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The Importance Of Self-Discipline In Trading (And 5 Easy Tips To Stay Focused)

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The “stock market” brings to mind an oddly specific vision: dozens of people in a cramped office space, screaming on their phones whilst watching multiple monitors with fluctuating lines.

Of course, there are those guys, and then there are traders who make the same money from their living rooms. The most crucial factor that sets apart an investor from a trader is the frequency of transactions.

An investor abides by the principles of “Buy and forget,” thus looks at long-term gains. They may buy a stock today and hold it anywhere from a few weeks to years or even decades.

A trader, on the other hand, buys and sells as frequently as every second to make short-term profits. Traders must be on their toes at all times and thus need to be highly disciplined.

The Role Of Discipline In Trading

First, let us understand what discipline in trading is. It basically is the ability to obey a set of rules and a trading plan without going astray.

Without discipline, there are high possibilities of a trader making a spontaneously haphazard decision, resulting in a heavy loss.

Let us look at an example. The FDA approval for the new drug of Pharmaceutical Company, X has been delayed. You plan to short this stock the next day.

To your surprise, a few minutes after the Opening Bell, the price of Stock X starts to rise and continues to rise for good 15 minutes. Despite your plan being based on a Quant trading strategy, you go long on Stock X instead.

The price continues to rise, and you put in more money than initially planned. It is now 25 minutes into your trade when the price starts dropping massively.

Before you can fathom what exactly is happening, it has gone below your purchase price. You think it might rise again and buy more units to lower your average purchase price and keep doing so with every big drop.

But no, the stock does not come above your average purchase price, and voila! You stare blankly at a huge negative red figure in red on your screen.

Sticking to your trading plan would not have caused this loss of focus. A lot goes behind making that plan, but we’ll get to that shortly.

Stay Focused With 5 Key Tips

No one enjoys hitting rock bottom – and staying focused on your trading game will prevent that from happening. Here are 5 ways you can do just that.

1. Create A Trading Plan

Every trader will vouch that this is the first step towards being disciplined and staying focused. This plan needs to tell you exactly what, when, and how much you will be trading for.

This plan helps you make logical trading decisions and must include your preferred stock holding period, risk appetite, available capital, the markets you would trade-in, and the goal you wish to achieve with all these.

This would be a broad framework in which you would work in. This set of rules help you focus on your goal more clearly.

2. Study Your Trading Strategies

A trading plan varies from a trading strategy wherein the latter entails how you would be entering and exiting the market. A trading plan enables you to create a trading strategy.

A stock market is a chaotic place. Going in without a solid trading strategy is bending an unspoken rule that can increase your chances of crashing and burning.

You can pick from two schools of thought in the stock market – fundamental and technical analysis.

Fundamental analysis involves finding out the intrinsic value and comparing it to the current stock price.

If the intrinsic value is lower than the current stock price, the stock is overvalued and should be avoided. If it is more than the current stock price, there is a potential in price rise and would be a good buy.

Technical analysis involves observing just the price performance of a stock. This kind of analysis takes historical price trends, returns, and volumes of trade into account to find a trade signal.

By blending the two strategies, you may find a greater chance of success in your trading endeavours. To stay focused and disciplined, you should figure out which approach is ideal – and stick to it.

3. Narrow Down Your Watchlist

A watchlist is basically a basket of stocks that you regularly track. The stocks you trade are included in this basket.

You need to be aware of every single activity that might affect these stocks. This way, you know when to enter the market and when to pack those bags and leave.

The bigger this watchlist, the harder it is to track your stocks efficiently – and so, the easier it is to lose focus. Think of it like this – Isn’t it easier for a parent to keep an eye on one kid in the house instead of 5 kids?

4. Cancel The Noise

Many of us tend to abandon our plans and strategies and are influenced by others’ opinions instead. You might have seen numerous articles, publications, news, and opinions out there on the markets.

You will hear all sort of noise around the stocks you ultimately plan your strategies around. It’s something that confuses even the most seasoned traders to the very core.

With contradicting opinions come feelings of uncertainty and hasty decisions – both of which can steer you away from the path of self-discipline and consequently kill your trading game.

Hence, we recommend that you shut out the noise and believe in your intuition. If you’re struggling to follow the plan you created, limiting your news sources resolves the issue automatically.

5. Set A Routine

Sticking to a routine usually helps traders focus and sharpen their resolve. You could dedicate a time slot per stock in your watchlist each day post the Closing Bell.

Prepare a list of trading strategies the night before the trading day. Make yourself aware of the rules and do a quick scan for any news right before Opening Bell.

Trying these little habits every day will keep you focused at all times and prevent poorly thought out decisions. A lot of traders also use tools like Tradingview to help them in their daily activities.

In Closing

In a highly volatile market with tons of ups and downs, self-discipline and focus can protect you from expensive mistakes and save the day. Be consistent with your efforts, and you’ll soon reap the benefits!

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