I Staying Up-to-Date — Another Form of Discipline A third scenario would be a marginal trading system. Assume a trading system is profitable about 65 percent of the time. In such cases, we can figure that approximately 65 out of every 100 trades are winners and 35 are losers. You can see that only 30 percent separates the winners from the losers. In other words, the trader must have sufficient discipline to keep the losses as small as possible and to maximize profits. This is where discipline enters into the formula for success. Discipline is the machinery that can make or break any trading system. Some conditions do occur under which discipline will not be the important variable, although it is the significant variable in most cases. All the glowing statistics for your trading system will be totally useless if you're not capable of duplicating the exact statistics generated by the computer test of your trading system. In other words, you must stick as close to the averages as possible, or else one or two losses much larger than the average or one or two profits much smaller than the average will be sufficient to ruin your results. Sometimes this can occur strictly as a function of market behavior (i.e., limit moves against you). However, more often than not, as I have stated before, it is the trader who is responsible for maintaining the discipline of a system. It is uncanny how many times markets will begin major moves in line with the expectations of many advisors, analysts, and speculators, who fail to be aboard for the big move. Why does this happen? How often has this happened to you? I know from personal experience that many individuals have good records at predicting where prices will go. I also know they have especially poor records when it comes to doing their homework, as explained in the following section. Defining "Homework" What do I mean by doing your "homework"? I simply mean keeping up to date on the signals generated by the system or systems you are following. To keep in touch with the markets according to your system, you need a regular schedule for doing the technical or fundamental work your system requires. Whether this work consists of simple charting that may take only five minutes a day or complex mathematical calculations that may take considerably longer, the discipline of doing your homework is one of the prerequisites for successful trading. If you have a system but don't follow it, you are guilty of poor discipline. If you have a system but fail to do the work necessary to generate your trading signals, then you are just as guilty of lacking discipline. As you can see, and as you can well appreciate, most traders don't even get beyond the first step. stock market news ~ stock |