Trading Discipline


We traders are generally a successfully bunch of people. We either had a good job that we stayed with or we were successful entrepreneurs. Either way we were able to generate a little excess cash and were not satisfied with a two percent return on our money.

We decided that the stock market was the way to improve the return on our money. Those whose money is in a 401k or IRA are limited to going long, hoping that we can pick a stock that is going up. High income and/or high risk individuals open up a margin trading account where you can go short or long.

There are numerous things that must be learned to be a successful trader.  Fundamentals, what market to trade, market influence, reading a chart, what indicators are useful, support and resistance, how does an earnings call effect a stock and what part of that call is important and on and on.

Once I had all that down I thought I was a market wizard. I often made the right call and surprised myself by buying or selling within a few cents of a top or bottom now and then. Back then (1999/2000) I was making 50/60 trades a day so I didn’t realize even a blind hog finds an acorn now and then.

What happened was I quit losing money (or very little anyway) but I wasn’t making money either. I was just swapping spit and the broker was making a fortune.

It took me a long time to figure out that my problem was discipline. Although I can look at a fresh chart (new to me) and find support and resistance in several time frames (5 minute, 60 minute, daily and sometimes weekly) in a minute or less I wasn’t abiding by what charts were telling me.

I would get caught up in the emotion of the moment and in my fear of missing the trading opportunity I would get in too early. I would rationalize this by telling myself that IF the stock hit support I would double up on it. On the sell side of the trade I would get out to soon because I didn’t want to lose what profit I had.

The way this actually played out was that when the stock reaches support I was already 4, 5, 6 hundred bucks in the hole and as often as not couldn’t pull the trigger on the second trade. Then if the stock continued down I sell for a 1 to 3 dollar loss per share. If I were still in when the stock did reverse now instead of making 1000 bucks I made 400 or less because I would sell to early. To do this as a short just reverse the sequence and there’s another small profit trade.  This gets old fast but if you’re as stubborn as I am you can do this a lot before you give up. Fortunately I had enough winners to stay even or show a small profit.

This kind of action wears on you though. It’s hard to maintain a positive attitude if you keep screwing up every day, and without a positive attitude we all have a real problem.

The answer to this problem for me was discipline. I tried a little experiment. My next 25 trades I would determine support and resistance and a target exit price for the trade. I could not enter the trade more than one half of one percent from my target and had to hold to my exit target or a reversal pattern.

I was stopped out in 2 trades and made 9 k net on all 25 trades. I was a trader reborn.

What I have found is that as long as I follow the rules I make money, quite a bit of money.

The rules include pre market diligence, trade entry and exit, indices and sector performance and fundamental valuation are the major considerations. If I don’t do my job I lose money. If you’re trading due diligence is your job.

Dave Cappaert



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