July 26, 2007 at 10:59 am | | Comments 2

Trading Discipline

There’s a lot of talk about the D-word when it comes to trading, but what does it mean to put it into practice?

We all know that disciplined eaters are usually slim and trim. Everyone knows that disciplined savers don’t fret about retirement. And traders should know that disciplined traders are profitable over time.

Leave the Ego Behind

Good trading discipline means taking no action when you don’t know which action to take. Traders tied to their egos are afraid to admit when they don’t have a feel, so they keep pressing their bets, staying active and overtrading when conditions aren’t conducive to being active. They’ll trade anything that moves, just hoping to get something going and try to generate a feel for the tape.

Ironically, every good trader I’ve ever been around has been able to freely admit it when those times come along that they don’t have a feel for where things are going. They don’t let their ego drive their decisions. They keep their heads on straight and stay objective, only acting when the right conditions are present for their style. When those conditions are not present, it’s no shot to the ego to sit on their hands and remain passive. They’re in it for the money, not the thrill of the action.

Predicting is a Waste of Time

There are going to be plenty of times when you’ll be unsure of what your next move should be. Good news – that doesn’t at all have to be tied to your profitability! I have felt that way numerous times in the past week, and yet I’ve been able to make several profitable trades and grow my account during that same stretch. Predicting didn’t get me there, discipline did. Good traders know that perfection isn’t required, which means they don’t have to predict with accuracy what may happen next. Instead, it’s about selectivity and offsetting small losses with big winners.

Patience Pays

If you’re like me, you know very quickly when a setup comes along whether you like it or not. Some kinds of plays will just fit your eye, and you’ll know the timing is right to take action. Seize those moments as they come and use the opportunities to profit. BUT, when you’re not seeing the setups that just jump out at you, be willing to wait. If your watch list is providing no imminent entries even though the market may be running, sit on those hands instead of forcing trades!

Why be aggressive just for the sake of activity? I mean, I like my broker and everything, but I always want to be making more money than they are from my trades! I have no idea where this market will go tomorrow, but I know that I can still be profitable if I am disciplined. Improve your odds of success by exercising good discipline, and don’t just buy something for the sake of activity….only trade when the conditions you like are present. Everything else is just noise and a chance to give back those hard-earned profits!

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Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service

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