Battle with Trading Discipline
Challenges and Plan
Due to the contract rollover affecting TOS charts, my usual weekly chart analysis won't be as reliable this time.
Instead, I'm diving into a different aspect of trading: the psychological challenges we all encounter. In this article, I'll share the hurdles I face and the actionable steps I'm taking to overcome them, hoping it resonates with you as well.
If time allows, I'll still share the weekly chart analysis late Sunday or Monday. Otherwise, expect daily levels throughout the week.
Also, a heads-up: next Wednesday, the cash index market will be closed. Happy trading!
Even with years of experience under my belt, I still wrestle with the trading discipline monster now and then. I wrote this article not just for you but also as a personal reminder and affirmation to keep myself on track.
Trading really puts your discipline and psychological resilience to the test. It’s like trying to earn easy money the hard way!
What I’m sharing isn't groundbreaking; it’s common knowledge among traders, but these are challenges I’ve faced and the actionable plans I’ve developed. So, let’s dive in!
1. Overcome FOMO Trading
First things first, let’s tackle the beast called FOMO (Fear of Missing Out). Here’s how to keep it at bay:
Identify Your Triggers: Know what makes you jump the gun. Is it a sudden market move or a tweet from a trading guru?
Set Clear Rules: Have entry and exit criteria set in stone. No exceptions!
Use Checklists: Before you hit that buy/sell button, run through a checklist to ensure all criteria are met.
Practice Mindfulness: Stay present and focused. Easier said than done, right? (more on this below)
Limit Trade Frequency: Don’t turn your trading desk into a casino. Set a max number of trades per day/week.
Embrace Routine: Develop a daily trading routine and stick to it. Boring? Maybe. Effective? Absolutely.
Schedule Breaks: Take regular breaks to avoid turning into a market zombie.
Use Alarms: Set alarms to review setups instead of staring at the screen all day.
Automate Parts of Trading: Let automation handle some of the heavy lifting to reduce emotional decision-making.
Reward Discipline: Treat yourself for sticking to the plan, regardless of trade outcomes.
Seek Accountability: Find a trading buddy or mentor to keep you in check.
1.1 Steps for Practicing Mindfulness
Mindfulness can be your best ally in fighting FOMO. Here’s how to make it work:
Stay Present in the Moment: Focus on the current trade setup and avoid dwelling on missed opportunities or future trades.
Set Clear Criteria for Entry: Define specific criteria or rules for entering a trade based on your strategy or analysis.
Practice Patience and Discipline: Cultivate patience by accepting that not every market movement requires immediate action. Discipline yourself to follow your trading plan rigorously, even if it means sitting out of trades that don't meet your criteria.
Review Past Trades: Reflect on past trades where FOMO may have influenced decisions and led to negative outcomes. Learn from these experiences to reinforce discipline and improve decision-making in future trades.
Practice Deep Breathing and Relaxation: Incorporate deep breathing exercises or relaxation techniques before making trading decisions. This can help reduce stress and prevent impulsive actions driven by FOMO.
Monitor Your Thoughts and Emotions: Be aware of any feelings of urgency or anxiety that may arise when considering a trade. Challenge irrational thoughts related to missing out and replace them with rational, objective analysis
2. Dealing with Missed Trades
Missed trades can feel like you’ve missed the train or watched it leave the station without you. Here’s how to handle it:
Accept Missed Trades: Understand that no strategy catches every move. Missing trades is part of the game.
Review and Learn: Analyze missed trades to see if your criteria were too tight or if the market was just being moody.
Adjust Criteria: If necessary, tweak your setup criteria without compromising your strategy.
Focus on Quality: Quality over quantity. Always.
Emphasize Long-Term Success: Keep your eyes on the prize—consistent long-term profitability.
Journal Your Emotions: Write down how you feel when you miss a trade. It’s like therapy, but cheaper.
Practice Gratitude: Pat yourself on the back for sticking to your plan.
Stay Busy: Find productive activities to distract yourself from missed opportunities.
3. Chasing the Market: The Never-Ending Story
Chasing the market usually starts when you enter trades impulsively between support and resistance levels, getting repeatedly stopped out as the price moves against you. Here’s how to break the cycle :
Recognize Signs Early: Notice when you’re entering trades impulsively. (Remember mindfulness?)
Pause and Reassess: Take a moment to evaluate if the entry meets your setup criteria.
Use Confirmation Signals: Wait for confirmation like pullbacks or hold/fail/reject patterns.
Avoid Emotional Trading: Stick to your plan and avoid knee-jerk reactions.
Consider Market Dynamics: Stay flexible. If the market is reversing, adapt rather than sticking to a sinking ship.
4. Overcoming Overconfidence After a Winning Streak
Success can be a double-edged sword. Here’s how to avoid letting a winning streak turn into a losing day:
Monitor Emotional State: Be aware of feelings of euphoria after winning trades. (that mindfulness again?)
Stick to Trading Plan: Adhere strictly to your predefined plan.
Review Trade Setups: Evaluate each setup objectively based on your strategy and not influenced by recent wins.
Implement Risk Management: Maintain consistent risk management practices, including position sizing and stop-loss placement.
Take Breaks: Step away from the screen to avoid impulsive decisions.
4.1 Setting Rules to Avoid Overtrading
Setting rules around limiting the number of trades per day, preventing a green day from turning into a losing day, and stopping after a certain number of consecutive losing trades can be effective strategies to maintain discipline and mitigate overtrading and emotional decision-making. Here’s how you can implement these rules:
Limit Number of Trades: Decide on a max number of trades per day. Don’t turn your trading platform into a video game.
Protect Profitable Days: Stop trading once you’ve hit your profit target.
Manage Losing Streaks: If you hit your max number of losing trades, take a breather. (e.g., 3 trades)
4.1.1 Practical Techniques for Limiting the Number of Trades
Here are a couple of techniques that can directly help implement the "maximum number of trades" rule. Feel free to come up with more effective methods that work for you:
Sticky Notes or Tick Marks: Use sticky notes or tick marks to track your trades. Once they’re gone, you’re done for the day.
Color-Coded Tokens or Chips: Assign colored tokens to represent each trade allowed for the day. When they’re gone, you stop trading.
My Personal Action Plan to Improve Trade Execution Discipline
Here’s my detailed action plan:
Have a Daily Routine: Start the day at 6:30 am, identify intraday levels, set alarms, and be ready to trade by 8:00 am. (still working on it !!)
Prepare OCO Templates: Have OCO templates ready for various market conditions and instruments. Based on the day, have a couple of templates ready on a couple of charts.
Realistic Profit Goals: Set realistic, small, achievable goals for daily profits—for e.g. 60 points on #NQ or 12 points on #ES for non-event consolidating days. On trending days, 120 and 30 points respectively. If met, close futures trading for the day.
Protect Profitable Days: Never let a green day turn red.
Limit Losses: Stop trading an instrument after two consecutive losing trades. Take at least an hour or two break.
Take Breaks: Step away from the screen to avoid impulsive decisions.
Time Management: Complete most of the futures trading by 10:00 am.
Automate Trade Management Process: When the first target is hit, move the stop loss to breakeven. When the second target is hit, move the stop loss a few points below the first resistance. On trending or event days, have a fourth target as a runner.
Regular Trade Reviews: Review executed trades and missed opportunities regularly.
Continuous Improvement: Refine setups based on trade reviews.
Regular Plan Review: Periodically review and refine this plan to enhance trading execution and consistency.
Mindfulness training: Start working on mindfulness practices.
By sharing my experiences and these actionable steps, I hope to help you become a better trader while reinforcing my own discipline.
Building the discipline muscle in trading is like trying to stick to a New Year’s resolution past January—it’s tough but crucial for success. Without discipline, even the best strategies fall apart faster than a house of cards.
The key? Set clear rules, stick to them like glue, and keep reviewing the trades. Embrace your inner Zen master with mindfulness, and remember, consistent small wins beat occasional big ones. So, let’s flex that discipline muscle, avoid the FOMO, and trade like the pros!
Disclaimer: This is NOT financial advice. I am NOT a financial advisor.
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