Why Trading Discipline is the Key to Consistent Profitability

What’s wrong with deviating from your forex trading plan if you make a profit anyway?

Making an occasional winning trade, even when you throw your trading plan out the window, may provide a short-term pleasure, but entering trades haphazardly can adversely influence your ability to maintain discipline in the long term.Trading is a marathon, not a sprint!

When you stop following your trading plan, you become rewarded for lacking discipline and you may start believing that abandoning a trading plan is no big deal.

An unjustified reward may increase your tendency to abandon trading plans in the future.You may be prone to think “I was rewarded once, maybe I will be rewarded again. I’ll take a chance.”

But the positive outcomes of undisciplined trading are usually short-lived, and a lack of discipline ultimately produces long-term trading losses.

It’s important to distinguish justified wins from unjustified wins.

justified win is when you create a very detailed trading plan and FOLLOW the plan. A win that results from following a trading plan is justified and reinforces discipline.

An unjustified win occurs when you make a plan but don’t follow it or if you have no plan at all. You might be rewarded, but the outcome occurred by chance.

You might as well flip a coin or hang a printed copy of your charts on the wall and throw darts at it to help you make trading decisions.

The win is unjustified and can reinforce undisciplined trading.

Maintaining discipline is vital for consistent and profitable trading.

Trading is a matter of getting the law of averages to work in your favor.

You trade proven forex trading strategies, over and over, so that across a series of trades, the strategies work enough to produce an overall profit.

It’s like making shot after shot on the basketball court so as to accumulate a winning number of points. The more shots you take, the more likely you will amass points. Just look at Steph Curry.https://giphy.com/embed/3o6Zt4SlNHjviHxr3O

The winning player is the person who first develops the skill to make the shot consistently so that at every possible opportunity, the ball is likely to go through the basket.

They’ve developed the skill to learn how to shoot the ball the same way every single time. Consistency is crucial!It’s the same for trading. One must trade consistently, following a specific trading plan on each and every single trade.

If you trade one approach this time, and a different approach at another time, your performance will more than likely be haphazard.

We can’t stress this enough…

You have to allow the law of averages to work in your favor so that across a series of trades, you will make an overall profit.

If you follow the plan sometimes and abandon it at other times, you throw off the probabilities, and you will most likely end up losing overall.

With trading discipline comes profitability.Don’t let unjustified wins interfere with your ability to maintain discipline.

Follow your own trading plan, and cement in the mindset that if you follow your plan, you will end up more profitable in the long run.

Now that we’re done explaining how important a trading plan is (can we stress this enough?), it’s time for you to learn what should go inside a good trading plan.

Why Do Forex Traders Need A Trading Plan?

A trading plan will make trading simpler than it would be if you traded without one.

Think of when you use a GPS device.

You enter where you want to go. It then figures out where you currently are and then shows you how to get to where you want to go.You’re able to constantly check on your GPS to see if you’re still on the right track.

When you make a wrong turn, it knows to make adjustments, and it points you back in the right direction.

A trading plan is your trading GPS. It will show you where you currently are as a trader and help you get to your destination: consistent profitability.

Trading plan is like a GPS device

Traveling without a GPS wouldn’t be smart idea. You wouldn’t know how to get to your destination and it’s highly likely that you’ll drive around lost like a chicken with its head chopped off.

You’re probably thinking that one could use an ancient object called “maps” instead, but we have no clue what that is. Please don’t make such absurd suggestions again.

Trading without a trading plan would be the same thing as driving without a GPS–a bad idea.You’re trying to get to this Promised Land called “Consistent Profits,” but since you have no way of knowing whether you’re headed in the right direction, you’ll most likely end up blowing out your account.

With a trading plan, you’re able to know if you’re headed in the right direction.

You’ll have a framework to measure your trading performance. And just like a GPS, you’re able to monitor this continually.

This allows you to trade with less emotion and stress.

Do NOT be a Cowboy Trader!

Without a trading plan, this would be nearly impossible. Instead, you’d be a “cowboy trader“, shooting from the hip, trading by the seat of your pants, relying on your gut, guesses, or signals from strangers.

That ain’t trading – that’s gambling!

Gambling Gene

Whenever you trade, you’ll probably end up a nervous, emotional wreck, crying yourself to sleep as your rollercoaster account balance grinds at your psyche. (Okay pretty drastic, but we think you get the picture).

Just as you use a GPS to figure out the route to be taken and to judge the progress that has been made, your trading plan defines how you’ll become consistently profitable and tells you if you’re on track.Most importantly, if you suck at trading (and you certainly will in the beginning), you will know it is down to one of only two reasons: either there’s a problem in your trading plan or you are not sticking to your trading plan.

If you’re trading without a plan, it’s impossible to know what you’re doing right from wrong.

You have no way to evaluate your results, so you’ll never know how to stop sucking.

We can’t emphasize this enough…

If you fail to plan, then you’ve already planned to fail.

Obviously, a trading plan doesn’t guarantee success, but a good plan that is followed will help you stay in the forex game longer than traders who don’t have a trading plan.

Trading Plan Needed For Forex Survival

SURVIVAL is better than failure and it should be your first goal as a newbie trader.

Remember, 90% of new traders don’t make it. You want to be part of that special “10%” that does make it.

You’re probably thinking, “Ba humbug! Trading plan, schmading plan. I can be part of that 10% without a stinkin’ trading plan!”

It may be tempting to trade by the seat of your pants, but if you don’t develop clearly defined trading plans and be disciplined enough to follow them consistently, you’ll have much difficulty making consistent money as a trader.

Don’t take any chances. Have a trading plan.

What is a Trading Plan?

Now that you’re about halfway through our College of Forex, here’s one piece of advice you should always remember.

Be your own trader.

In other words: Don’t follow someone else’s trading advice blindly!Just because someone may be doing well with their method, it doesn’t mean it will work for you.

We’re all in different situations in life, and we all have different market views, thought processes, risk tolerance levels, and market experience.

Have your own personalized trading plan and update it as you learn from the market.

With rock solid discipline, your trading could look like this.

Developing a Trading Plan and sticking to it are the two main ingredients of trading discipline.But trading discipline isn’t enough. Even solid trading discipline isn’t enough.

It has to be rock solid discipline.

We repeat: rock solid.

Like a brick wall.

Solid Trading Plan

“Call me Mr. Discipline.”

Plastic solid discipline won’t do. Nor will discipline made from straws and sticks. We don’t want to be little piggies.

We want to be successful traders!

And having brick solid trading discipline is the most important characteristic of successful traders.

trading plan defines what is supposed to be done, why, when, and how. It covers your trader personality, personal expectations, risk management rules, and trading system(s).

When followed, a trading plan will help limit trading mistakes and minimize your losses.

After all, “If you fail to plan, then you’ve already planned to fail.

A trading plan removes any bad decision making in the heat of the moment.Your emotions can consume you when money is on the line, causing you to make irrational decisions. You don’t want that to happen.

The best way to prevent it from happening is to minimize (notice we did not say eliminate) thinking by having a plan for every potential market action.

With the right trading plan, every action is spelled out, so that in the heat of the moment you don’t have to make any rash decisions.

You just simply stick to your trading plan.

The Difference Between a Trading Plan and a Trading System

Before we continue, we have to quickly distinguish the difference between a trading plan and a trading system.

  • trading system describes how you will enter and exit trades.
  • A trading system is PART of your trading plan but is just one of several important parts, i.e., analysis, executions, risk management, etc.

Since market conditions are always changing, a good trader will usually have two or more trading systems in his or her trading plan.

Trading systems will be covered more in-depth later on in the lesson, but we thought that it was important to point out the difference between the two upfront to avoid any confusion.