Disciplined Trading

You will know why people fail to follow a trading plan.

>> Developing a disciplined simple trading plan. No matter which trading style you decide to pursue, you need an organized trading plan or you won't get very far. The difference between making money and losing money, especially in the forex market, can be as simple as trading with a plan or trading without one. A trading plan is essentially an organized approach to executing a trading strategy that you have developed, either based on your market analysis or on the outlook that you have. Some of the key components of any trading plan, they're straightforward.

• The first one is to determine the position size. So basically, this is asking the question, how large a position will you take for each trading strategy? Position size is half the equation for determining how much money is at stake in each trade.

• Second, deciding where to enter the position. Exactly where will you try to open the desired position? What happens if your entry-level is not reached?

• Third, setting stock losses and taking profit levels. You need to also set the take profit levels and stop-loss levels. Exactly where will you exit the position, both if it's a winning position which is a take profit level, and if it's a losing position In which your stop loss will get triggered?

 Stop loss and take profit levels are the second half of the equation that determines how much money is at stake in each trade. That's it, just three simple components. But it's amazing how many traders, experienced and beginners alike, open positions without ever having fully talked through exactly what their game plan is.

Of course, you need to consider numerous finer points when constructing a trading plan. But I just want to drive home the point that trading without an organized plan is like flying an airplane blindfolded. You may be able to get off the ground, but it's difficult to land safely. And no matter how good your trading plan is, it won't work if you don't follow it. Sometimes emotions bubble up and distract traders from their trading plan.

Other times, an unexpected piece of news or price movement causes traders to abandon that trade strategy midstream or mid-trade, as the case may be. Either way, when this happens it's the same as never having a trading plan in the first place.

Developing a trading plan and sticking to it, are the two main ingredients of trading discipline. It can't be overemphasized. If you were to name one defining characteristic of successful traders, it won't be a fundamental analysis, or it won't be understanding news and data.

• All analytical skills, though they're all important. No, it would be, it has got to be trading discipline. Traders who follow a disciplined approach are the ones who survive year after year, and the market cycle aftermarket cycle. They can even be wrong more often than right, and still, make money because they follow a disciplined approach. If the key to successful trading is a disciplined approach, developing a trading plan and just sticking to it, then why is it so hard for many traders to practice trading discipline? Well, the answer is a little complex, but it usually boils down to a simple case of human emotions getting the better of them.

• Never underestimate the power of emotions to distract and disrupt your trading strategies. So, exactly how do you take the emotions out of trading? The simple answer is, you can't. As long as your heart is pumping, and your lungs are breathing, emotions are going to be flowing. And truth be told, the emotional highs of trading are one of the reasons why currency traders are drawn to it in the first place. There is no rush quite like putting on a successful trade and taking some money out of the currency markets. So, just accept that you're going to experience some pretty intense emotions when you're trading. That was the shorter answer, that you can't, the longer answer is that, because you can't block out the emotions, the best you can hope to achieve is to understand where the emotions are coming from. 

Recognizing them when they hit you and limiting the impact on your trading. We'll be discussing this in the other course on the behavioral aspects of investing, in a lot more detail. However, it's a lot easier said than done. But keep in mind, that you can do a few things to keep your emotions in check. Firstly, you need to focus on the pips and not the actual money, the dollars, and the cents. So don't be distracted by the exact amount of money that you have made in a trade. Instead, traders focus on where prices are and how they are behaving.

• The market has no idea what your trade size is and how much you're making or losing. But it does nowhere the current price is. So it's not about being right or wrong, it's about making money. The market doesn't care if you're right or wrong and neither should you. The only true way of measuring trading success is in terms of money, in dollars and cents. You're going to lose in quite a number of trades. 

No trader is right all the time, so that's something that you need to basically understand. Taking losses is as much a part of the routine as taking profits. You can still be a very successful trader, over time, with a solid risk management plan and a solid trading plan


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