Wednesday, September 5, 2012

The hard road to consistency X - The elusiveness of discipline

One of the great surprises in trading is that knowing what to do and the ability to do it are two unrelated things. Knowing what to do is knowledge, the ability to do it is skill. Its fairly easy to describe price action post-facto. Its simple to know to hold through a pullback or to exit on the next push if you aren't under pressure from holding a position.

Traders need to work on improving their trading to be close to the ideal post-facto decision as much as possible. For the most part, this is a constant struggle. Information is always imperfect and decisions are often hard to make correctly. The process of working on yourself to make the best possible decision given the information you have is what traders do constantly and may be simply called building discipline.

Discipline is more than just following your rules. Its also the ability to make correct decisions in the face of recent failures. Even the most seasoned traders would be impacted by successive failures or missed opportunities.

For example, a trader who was stopped out on a 1CBO buy above b14 may be hesitant to buy b19. A trader who missed the reversal at b13 may enter a larger size on b27, which he may see as a deep 2L PB. Every loss and missed opportunity are likely to cause some distress in the mind of even the most experienced traders eventually forcing more and more mistakes. Similarly, a well executed trade may give a heightened sense of confidence and invincibility, forcing rash behavior.

The resistance to such pressure is something that needs to be worked on and can only be developed with practice. The ability to see a trade setup independently of recent price action and your bout with the market is something you need to focus on constantly.

The guide to doing this is to evaluate the market movements as information and disregard trading as something you need to do. "I need to make 2 points today" or "I better take one more trade so I can end the day without a loss" are terrible advices.

Focus on the information you get from the market. Constantly work on keeping your evaluation as objective as possible. Ignore statements about the economy, foreign crises or anything else that other traders and the news are discussing. They have absolutely no weight compared to what the market tells you.

Building discipline is like quitting smoking. Easy for those who don't have to do it but extremely hard for those who do need to do so. Constant slips of discipline and breaking your own rules are to be expected. Look at the few examples of success around you for inspiration and keep working at it. Know that even fractional improvements in discipline add up and build you up as a trader.


  1. "The ability to see a trade setup independently of recent price action and your bout with the market is something you need to focus on constantly."

    That about sums up the problem most traders have. I'd bet most are not even aware of the gravity of that statement.

    1. Market Monkey, Cad,

      I would only partly agree with this statement.
      In fact, understanding what market just recently did is very important as market very often behaves in exactly same way straight after certain price action. E.g. after failed A2 you often get the third more readable leg to MA which is also failing, or for example you can see how market reacts when it touches MA and it's almost 80% guaranteed that it will behave in exactly the same fashion when it touches MA next time (e.g. during strong trend). You should still be paying a lot of attention at what market was doing during the last 2-3 swings in order to avoid future errors or get some more high probability set ups.

      The best way to phrase it is that you should not be trying to get into the same trap twice - "ok, it failed last time, but this time it will definetely work - nice opportunity to revert my loss"

      Just my 2 cents.

  2. What time do you start and stop trading ? I have practice trading S&P on CFD broker's demo account. Since it can trade 24 hrs so I don't know which time is good to trade.

    1. I usually trade the first two hours after open. 8:30-10:30 CST. This is usually when the big moves occur.

  3. This is a great post, cad - I will be trying to work on this as best I can!

  4. Cad, whats your opinion on the NQ market? Can you apply exact same style of trading.

    1. Yes. You should be able to use the same techniques. Note that signal bar reliability drops with volume.