The New Trader Psychology: Confidence and Discipline Part 3

11/07/2017 11:32 am EST


Jake Bernstein

Publisher, The Jake Bernstein Online Weekly Capital Markets Report and Analysis

In this last of three parts, I will give you an overview of how important discipline is and how increasingly important confidence will become to all of us who trade and or invest, writes veteran trader Jake Bernstein.

From the moment we make our first trade we are confronted with the warning that lack of discipline will result in losses. On the surface this admonition is not only true but it is also the greatest lesson we can learn as traders. The bad news, however, is that it is difficult if not impossible to learn discipline in trading until we know the process by which discipline is achieved.

Read part one of this series here

And part two here

Furthermore, the exact definition of discipline is unclear to many traders, myself included. Does discipline mean following all the rules all the time? Does discipline mean doing your homework every day to find good trades? Does discipline mean minimizing losses and maximizing profits? Does discipline mean playing your own game and ignoring the news? Or does discipline include all of the above?


I suggest that in attempting to achieve discipline we may be putting the cart before the horse. I prefer to understand the origins of discipline rather than the definition of discipline.

Where does discipline originate? Does it fall out of a book? Can I achieve trading discipline by seeing a psychiatrist? Can a seminar assist me in becoming a disciplined trader? Should a trading coach tell me what to do?

I suggest we think about discipline in terms of confidence. If discipline means doing what you’re supposed to do when you’re supposed to do it with complete adherence to the rules, then the best way to achieve this is to believe in what you’re doing. The best way to believe in what you’re doing is to have confidence in what you’re doing. The best way to have confidence in what you’re doing is to know that it works. The best way to know that it works is to see it working. The best way to see it working is to use the power of computer back testing to build your confidence in the methodology or strategies that you are using.

Here are my suggestions:

  1. Develop and/or find a rule-based trading strategy.
  2. Back test the strategy using the correct back testing procedures.
  3. Determine whether the strategy goes forward in real-time with positive results.
  4. Evaluate the risk and drawdown parameters to see if they are right for your account size.
  5. Paper trade the strategy to build your confidence.
  6. Once you have confidence in your methodology you will have discipline.

Clearly this is not the solution for every trader; however, I believe that this procedure is absolutely necessary for most traders if discipline is to be achieved.

Trade well and prosper!

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