The Psychology and Discipline of Trading

If you have been trading stocks or commodities for even a relatively short period of time, then you are well aware of the fact that psychology and discipline are the weakest links in the trading chain. No education and trading would be complete without a discussion of the most important aspects of psychology and discipline. This lesson gives you tools that you need to put the methods and systems that I have discussed into action.

Here are some very important thoughts and considerations that will help you minimize the negative effects of trader psychology while maximizing the positives. Think them through carefully and give them the serious attention they deserve. Then, if you feel that they make sense to you or if you “see” yourself in some of the behaviors I have discussed, then make the necessary corrections. This final lesson is not followed by a quiz. The true and final test of your ability and willingness to incorporate these suggestions into your trading plan will be your results.

Enemies of the trader

As traders and investors, we are always struggling with the demons that denigrate performance or that cause us to lose money. The best trading tools are useless in the hands of an undisciplined trader whereas a mediocre or “ugly duckling” trading approach can be transformed into a money-making swan.

The “enemies” of the trader are usually those that reside deep within the psyche of the trader or in learned behavior patterns that may have served their purpose at one time but which are no longer functional at this time. Trading and investing are, at best, difficult undertakings and, at worst, losing propositions. Yet in spite of the difficulties, the allure, the intrigue, and the possibility of striking it rich continue to attract traders the world over. Unfortunately, many of the newcomers lack the trading skills as well as the trading discipline. Jesse Livermore (alias Edwin LeFevre) expressed ` it eloquently as follows: “The chief enemies of the trader are always boring from within.”

What or who are these “chief enemies”? How can we recognize them? How can we “locate” and eradicate them? Are there proven methods for doing so? There are many roadblocks to successful trading. In fact, several books could be written about the factors that limit success but fewer yet on the factors that facilitate success. There are literally hundreds of things traders can do that will lose them money. There are only a few things that lead to profits.


An active imagination can prove highly beneficial to a fiction writer, an artist, or a musician, but it has no place in trading. Many traders are prone to overly active imaginations. They envision or create positive as well as negative scenarios. Both can be destructive because they may lead to unrealistic conclusions and expectations. It is best for the trader to avoid imagining possible outcomes for a given trade. To counteract this tendency, the trader must rely on his or her trading methodology to the exclusion of all other expectations. Once you have entered a trade, do not allow your imagination to rule your emotions or your expectations.

Over thinking

In fact, too much thinking may cause you to lose your confidence, thereby prompting you to make a costly error that is not based on your original methodology. Avoid creating “if-then” scenarios. Avoid talking or thinking in phrases such as “If I had only,” or “I should have” or “What if” or “If I added more indicators to my system then . . . ” Other statements to avoid are “Looks like the market wants to . . . ” or “I think it is time to get in.”

Last word

This type of analysis should be done when developing a system, not after a trade has been entered and not after your system has indicated that a trade should be entered. The market does not care what you think. The market will “do its own thing” no matter what you think and no matter how strongly you think that it “looks like it wants to go up.”

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