused before you can hope to succeed in trading.
Play to your strengths
The best traders are the ones that never stop learning. However, it is easier to maintain trading discipline if you invest in areas where you have a particularly strong knowledge/experience. Cryptocurrencies and NFTs attract a lot of attention from speculators hoping for an easy buck. However, when it turns out the asset was overvalued, those types of traders are usually the ones left holding the bag.
Succeeding with highly niche assets requires a certain degree of commitment. In most cases, you will find it easier to remain focused, more disciplined, and ultimately more successful by sticking to what you know.
Don’t get greedy
The trading world is full of individuals who were led by greed and learned the hard way. Many of them fall into the trap of trying to squeeze out that extra 5% profit on their trade. The problem is that once the market turns, it can happen relatively quickly. Too many traders wait until the trend turns rather than selling out before the top when there are still buyers on the scene.
When the market turns, buyers tend to retreat to the sidelines, looking to invest at lower price levels. The lack of buyers can quickly force the price down, with traders seeing their profits crumble in front of them. Greed and ego can sometimes take over, and before you know where you are, that healthy profit is now a loss. For the sake of that last 5%, consider whether it is really worth the risk.
Make Sure to Reward Yourself
The idea of rewarding yourself for a good trade is something very few of us even consider. It may be that you’ve executed your trading plan flawlessly or even avoided what could’ve been a significant loss as a consequence of your foresight. However, why should you look to reward yourself?
Trades typically need to think in terms of long-term goals and build up their account. However, if you continue to roll your profits back into your trading, when will you actually feel the benefit?
It is important t you do reward yourself, although it will depend upon your own specific to that you benefit from your successes. If you withdraw even small amounts of money from your trading pool as a reward, you will feel a tangible short-term benefit that might just give you the motivation you need. Even if it’s just a small amount, there is nothing like the feel of money to focus the mind!
Develop a Routine
If you research trading, you will very quickly realize that successful traders develop their own particular schedules. They may have a routine that they carry out first thing in the morning:
- Check prices
- Check the news
- Catch up on popular investment websites
- Post on forums
- Catch up on analyst research notes
Human beings are by nature creatures of habit and, if you take a step back, you will notice that you already have many different routines in your life. This may include the timing of your breakfast, whether you brush your teeth before showering when you have dinner, evening taking the dog for a walk, and watching TV.
Routine sits well with humans as we can go through the motions without actually thinking. It is no different when it comes to trading assets such as futures, options, or stocks – routine keeps us focused and creates more brain time to think outside the box.
Take Some Time to Relax
While many people feel the need to be constantly trading, after a while, your attention span won’t be able to handle it anymore, and you will crash. Trading 8 hours a day or even just 4 hours in one sitting is not necessarily effective. There is no way on earth that you can be as sharp after 6 hours of constantly watching the market as you were after the first hour. So, as a trader, it is as important to take time out to relax as it is to keep an eye on markets.
If your life is constantly trading, looking at ideas, reading strategies, and pretty much ignoring anything else, you will lose perspective. Taking your dog for a walk in the afternoon, a couple of hours away from the desk will give you a whole different outlook on trading and life when you return. Research shows that fresh air and exercise:-
- It helps your digestive system
- It helps maintain a healthy heart rate and blood pressure
- Strengthens your immune system
- It gives you more energy
- Results in a sharper mind
Why not try a simple test? After a long day trying to trade the markets, consider a new strategy and new ideas. Then ensure that you get a good night’s sleep and try the same process in the morning. It is more than likely that you will see different angles, maybe come to a different decision, simply because you have rested your mind and your body, and you are more alert. Don’t underestimate the power of rest and recuperation.
There is a time for trading and time for having a life. The two should rarely mix. Does that sound a little harsh? If you went to a job 9 to 5 every day, then the chances are your partner, family, and friends would not bother you at work (unless it was important). For those intending to make a career out of trading, you need to learn to minimize distractions. Once you sit down at your desk, you need to leave all other distractions at the door. You can pick them up on the way out.
Think of it as driving a car full of people. If they are all talking to you simultaneously, you can’t concentrate on driving. When has a backseat driver ever been helpful? Unnecessary distractions will test your trading discipline more often than needed.
Get Enough Sleep
A lack of sleep can lead to many mental and physical health issues:
- Lack of energy
- Slow thinking
- Reduced attention span
- Poor decision-making
- Mood swings
- High blood pressure
Even those who brag about taking “micro-naps” to get them through the day will eventually crash and burn due to a lack of sleep. Just a quick glimpse through some of the mental and physical issues associated with sleep deprivation highlights many areas in which traders need to be on “top form.”
Slower thinking, reduced attention span, forgetfulness, and poor/risky decision-making could end your trading career before it has really started. If you don’t look after yourself, it is only a matter of time before you pay the price. To put it another way, if you depend on your car to get you to and from work, you will ensure it is filled with the right fuel. As a trader, you depend on your mind and your mental capabilities; therefore, sleep and remaining healthy are your fuel.
Don’t Chase Trades
There are few, if any, traders who have not fallen into the trap of chasing their next position. Inexperienced traders who aren’t skilled at recognizing good opportunities may feel pressured to act because they’re worried that not acting could lead to losing a chance that might never come again. In reality, there are always plenty of chances, so rather than mentally exhausting yourself, it might be more viable to wait for opportunities to come to you first and only pull the trigger once you have them where you want them.
Avoid Revenge Trading
As the term suggests, revenge trading is fuelled by a near obsession to make up for previous losses/missed opportunities. Unfortunately, as every trader will have experienced, this focus on revenge is not the ideal scenario for a clear mind. Avoiding revenge trading is a key part of maintaining trading discipline.
Learn From Past Experience
There is nothing wrong with making mistakes. We all do it. However, there is something wrong if you don’t learn from your past mistakes.
Whether you are looking at a futures contract, option, stock, or commodity, history will repeat itself. As you gain more experience, your knowledge of the markets will help you recognize trigger points. In the words of Baron Nathan Rothschild:
“I never buy at the top, and I always sell too soon.”
“When facts change, I change my mind. What do you do, sir?”
In many ways, these two quotes tell you everything about successful trading. Never “try to catch a falling knife,” i.e., a falling share price, and always leave something for the next person, i.e., sell too soon.
As you progress with your trading career, you will learn new strategies and approaches which can be game-changers. The more experience you have to draw on in times of need, the greater the chances of you making the right decision.
Keep It Simple
It can be tempting to add various layers of complication to your strategy when looking at new ways of trading. As in everyday life, try not to overcomplicate things, keep it simple, or as they say, KISS – Keep It Simple Stupid. The more moving parts a strategy has, the greater the chance something goes terribly wrong. One of the best ways to keep your investment strategy as simple as possible is to constantly ask yourself the same question: how does this make things easier? Once you arrive at the answer, you know what to do. No more to add. Let’s keep this section simple.
Never Stop Learning
Whether you look at the likes of George Soros, Warren Buffett, or other investors, they all have one thing in common; they never stop learning. Warren Buffett is a prime example of an individual who, in his own words, failed to understand the technology boom. Previously he was used to buying stocks such as Coca-Cola with a long-term focus, valued on price-earnings ratios and potential for the future. Then, the technology boom changed everything.
Companies such as Amazon were discounted in the early years but have since gone on to become one of the largest companies in the world. At the outset, the company was forced to invest vast amounts of money into online trading and supply systems. Comforted by the knowledge that “switching off the technology investment taps” would lead to immediate profit, the company continued to build for the future. Other companies in a similar situation include the likes of Facebook, Tesla, and Snap. So what was Warren Buffett’s solution?
When Warren Buffett found it difficult to justify investment in loss-making technology-based companies, he brought in experts. He continued to learn, but in the meantime, he paid for the best technology investment minds to join his company.