 |
Discipline in Trading and Investing
Written by: Joe Ross
The one thing I can think of that most affects both trading and
investing has to be self-discipline. Being disciplined is fully 50%
of the job of trading or of investing. I don't care how good your
trading system is, without the discipline needed to follow the
system you don't have much of a chance for success in meeting your
goals.
It doesn't matter how great a planner or organizer you are, without
discipline your plans will most likely fail to bear fruit.
Discipline involves self-control, and self-control involves your
ego. If you want to succeed, you must learn to trade without your
ego getting in the way. Don't be fooled. A person's self image
must be separated from his trading or his investing. When personal
self-worth gets tangled up with your business activities, it not
only wrecks your best trading or investing intentions, but it also
damages your self-esteem.
You hear and read about great traders and investors who have done
amazing things. They tell about how great they are. They talk about
"The Big" trades they made. They talk about "Big" numbers. It all
derives from their oversized egos. Don't be misled. Sooner or later,
there are "Big Downfalls." It goes with the territory.
For a moment, let's look at the results of what a huge ego can do.
Due to his oversized ego, Nick Leeson brought down the Barings Bank.
Victor Niederhoffer ran his fund into deficit. John Merriweather was
so sure his strategies would work that he ended up threatening the
health of the entire banking system by betting more than fifty times
his capital that he could forecast, without any chance of a loss,
the direction of various bond markets.
As we study the examples of these three men, there seems to be a
pattern of temporary real success followed by a collapse for
themselves and for those caught up in blindly following them. Here
are the kinds of problems that arise from putting your ego into the
mix.
 Not
putting in stops: You don't want to be proven wrong.
Hesitation
before entry: You want reassurance before you act.
Overtrading:
You want to prove how really big you are.
Not
getting out when you should: You have married your trade and just
don't want to get a divorce. Getting out would mean you were wrong.
Adding
to a losing trade: You are making a massive effort to prove you were
originally right.
Grabbing
a profit too soon: You want affirmation that you did the right
thing.
Missing
an opportunity because you can't pull the trigger on a trade: You
are still living with past mistakes.
In my 47 years of trading, I have seen great traders and investors
come and go. All too many of them lost everything they had ever
made. The great W.D. Gann died a pauper. The legendary Jess
Livermore was flat broke when he committed suicide. I have known
dozens of traders who lost money because their egos got in the way.
I agree 100% with the following statement by Marty Schwartz, the
great S&P 500 daytrader.
"I've said it before, and I'm going to say it again, because it
cannot be overemphasized - the most important change in my trading
career occurred when I learned to DIVORCE MY EGO FROM THE TRADE.
Trading is a psychological game. Most people think that they're
playing against the market, but the market doesn't care. You're
really playing against yourself. You have to stop trying to will
things to happen in order to prove that you're right. Listen only to
what the market is telling you now. Forget what you thought it was
telling you five minutes ago. The sole objective of trading is not
to prove you're right, but to hear the cash register ring."
To that I would add, "trade what you see, not what you think." You
cannot afford to get your ego or your opinion involved in your
trading activities. Because both trading and investing are uncertain
businesses of probabilities filled with uncertain outcomes, a huge
ego or a fragile ego can easily get smashed. Defending your ego saps
you of energy, distorts your perception, and will eventually destroy
your business. If your self-esteem is connected to your
trading and investing choices, if it goes up and down with the
results of your activities, you and your business are in trouble.
Your self-image needs to be strong, not at the mercy of the outcome
of your trading or investment choices.
To succeed in the markets, you have to have confidence in what you
are doing and confidence in yourself. But self-confidence must not
become confused with self-image. Remember not to marry a market or a
trade. If you see you are not right, be quick to get out. Run your
trading or investing as a business. Practice self-discipline. You'll
be glad you did.
About the Author
Joe Ross has
been trading for more than 47 years, and is a well known
Master Trader. He has survived all the up and downs of the
markets because of his adaptable trading style, using a
low-risk approach that produces consistent profits.
Joe is the creator of the Ross hook, and has set new
standards for low-risk trading with his concept of "The Law
of Charts™." Joe was a private trader for most of his life.
In the mid 80's he shift his focus and decided to share his
knowledge. After his recovery, he founded Trading Educators
in 1988 to teach aspiring traders how to make profits using
his trading approach. He has written 12 major books on
trading. All of them have become classics and have been
translated into many different languages.
Joe holds a Bachelor of Science degree in Business
Administration from the University of California at Los
Angeles. He did his Masters work in Computer Sciences at the
George Washington University extension in Norfolk, VA.
Joe still tutors, teaches, writes, and trades regularly. Joe
is still an active and integral part of Trading Educators.
Visit Joe's
website at
http://www.tradingeducators.com. |
|
