Trading in financial markets is a complex and dynamic endeavour requiring skill, knowledge, and discipline.

Despite previous roles in the British Army and The Fire Service, discipline does not come naturally to me. The main thing my trading suffers from is complacency. After a winning streak, all discipline goes out of the window, and I find myself trading blindly and neglecting the following of my plan.

The importance of discipline in trading cannot be overstated. It serves as the backbone of successful trading, guiding traders through the inevitable ups and downs of the market with a steady hand and clear mind.

Emotional Control:

Discipline in trading primarily revolves around dynamic control. The financial markets are inherently volatile, and emotions such as fear, greed, and impatience can cloud judgment and lead to irrational decision-making. A disciplined trader learns to recognise and manage these emotions, sticking to their trading plan and strategy even in the face of adversity.

When I first started trading, I found emotions I had never known I had. This is made more complicated by having Attention Deficit Hyperactivity Disorder (ADHD). This condition runs through my family and is something I knew I had from my school days. Where others may learn to control their trading emotions, I have found that it has taken a lot longer. I need to put precautions in place that consistently need monitoring and updating.

Risk Management:

Discipline is essential in maintaining proper risk management practices. Successful traders understand the importance of preserving capital and limiting losses. They adhere to predetermined risk-reward ratios and set stop-loss orders to protect their investments. With discipline, traders may avoid the temptation of chasing losses or overleveraging, risking catastrophic financial consequences.

Moving that stop loss or positioning more than your plan allows may work once or twice, forcing your guard to drop, and the market will rip you apart. So, stick to the plan.

Adherence to Trading Plan:

Discipline ensures adherence to a well-defined trading plan. A trading plan outlines specific criteria for entering and exiting trades and risk management parameters. It serves as a roadmap for navigating the complexities of the market. A disciplined trader follows their plan

religiously, avoiding impulsive decisions based on gut feelings or short-term market fluctuations.

A trading plan should contain the following key components:

  • Trading Goals: Clearly define your financial objectives, including profit targets and risk tolerance. Why do you want to trade?
  • Trading Strategy: Outline the specific criteria for entering and exiting trades, including technical and fundamental analysis, indicators and patterns.
  • Risk Management: Establish risk-reward ratios, position sizing guidelines, and set stop-loss orders to manage potential losses.
  • Trading Schedule: Determine your trading frequency, including the timeframes and hours you will be actively trading.
  • Monitoring and Evaluation: Specify how you will track and evaluate the performance of your trades and trading strategy over time.
  • Contingency Plans: Prepare for unexpected market conditions or events by outlining contingency plans and alternative strategies.
  • Psychological Guidelines: Establish guidelines for managing emotions and maintaining discipline during market volatility or uncertainty.
  • Review and Adjustments: Schedule regular reviews of your trading plan to assess its effectiveness and make necessary adjustments based on evolving market conditions or personal trading preferences.

In conclusion, discipline is of paramount importance in trading. It underpins every aspect of successful trading, from emotional control and risk management to adherence to a trading plan and consistency in performance. Without discipline, traders are susceptible to emotional decision-making, inconsistent results, and failure in the financial markets. By cultivating discipline, traders can enhance their chances of long-term success and navigate the complexities of the market with confidence and resilience.

This week, my discipline could have been stronger. I got caught up in a trade, and before I knew it, I had exceeded my stop loss, thrown my plan away, and revenge-traded the stock till I had eliminated all profits for the month.

The Stock: Coinbase (US: COIN)

I know Coinbase can be very volatile, as are all stocks and cryptocurrencies in the sector.

Before I entered the stock, I was emotionally involved. The reason was that on the previous week, I exited the stock early, taking 2x Risk (stop loss) Profits, only to watch the price advance to around 9x Risk.

At the time, I thought I had taken it on the chin. But with hindsight, frustration lingered inside.

The trade on Friday, 28th February, did not fit my plan. Price was over-extended on the daily chart and did not fit into my trading patterns, but I wanted the profit everyone else was making in the sector.

I went long on the 5-minute chart because, umm… bitcoin is are going up. Apparently, there’s going to be a halving event, whatever that means!

I failed to identify that the daily chart was overly extended, and then the price decreased on the bad news of a website glitch when customers found their balances at zero. I was unaware of this at the time because I didn’t follow the news on the stock. I exited the stock with a loss; I was now bearish. This was short-lived, and problems on the platform were fixed. The glitch was due to customer demand. Great, I thought, I’m now bullish again. (change of bias on no research)

The stock price moved up and down violently whilst traders and investors tried to determine whether this was good or bad and hit my stop loss three times.

Emotions took over. I revenged traded. I moved my stops and did not take profits. I had limited knowledge of the stock and crypto sector and was trading tired whilst dealing with family issues. I didn’t record or plan the trade. After having a great month, the market made it clear that it wanted its money back.

I was fixated on the stock whilst the market provided setups in other areas I missed.

I thought I had ironed out these issues some time ago. As I had not suffered a significant string of losses for some time, complacency set in, and the market had to remind me of who was in charge.

I now accept the mistake and the loss and must ensure this doesn’t happen again by reviewing the plan daily. I need to work on myself by identifying what emotions caused me to fail my plan so this doesn’t happen again.

The plan has been reviewed in the new month of March, and I am ready to take on the markets. I think I’ll leave Coinbase to do it thing whilst I watch on from a distance.