Trading is very multifaceted. Sometimes, traders will research the markets thoroughly and spend hours upon hours crafting the perfect strategy, yet still fail to perform when facing real-world conditions. Learning to trade with discipline and focus is what separates those who succeed from those who struggle.
Perhaps they get flustered when the market starts behaving erratically, or they get gun-shy after a big loss, missing out on valuable opportunities.
These, and many other similar issues, are something all traders, no matter their skill or experience level, have faced, and most are still facing.
The simple truth is that how you execute your trades matters. The best strategy won’t do you any good if you deviate from it the moment markets become unpredictable.
This unpredictability isn’t ever going away, with an impossibly large number of variables affecting markets at all times. This is where the trader’s own skills come into play.
How you deal with unforeseen circumstances, how you adapt, and how you manage to control yourself, can be the deciding factors in your trading results. In this article, we will teach you how to trade in a disciplined, consistent manner, eliminating those huge variations in performance when markets, as they so often do, go haywire.
Trade with discipline and focus in strict plan
While we did say that your execution matters more than your trading strategy, you still need to have a strategy. This is what will allow you to structure your trading instead of making random guesses and approach the market with discipline.
Later on, we will cover the steps you can take to ensure you actually follow the strategy you set out. However, your CFD trading plan is still at the core, allowing you to build and improve your trading routine on a solid foundation.
For this, your plan needs to be specific. You can’t just say: I’ll trade forex in uptrends when the conditions are good. This gives you a lot of flexibility in interpretation, and eventually leads back to all those unwanted discipline issues.
So, your plan should include:
- Markets and instruments to trade – A small and diverse selection that you know thoroughly and can expand over time
- Entry and exit criteria – This includes entry and exit points, as well as specific indicators, market prerequisites, major event presence, setups, and confirmations
- Risk limits per trade and per day – Crucial to any strategy, promotes healthy trading, and prevents excessive losses
- Conditions under which not to trade – Includes both market conditions and your personal state (exhaustion, frustration, recent loss streaks)
Now, the important thing to note is that following your strategy may not always result in you getting the most out of every trade. Clear risk parameters and increased caution may make you exit positions before they reach their peak.
However, it will make your performance more consistent, and in the long term, that consistency will beat out a single windfall followed by a string of bad positions.
Risk control strategies to trade with discipline and focus
The Importance of Risk Management
While we already mentioned risk management, it’s a good point to hammer in. Risk management is where most traders fail. They overcommit on a big trade or open many positions on assets with similar tendencies, and when the market moves against them, they get hit with a margin call, and it’s downhill from there.
Look at it this way: if you win $10 on a trade, then lose $10 on the next one, you haven’t done anything. But if you win $5 and then lose $2, you’ve still got $3 left.
Controlling losses is what sets apart traders who thrive in the long term from those who get stuck in that limbo of wins counteracting losses and vice versa.
Trade with discipline and focus: position sizing & stop losses
Luckily, at its core, risk management is fairly simple. It starts with properly sizing your positions. It’s advised to risk between 0.5% and 2% of your total account size per position, depending on your confidence, and never to go over that. Similarly, not risking more than 10-20% of your entire account over all of your positions.
Dimensionamento da posição, however, only goes so far. Stop losses are a simple but significant tool in your risk management procedures. They allow you to set a point where your trades will automatically close if markets move against you. This not only makes tracking your trades much less stressful, but also creates a hard barrier that prevents sticking with losing trades due to emotions.
Diversify to Protect Your Account
These two alone already have a significant impact. But if you want to be smarter with your trades, you also need to diversify. This doesn’t simply mean trading different assets, but assets that behave differently.
Let’s say you’re in five safe haven positions. Even though these may be different assets, if the markets enter a risk-on mood, they are likely to be dragged down together. Familiarising yourself with truly diverse instruments is the way to make sure your entire account doesn’t fall when the market mood shifts.
So, explore safe havens, risk-on assets, those focused on different industry segments and geographical areas. This way, not only will you prevent your entire account from dropping at once, but you will leave more options open for when one of your favoured assets isn’t trading according to your strategy.
Limit Distractions
It’s quite simple: if you want to be focused while trading, you need to stop things from distracting you. Sometimes, that’s easier said than done in a world where everything seems to be vying for your attention.
However, properly limiting distractions can have a major impact on your trading routine. Set a timer for your trading hours. While the timer is running, either put away your phone or disable notifications from all non-trading-related apps. Only open news sources that pertain directly to trading and directly to your assets.
This will help you get in the right headspace and focus on executing your strategy rather than getting sidetracked constantly.
Execution Checklists
Finally, we come to the big question: how do you make sure you actually follow the path you set with your strategy? Here, checklists are an extremely powerful tool.
Having a checklist, either a physical one somewhere in your vicinity or a digital one on your device, can be a major psychological assistance. Forcing yourself to go through it recenters you, and can help you avoid impulsive decisions.
It should include questions such as:
- Does this trade match my strategy?
- Are my setups and confirmations present?
- Am I emotionally stable?
- Do I know why I’m placing this trade and what I’m expecting from it?
- Are the spreads acceptable?
- Are the market conditions appropriate?
- Have I properly sized my trade?
- Have I set my stop loss?
Only if all of the answers are positive can you proceed with your position. You’ll miss some trades this way, but new opportunities will always come along. Remember, no trade is better than a bad trade.
Going through this for every trade may sound tedious, but in actuality, it doesn’t take more than a few seconds. It, of course, requires you to be truthful, which is where we arrive at an unsolvable issue.
In essence, learning to trade with discipline and focus will always require personal devotion. All of the tools mentioned in this article are helpful, but they won’t do anything if you’re not committed to improving. You can make a few white lies to yourself and negate any of the good that any checklist or strategy will do.
However, if you are committed, using these tools consistently and honestly will lead to more consistent results. Remember, it’s not an overnight process, and you may even see an initial drop in performance as your mind gets used to the new structure.
But as you do progress, you will notice steadier account movement, as well as improvements in your own psyche as trading becomes less stressful and more patterned.
Isenção de responsabilidade: Este material destina-se apenas a fins informativos e educativos e não deve ser considerado como conselho ou recomendação de investimento. A T4Trade não se responsabiliza por quaisquer dados fornecidos por terceiros referenciados ou hiperligados nesta comunicação.
