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Ten Reasons Traders Lose Discipline

Here is a list of the top ten reasons for losing discipline while trading. This list was sent to me by a risk manager back when I was a trader on the floor of a proprietary trading firm. This manager would routinely send out quick trading lessons and reminders via email. I have kept most of those insights and refer to them regularly.

I later found out this list came from Brett Steenbarger, a trader and educator. I saw a recent quote from him that said: ” One of the best tests of a trader is what they do when markets are closed.” Traders fail to become profitable or stay profitable usually because they fall into one of the traps discussed below. It is only through thorough preparation, planning, research, and self-reflection of our own method and psychology that we can keep most of these issues at bay. That doesn’t mean we will keep these issues at bay all the time,  but by knowing about them and continually working on them we have a much better chance of getting into, and staying in, the winnings circle.

I have added in a few of my own comments to each point on the list.

Ten Reasons Traders Lose Discipline

10) Environmental distractions and boredom cause a lack of focus.

  • We will live in a world of distraction. I see people trying to day trade in 10 minutes during their lunch break, or trying to trade on their smartphone, or checking out different sites/email and updating their Twitter account all while trying to trade. FOCUS on your trading! When you trade, only trade. And if you are going to do it, sit down and focus. Don’t be rushed or distracted.

9) Fatigue and mental overload create a loss of concentration.

8 ) Overconfidence follows a string of successes.

  • I fall into this one. The better I do, the more eager I get to trade. I am not overconfident…after 14 years of trading I know the market can run me over if I am not careful. But I do get eager, and that is just as bad as overconfidence because the result is the same. I end up taking more trades than I should because I am not waiting for my trade signals to fully form. When I am having a good string of trades, I have to continually remind myself to let the market come to me. I can’t force trades to materialize, I need to wait for them to form.

7) Unwillingness to accept losses, leading to alterations of trade plans after the trade has gone into the red.

  • This can ruin an account quicker than anything. As traders, we need to take losses at the exact point we said we would before we took the trade. Markets can move quickly and aggressively, so if we don’t get out we could end up losing a load of money. This was rated as the number one killer of traders in my Biggest Trading Mistakes article.

6) Loss of confidence in one’s trading plan/strategy because it has not been adequately tested and battle-tested. 

  • This is often the curse of the new trader. They read a book and like how it sounds, so they jump in and start trying to trade it without taking the time to practice, test, and understand what they are learning. A couple losing trades and they lose confidence…and then they are on to the next book or course. This process continues indefinitely until they eventually settle in to take the time to really test and practice the method before trusting it.

5) Personality traits that lead to impulsivity and low frustration tolerance in stressful situations.

  • While I do think anyone can be a successful trader if they put in the work and have an ability to self-reflect, those without the ability to self-reflect, or that are impulsive, easily angered, or lacking patience will really need to work hard on managing these traits. Fail to do this and trading will likely be a disaster.

4) Situational performance pressures, such as trading slumps and increased personal expenses, that change how traders trade (putting P/L ahead of making good trades).

  • To excel in any field requires focus on process, not results. Results come from getting better at something by doing the same thing over and over again. When our lives or expectations change it is easy to start thinking about results instead of process. We are thinking about $1000 we want to make today instead of executing the trades properly. But, of course, if we don’t execute the trades properly our trading will suck and we won’t reach our goals.

3) Trading positions that are excessive for the account size, created exaggerated P/L swings and emotional reactions.

  • Keep risk on each trade to 1% or less. Build the account this way and your income will grow. Not only does the account still grow, but because losses are managed there is likely to be far fewer emotional swings caused by big drawdowns.

2) Not having a clearly defined trading plan/strategy in the first place.

  • You can’t trade successfully by trying to wing it. Trading requires a lot of practice, and to practice you need to know what to practice. We practice our plan, which is composed of strategies and other guidelines for trading.

1) Trading a time frame, style, or market that does not match your talents, skills, risk tolerance, and personality.

  • I often get emails from people asking what market to trade, or whether they should day trade or swing trade. These are not the right questions. First, ask yourself what you are really interested in!? Trading is tough, so you need to be passionate about it. Do a bit of digging and see which market and style of trading most appeals to you and gets you excited. Until you know that, it is best to keep researching, or do something else that you are passionate about. All major markets (stocks, options, futures, forex) are viable for trading, it just comes down to what you are most interested in (and capital and time availability).

Cory Mitchell, CMT

If you are interested in learning a complete method of swing trading stocks, including how to find trades, how to manage risk, where to enter, and where to exit, then check out my Stock Market Swing Trading Video Course. More than 12 hours of video show you how to swing trade efficiently and profitably, in about 20 minutes per day.