Five steps to imbibe discipline in trading

Discipline is the cornerstone of any trading strategy, whether short-term or long-term, irrespective of the time horizon.

It is not challenging to imbibe discipline in trading. It is simply following a set of rules, no matter what. It helps you keep focused and stick to your trading strategy.

Below we discuss five pointers that help a trader start by being disciplined in trading:

The first step in disciplined trading is getting your plan in place.

“I don’t even have a PLA” isn’t a rewarding idea IRL.

The trading plan documents the return expectations, maximum risk per trade, approach to the different markets at different levels of valuations, and the maximum capital loss that can be endured, to mention a few.

The idea is to adhere to the meticulously planned trading approach so that the discipline defines the risk profile and returns of the portfolio.

Doing the homework discipline applies to investing as well as trading.

A trader must be aware of the current macroeconomic scenario and the sectors in which the trader is invested.

The trader must educate themselves enough on the technical charts and how to derive support and resistance levels to understand if the trade is worth it.

It is imperative to imbibe the discipline of good homework to full proof the trading strategy.

There is often confusion between trading and investing. However, there is a massive difference between the two.

Also, both must not be considered substitutes for each other. It is best that the individual follows a dedicated trading portfolio and keeps a separate investing portfolio.

One can take the help of a trusted financial consultant as an accountability partner, as it differs from person to person how they view the risks and how much they want to allocate as trading and investment capital.

With discipline comes conviction. Trading decisions, including analysing the stop loss levels and entry and exit levels, to mention a few, must be backed by firm belief.

It is best to place an order only if a trader is very sure, has done due diligence, and understood the technical aspects. Otherwise, it would be a fluke, and the trader would indulge in mindless speculation without testing the water.

Mindfully placed trading orders do not invite emotions like anxiety, fear, FOMO, and greed, helping the trader stay focused and stick to the plan.

Having an eye for small details matters a lot in trading and investing if a trader takes care of small items, the more significant issues can be addressed.

This trait helps the trader keep a record of all trading costs, for example, holding costs, which may become sizable if not kept in check.

Also, taking a count of things helps the trader keep the risk profile in check and avoid trading more than they can afford to lose.