The biggest secret to successful trading

The biggest secret to successful trading is ...

Trading Discipline

Emotions are probably the biggest obstacle any trader has to overcome. Many traders become losers because they can't follow a plan. They see a couple of losses, get excited, abandoned the plan and start to take wild shots at the market.

Traders who develop a sound set of trading rules that match their financial situation with their objectives, and then stick with those rules, increase their chances of becoming big winners. Trading discipline can be more important than your trading system.

Discipline means you must become mechanical in making trades when certain price actions occur. You must shut off your emotions, and not accept one trading signal over another. Disciplined traders let profits run and keep losses short by following rigid guidelines.

Again, discipline does not mean you will have perfect results. If you've select a diversified portfolio, you know that you can expect losses in some markets. Yet, discipline forces you to trade the whole portfolio and keep you from second guessing your system. If you have a training system that's proven successful, discipline may be the only thing you need to get profitable returns.

Note these concepts all work together - you can't have the right trading system and no discipline, you can't select the right trade without the right system, you can't diversify without having adequate capital, etc. If you adhere strictly to all of these rules of money management, trading may not be as glamorous as you probably thought it would be.

However, by using sound money management techniques, you spread out your risk and take a conservative approach aimed at getting 25-50% returns on your investments, year in and year out. That's a good return on investment in anybody's book, and that's the approach any new trader should take towards markets.

Adam Hewison


Co-creator, MarketClub