Trading Psychology · 2023-10-06

Trading Psychology — Discipline and Not Following Trading Rules

I think this is a difficult topic, and it is very easy to fall asleep when reading about it. Most people will prefer chart analysis and finding opportunities to earn a profit. But in trading, technical analysis is an important part, but not everything.

undisciplined trading

Imagine: you have a very good trading method. But you still do not make money from trading, because you frequently do not follow your own principles.

I think every trader makes this mistake. And we often blame the market for not going as expected. Or some traders will blame themselves for being too hasty. We always know that a trader must be disciplined, but how to implement it is extremely difficult.

I think every trader will have a reason to justify their hasty decisions. We will not go into criticising, but we will look at a deeper angle to improve trading results.

WHAT IS THE CAUSE OF TRADERS NOT BEING DISCIPLINED

Because of the market? Of course not — it is very easy for us to blame the market. The market is a collection of countless traders, investors, organisations and banks… And price moves based on the decisions of market participants. Therefore, you and I cannot know where price will go. This is a truth that took me a long time to convince myself to believe.

You do not believe it? I will give an example: Do you know how to play rock, paper, scissors! Your job is to guess whether the person opposite will play rock or scissors. It is very hard for you to read another person's thoughts. Or they tell you, but they may not necessarily act that way. That is from the angle of one individual; from the angle of the market it is countless traders. Each trader has a decision to buy or sell, and to read all of everyone's thoughts is impossible.

If it is not because of the market, is it because you are not disciplined? I think not! Personally I think it is because you do not fully understand your trading method. You do not yet know where your edge is when participating in trading. And if you understand and know about your edge, do you trust that method?

TRUSTING THE TRADING METHOD

What I share next is really very important, because it is the core part of trading psychology. I mean here: do you really trust your trading method? You believe that, in the long term, you will have a profit. At the same time you must also believe that you do not know whether this trade is a winner or a loser.

Why is that? Because, as I explained above, we cannot know for sure where the market will go. But a trading method gives us a position where our probability of winning is higher. That means you are NOT CERTAIN TO WIN IN ANY SINGLE TRADE.

At this point a contradiction will occur in you: you expect this trade to make money. And one thought is that this trade is not certain to win, but a series of good trades will bring you a profit.

I associate it with the image in your head of an angel and a devil appearing and fighting each other. And whichever belief in you wins, you will act according to it.

Most traders all expect the trade they are trading to win. When expectations do not meet reality, we will be disappointed, sad, angry. And when we are angry, we often act to vent our frustration outward. That is the mechanism of how our mind works; it is very normal.

Hope and prayer do not help you succeed at trading

So when price runs against your expectations, you will feel angry at the market. Therefore, you will act reflexively to fill that unmet expectation. And our target is the market, not anyone else. So logically a trader will pull the stop loss farther away so as not to lose money; in general this seems quite reasonable. Some other traders enter trades crazily; just a few minutes ago they were very careful. Some traders cannot stand it and exit the trade immediately.

WHAT IS DIFFERENT BETWEEN PROFESSIONAL AND AMATEUR TRADERS

All the rules and methods we have learned and researched almost do not exist in this moment. And you become undisciplined.

I think the biggest difference between profitable traders and losing traders lies in trading psychology. And more specifically, in how they accept losses. All traders themselves will have to go through losses, missing opportunities, taking profit too early… But when in that situation, the psychology of professional traders is completely different from everyone else. That is, they consider losses a part of trading costs and believe that not every trade they make will win.

They simply find edge points, enter a trade and place an acceptable risk. After that, if that trade loses, the next thing they do is find other edge points. That is all; they do not expect this trade to win or lose. They believe that after a series of trades with their edge points they will win.

A FEW WORDS TO SHARE ABOUT TRADING

Talking is really very easy, but implementing it is extremely difficult. Because the things above lie deep in our mind and subconscious. Example: you are afraid of snakes, but you have been taught how to distinguish which snakes are venomous and which are not. If there is a snake in front of you and you know and believe it is not venomous, would you dare to go near it? Just like trading: you go through a losing streak but you believe the trading method is profitable. Would you dare to execute the next trade?

While writing this article, I had just gone through a losing trade. It would be lying if I said I did not feel disappointed and angry. I am also human, but that feeling is not big enough to invade my mind and force me to make trade-entry decisions. I am improving my trading psychology every day. I hope you also gain a different perspective on the job of trading.

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