How many times have you broken the rules?
For many traders, promising to follow rules doesn’t work for long. One reason is willpower fatigue, a well-documented phenomenon. I regularly receive emails from traders who are very bright and hard working – often with a degree from a top school or a successful prior career– and they are so frustrated with themselves about ‘breaking rules’ in trading.
For most traders, the work required to succeed is not what was expected. Trading discipline is not about willpower to follow rules. It seems like that on the surface, and it sort of is in the beginning of one’s trading career, but there are three reasons why simple willpower is not the answer for long-term success:
First, discretionary trading means by its very definition that we must use our judgment to make a decision – not simply use willpower to follow a rule.
Second, in discretionary trading there will always be ambiguity or mixed signals coming from the market – generally, no two entries will look exactly the same, different players with different intentions (including machines and algos) is why each market move is unique.
Third, add in your own personal hopes and fears and it quickly becomes very difficult to stay out of trouble and make money, let alone follow rules consistently.
Discretionary trading is about using one’s judgment to make a decision. It’s also not about trying to follow others – if it was there would be more successful traders. Each trading decision is unique and requires judgment on the fly, therefore, you have to be aware of what you’re bringing to the situation. What are your deep-seated hopes and fears? (often they’re subconscious). Trading is all about expanding self-awareness so you can really see yourself – including your desires and vulnerabilities.
Expanded self-awareness – knowing what is really going on inside you – is what allows you to control your actions and act in your best interest as a trader. It takes more than a post-it note to remind yourself to ‘follow the rules’.
Great article Andrew,
I think traders should think on this for 20 minutes every day for a week. Get serious or stop ‘playing around’ in the markets. As traders we exchange time for money; no office politics nor concealing our own agendas~~we are moneychangers, simple as.
Break-even traders should really think on this post. It is ‘deep’ and if a trader only eliminates
a) impulse trades
b) revenge trades
c) trades made because one is bored
I think profitability (consistent profitability) is a given…as long as one has a trading method(s) with proven positive expectancies over time.
This is WORK; trading for income means one must consistently outperform 95% of other retail schmoes. Can we address this fact? Yep.
To ‘root’ out one’s issues and BIFURCATE
a) personal issues in real life
vs
b) trading plan in your trading JOB
is to step forward and be a responsible winning trader.
If the heat/emotion of fast trading is too much for you; then slow it down and diversify and look at longer timeframes.
I like both–scalping and intraday trading and trading on daily timeframes.
My ‘edge’ is simplicity with repetition and a very good reward:risk ratio.
Finally, I do believe for any single trading approach; ALL traders should make peace (finally) with the fact that they are either trend traders (trade with the larger swings within multiple timeframe trends) or consolidation traders (fade the swings when in non-trending conditions).
I personally think that less than 2% of full-time traders can trade both trends and consolidations side by side. Information overload.
Frankly, I find it hard to trade more than 1 instrument at a time in daytrading (and my charts range from approximately 1.5 minute charts up to about 9 minute charts). Approximately, because I use ‘volume’ charts–not fixed time-based interval charts.
peace
hedvig
hedvig,
I like it, “get serious or ‘stop playing around'”. Good line.
Getting serious about and doing things to expand one’s consciousness to the point of knowing why one is feeling a certain way and understanding how that feeling tempts one to “do” something…..this the type of work a discretionary trader needs to focus on. Good traders do this naturally, others need to lean how to do it. The sad thing is most traders will simply say, “I will force myself to be better tomorrow” – with no real plan on the important self-management aspect.
Andrew
[…] & rule-based issues? Check out this blog post. I commented in there as 'hedvig' as well. How Often Do You Break the Rules? | PopDoc Trader Work on your old habit issues every day for 20 minutes (meditate on it–seriously); you'll come […]
Very true, although the concept of “rules” for discretionary trading is somewhat limited. The real rules are the meta-system you use to decide what you’re going to trade and how, not the things written on the sticky note.
Good point regarding rules around the ‘meta-system’ one uses. I was talking to coaching client the other day who trades on a bank desk, he was upset that he exited a trade too early and watched it go on to work without jumping back in – he was trying to be less impulsive and felt that re-entering was impulsive and the wrong thing to do. We talked about how this trade – which was part of a larger strategic trade of multiple asset classes – was part of a high conviction strategic idea, and in such a context or ‘meta system’, re-entering at a ‘worse’ price is not a mistake.