How to Avoid the Collapse of Trader Discipline
05/22/2015 6:00 am EST
Frank Kollar, of Fibtimer.com, highlights why he feels that a winning market timer is the disciplined market timer, which very simply means he or she chooses a specific, dependable, market timing strategy and follows it without deviation.
How Easily Discipline Can Fail
The volatile market swings we are now experiencing are a perfect example. While certainly not typical, these huge up and down days can cause new market timers to freeze up and not follow important buy or sell signals.
It is hard to buy on a day when the market is down. It is hard to sell into a rally. But unless we want to be one of the losing masses, we must execute the trades.
Yes, current volatility is high, but experienced market timers know that such times usually occur right before a new (and often hugely profitable) trend starts.
The point is...following your emotions will cost you money. Following one or more timing strategy will make you money, and importantly, will not allow you to take large losses in capital.
What Better Reason?
People differ greatly in terms of their ability to maintain self control and discipline. Those differences are why we write this report; to drive home the fact that without following a timing strategy, most market timers and traders will be doomed to failure.
Some market timers have no trouble whatsoever sticking to a plan. But others, when it is decision time, will find a reason not to take the trade. After some time passes and they realize they have missed a profitable trade, they take the trade but enter at a price that is much higher or lower than was available had they followed the plan.
They may or may not make a profit, but the odds have certainly turned against them.
"Some traders make the mistake of assuming they can just wing it when the buy or sell signal comes. But this approach presents an excellent opportunity for the collapse of discipline."
And what happens if the trading plan then calls for a reversal? A reversal that would have been profitable had they taken the initial trade?
You know the answer. What better reason could there be to—again—not take the trade. This is when hope enters the picture and hope is usually the second to last emotion felt before fear, which is followed quickly by losses.
NEXT PAGE: Trader Trust Falls|pagebreak|
Let's consider a few ways that self-control and discipline can be maintained when making trading decisions.
First, you must develop trust in your timing strategy. You should know exactly what you are going to do when a signal tells you to enter a trade and what you are going to do when a signal tells you to exit.
One way to develop trust is to study the "Trade History." By looking at the trading histories, you will develop trust for the strategy you plan on following.
Be prepared and be willing to make the trades when the signals are issued.
At Fibtimer, we provide the buy and sell signals. We will make sure you know what to do well before the trade needs to be executed. We will also explain why the trade needs to made.
Some traders make the mistake of assuming they can just wing it when the buy or sell signal comes. But this approach presents an excellent opportunity for the collapse of discipline. It often leads to waiting to see if the trade is successful before taking it.
The problems with this logic are obvious, but they are not as obvious when it is time to make the trade and you are looking for a reason to delay making the decision.
Perhaps one of the best ways to maintain self-control is to feel confident as you execute the buy and sell signals that we issue. You know that over time they will be successful. You know that during sideways markets the signals will exercise good money management techniques and keep any losing trades very small.
It's healthy to be skeptical, but if it interferes with your ability to follow the trading plan, skepticism will cost you money. You must execute the buys and sells with unwavering confidence. You can't second-guess. You must follow the trading plan with absolute assurance that over time you will succeed.
Over time, disciplined trading becomes easier. But be careful not to minimize the importance of self-control and discipline. The more disciplined you can be, the more profits you will realize.
By Frank Kollar, Editor, Fibtimer.com