A trader's success in the markets is very much connected with his level of discipline. A trader must have a strong sense of discipline while trading, as it accounts for 90% of the factors that determine success.
Trading discipline is a crucial part of the game. There is a simple rule for this. The formula is very simple:
Trade with discipline and you will succeed;
Trade without discipline and you will fail.
Now question arises: What is discipline? Who is called a disciplined trader?
The answer is simple:
A disciplined trader respects the market. When he is wrong, he gets out immediately, when he is right, he does not get too greedy. He feels satisfaction even with small winnings and also accept small losses when he is a loser.
Rules that every trader should implement into their own strategy
Rule - 1
A disciplined trader prepares a well defied plan and stick to his that well-defined plan during trading, and this leads to higher profits and less losses. Following a disciplined strategy consistently is essential for achieving financial gains in the markets.
Rule - 2
Discipline is essential to success in trading, but it is not something that can be practiced occasionally. In trading, discipline must be applied consistently, in every trade. Failure to do so can result in significant losses. A trader who wins occasionally cannot be said a successful trader. The discipline to cut your losses and exit losing trades quickly determine your overall success in the markets. In fact, the market rewards traders who are disciplined and willing to admit their mistakes by minimizing the losses on bad trades. If you do not follow you disciplined plan while cutting a trade with small loss, you may have to bear a much larger loss and that is simply because of lack of discipline.
Rule - 3
An effective trading strategy includes adjusting the trade size based on performance. When a trader is experiencing a losing streak, it is wise to reduce the number of trades, to limit potential losses. A common approach is to decrease the trade size to a single trade after two consecutive losing trades and then go on increasing again slowly, if the next two trades are profitable. This is similar to a baseball player who changes their swing to make contact with the ball after striking out. By reducing the trade size, traders aim to make small gains or break even, before increasing the trade size again. But this saves him from heavy losses.
Rule - 4
We have all been guilty of succumbing to greed in trading, but it is important to strive to avoid this behavior in the future. When the market moves in our favour and have a small profit, it is natural that a trader wants to hold trade for longer period of time in expectation of larger gain. However, this often leads to hesitation and ultimately, a bigger loss. During that longer period, when correction happens, his mind hesitates to exit and his trade is converted in to a losing trade. It is essential to remember that every trade is just one opportunity and there will be many more in the future. Don't let one trade define your performance for the day and avoid being greedy, as it will only lead to bigger losses in the long run.
Rule - 5
It is important to keep a record of all trades made during a session. By noting down the details of each trade, such as the biggest gain and loss, traders can set limits for themselves to prevent losses from exceeding the biggest gain. For example, if a trader's biggest gain on a day is fifty points in Nifty Trade, then he should not allow a losing trade to exceed that amount. By not letting losses exceed the biggest gain, traders can ensure that they will have a net gain for the day.
Rule - 6
A trader should watch certain specific market conditions that must be met before he takes any trade. It is not important what his strategy is, but he must have a set of rules, market setups, or price action that he needs to see before he executes the trade.
It is important to have a plan of action, a methodology in which he has confidence, and he must stick to that methodology even if it is not working during some specific sessions. If the methodology has been proven to work more than half of the time, it is considered to be the best and a trader has to stick to it, rather than trying to come up with a new one.
Rule - 7
It's important to understand your comfort zone when it comes to trade size, as trading more than what you can handle emotionally can lead to poor performance and losses. It's better to stick with a trade size that you are comfortable with and trade with the same level of skill and talent, rather than attempting to trade beyond your abilities.
Sometimes traders are tempted to trade for larger size beyond their financial capacity only by watching the trades taken by their friends, relatives or colleagues and ultimately trapped in to losses. Precisely for this reason, a trader should stick to his plan prepared after considering all necessary aspects therefor.
Rule - 8
It's crucial to never put yourself in a position where you can lose more money than you can afford. One of the worst feelings is wanting to trade but not being able to do so simply because you have not enough funds. To prevent this, it's important to set daily loss limits for yourself. For example, if your limit is Rs.1000, once you reach that point, you must stop trading for the day, and come back the next day. This will ensure that you never risk more than you can afford to lose.
Rule - 9
Many new traders believe that because they have a large amount of financial funds in their trading account, they can trade positions in many more stocks. However, this is not the case. If you are not able to trade single or few stocks profitably, it is unlikely that you will be able to trade many stocks successfully.
As a disciplinary rule, a trader should take trades for three-four stocks and earn profit consecutively for two months. Once he achieves this, he gets the right to trade five-seven stocks for next two months. Now during this next two months if he is not performing well for the stocks he added, again he has to reduce his portfolio and find out the mistakes committed while trading these additional stocks.
Why said to take trades in more than one stock, but not more than 3-4 stock? It is only because in that case you are able to protect your capital. If trades are taken as per the strategy planned, it hardly happens that you incur losses in all the stocks. You may lose in one or two, but may earn in other, and thus loss of incurred can be compensated by the profits of the other. This makes you feel psychological relief. If you take trade only in one stock, then it is difficult to control your emotions when it becomes a losing trade, and that may lead you to take hasty wrong decisions.
Rule - 10
If you have a sense that a trade is not working, it’s probably best to exit. Every trader will have losing trades throughout his trading sessions, it’s a normal part of trading. If you fail to exit a losing trade, you should not define yourself as a trader.
Rule - 11
In the initial stage, when a trader is to develop his discipline, he is often willing to find some ways to come out of the bad trade. He wishes for some sort of miraculous intervention which never going to occur. In fact, relying of some external force to get help for a bad trade is nothing but a waste of time and efforts. The best course of action is to simply exit the bad trade.
Rule - 12
Once you have your own methodology or strategy for trading, you just implement it, take trades on that basis with confidence. You become deaf and dumb for your trading.
Never say
Never ask
Never see
If you say to anyone, the listener may react and your confidence will be shaken. If you ask, you may to get satisfactory reply and your confidence will be shaken. If you see what is not worth, your confidence will be shaken. Hence never create situation which will lead to create confusion in your mind about your methodology and at last lead to losses. For this purpose, so long as possible take trading decision when you are all alone in your office. Presence of other people may also become a cause of disturbing your mindset for your methodology.
Rule - 13
A good trader keeps himself away from watching financial news programs on TV. Whenever he watches TV programs, he never gives importance to the guidance given for trading, he simply watches to know the news. He ignores the levels forecasted in such TV programs. This is so because he knows that price reflects all this news, price never lies. Hence, he gives more importance to watching price movement rather than news. How the market will react the news is absolutely impossible to forecast. Such forecasting may shake the confidence about the strategy planned.
Rule - 14
For a good trader, stock market trading is a business, not a gambling or speculation. Attempting to be speculator and consistently make large profits is not possible at all. In case of gambling or speculation, you are tempted to take even risky trades which are beyond your financial capacity and it may lead to heavy losses. Instead of trying to speculate, focus on being a good trader, focus on the process.
Rule - 15
You should accept that you will have losing trades throughout the trading session. Get out of your losing trades as quickly as possible and embrace the fact of exiting them quickly. This will help you save a lot of trading capital and make you a more effective trader.
Rule - 16
This rule pertains to the concept of capital flow. It is the flow of trading capital that moves the market in one direction or another. An excess of buy orders will push the market upward, while an excess of sell orders will push it downward. When the market is stagnant, it indicates that traders are satisfied with the current bid and offer prices. It is not a good idea to trade during these times as the market is not showing any significant movement. It is a waste of time, capital, and energy to trade in such conditions. It is better to wait for market activity to pick up before placing a trade. In short, when the market is in sideways or consolidation mode, a trader should stay away from the market or take light position only. After the completion of consolidation mode in the market, a good trader becomes active in trending market and can easily manage his trades in profitable manner.
Rule - 17
If you incurred losses consecutively for few trades, better stop trading further for few days and try to learn from the mistakes which you have committed. Whatever you have earned in few trades may be wiped off in such bad trades taken consecutively. They have a negative impact on your psychology and emotions. It takes a long time to regain confidence after such a significant loss. But be alert, make up your mind to take further trades only after you regain your confidence in your trading strategy, otherwise not. If you learn from the mistakes committed, you will regain your confidence early. But if you blame the market or your own self, you will never regain your confidence.
Rule - 18
Just as it is rare to encounter a successful speculator, it is also rare to come across a trader who consistently expects to make a large profit and then actually achieves it. You should never go into a trade with the expectation of making a huge profit. In short, your expectations should match your analysis done and must be rationale.
Rule - 19
Imagine starting your day knowing that by following a set of rules, trading with discipline and adhering to your methodology, you have a high chance of success. And in that case, you can easily count the number of losing trades and profitable trades. This consistency allows you to be extremely confident in trading. By consistently making small profits daily, you can take trade throughout the session with confidence and control. Remember, if you make a little bit every day, you have earned the right to trade larger and by following the rules of discipline, your small profits can soon turn into much more significant gains.
Rule - 20
The strategy of scaling out of your winners will result in an increase in the average profit per trade while still keeping losses within your defined risk parameters. On the other hand, it is not advisable to scale out of your losing trades. If your trade size is more than one lot and the trade is not profitable, you should exit the entire position at once. However, if the trade size is more than one lot and it's a winning trade, it's best to exit half of the position at your first price target. By using protective stop-loss orders and adjusting the order to reflect the change in trade size, you will be able to raise or lower the stop price, depending on your position, to your original trade entry price. This puts you in a great position where you can't lose on the remaining position, and you can sit back and relax by placing a limit order a few ticks above or below the market.
Rule - 21
The key to success as a trader, just like any other profession, is consistency and sticking to a proven methodology. This means showing up every day, and executing your trades using the same approach, day in and day out, just like a bricklayer laying bricks one by one. Always try to follow your rules as per the current market situation, review them and use them, but never deviate from your established strategy. This is very much crucial to achieving consistent success in trading.
Rule - 22
The key to success in trading is to take action, not to hesitate. Many traders miss out on profitable opportunities because they are too focused on getting the best possible price, or waiting for the perfect set of indicators to align. The reality is that no trade will ever be executed at the absolute best price, and there will always be some uncertainty about the market's direction. The most important thing is to take the trade and manage it effectively. Don't let over-analysis and hesitation prevent you from making a profit.
Rule - 23
It is crucial to have a set of guidelines and strategies in place for trading, and it is also important to follow them consistently. The key to success in trading is not only making the right trades, but also managing them properly. By adhering to a set of rules, traders can maintain control and increase the likelihood of making a profit.
Rule - 24
Keep discipline in maintaining right funds in your broker's account. Whatever amount of funds you have decided to trade with, keep only that much funds with broker's account. I you keep more funds than what you have decided or what is needed for stock trading, then it may lead to unnecessary speculations or gambling actions. This also means when you are in winning stage and accumulate certain good profits through your trading, transfer that portion of profit to your personal account, never keep them with broker's account. Otherwise, you may be tempted to take large and large position for trading and ultimately you have to suffer a lot.
Rule - 25
The market is unpredictable and operates independently of individual opinions or biases. It is important to understand and respect its movements, and failure to abide by its rules can result in negative consequences. To succeed in trading, it is crucial to adhere to the 25 Rules of Trading Discipline.
Always give much more importance to your employed funds. Stock trading is an art to protect your employed funds. If you learn that art, then markert will take care your funds and give you profit sooner or later.
You have to be self-sufficient. The best traders don’t follow others - they have their own path.
Be a trailblazer.
Become your own indicator!
