Psychology And Discipline: Key Elements To Successful Trading

traders think that an excellent
“trading system”
or methodology will make them successful. This leads them in pursuit
of the “Holy Grail.” In this case, the Holy Grail is either the latest
and greatest trading system, or some trading “guru”
that is sure to lead the way to huge profits. This pursuit is often
leaves new traders disappointed, disgusted and a bit poorer. When we finally
learn through experience, that our trading “method” is only a 
minor component of the formula for successful trading, we have won half the

The other elements or
“components” are: Psychology
and Discipline. Let’s take these components and
break them down even further.


First, you do want
to find and stick with a methodology that does give you a “trading
edge.” In others words, you want to use a trading technique that will stack
the odds in your favor, unlike a roulette wheel in Vegas. Even a very simple
methodology can work rather well if you have the proper “psychology”
and “discipline,” in addition to your methodology. The best methods
have specific rules and parameters for you to follow when it comes to entering a
trade, defining your risk, defining your profit objective and exiting your
trades. This should also include some solid money management techniques.


Second, you need the
discipline to follow the rules of your system. If your rules tell you to take a
trade, you take the trade and place your stop and go on from there. If you start
to second-guess the method, and do not take certain trades due to “fear”
or “emotion,” you may very well be on
your way to failure due to a lack of discipline. If you continually hop from one
method to another, you are missing the point that the method is NOT your


Out of the three key
elements being discussed here, I strongly believe that psychology
s the single most important one. Your subconscious belief systems about
money, success and achievements play a huge role in whether or not you will
succeed. You can have a system that is 70% accurate…and still lose money if
your belief system is fighting your success with it! Consider reading both the “Disciplined
in the Zone
by Mark Douglas.
Another basic book on the dynamics of how the subconscious works is “Psycho-Cybernetics”
by Maxwell Maltz. These books are likely to
give you great insight into your trading results, whether you are pleased with
them or not.

Let’s talk a little bit
more about “psychology” and why I believe
it is so important. Running a service as I do, I get a lot of  feedback
from my clients. Now I am feeding out the SAME information to all of these
clients, yet some of them are still struggling to make money, while others have
done extremely well. Why would some be able to produce excellent results (like
30 winners to 7 losers in a week with a good average on the winners and only
minimal losses), and others struggle to stay afloat, or just spin their wheels?
I truly believe it is a combination of discipline and psychological issues.

Very often, when we come
into a key trading decision point in my work, I have to remind my clients that
even though the market may be strongly trending into a decision point, there is
STILL the potential for a trend reversal. For example, this past May I had both
time and price parameters setting up for a potential high in Nasdaq and S&P
around cycles due May 17- May 23. Much of
the “news” and “talk”
at that time was of “the new bull market”…with
phrases thrown about like…“the only risk is NOT being in this market.”

Even though I had a very
strong setup for a potential tradable high and reversal, it was difficult to get
the general public to consider that the rally at that time might
be terminating.  (Please refer to my Devil’s
column on May 18.) This was around the time when I got one of my
first HATE mails from a TM subscriber telling me to
ADMIT I was wrong and that I should bow to other
more “accepted and revered analysts.” That email coincidentally came
to me as the high was being made on May 22!  The
chart below illustrates my point.

Bottom line: If
you are having difficulties trading profitably or getting to a new higher ground
in your success…forget about the outward search. Know that the “Holy
lies inside each of us and the “road” to this “Grail”
needs to be traveled internally.

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