Discipline in Trading is Different from What You Believed it Would Be

Articles on Trader Psychology by Rande Howell, Trader Psychologist




If I’m Disciplined, Why Do I Keep Falling Apart? 

How it can be so difficult to exercise discipline when it is something that is beneficial and good for you? I am able to be very disciplined in other areas of my life, but when it comes to trading it is much more difficult for me.  It’s not like I’m not trying to be disciplined – I and my trading life depend on it.  It seems like I am in control, then, suddenly, I am sucked into an emotional vortex before I can think about walking away.  Why can I be so disciplined in other parts of my life, but have that discipline fall apart when trading?

Two Very Different Forms of Discipline

Many otherwise highly disciplined traders are confounded by their lack of discipline when trading.  Just like the trader quoted above, they demonstrate considerable discipline and control in other areas of their life.  But, when that same disciplined approach is brought to trading, the trader falls apart at exactly the wrong time.  How can a person, accustomed to being highly disciplined in almost everything they do, come unglued when trading?

The difference is about perceived control – and where that control works and does not work.  Many people come to trading as a new venture after experiencing success in another career.  And that success was rooted in a highly disciplined mind that they applied in working to achieve their goals.  By doing whatever it took to achieve their goals, they were able to push themselves and make their goals happen.  Out of that capacity to control or heavily influence outcome by applying discipline while pursuing their goals, it did, in fact, appear they were in control over outcome.  And out of that success of making things happen through a disciplined approach, they became confident that they, themselves, had great personal influence over the outcome of an event due to their individual action.  They made things happen.

In the example of the trader quoted above, she had always been able to achieve goals by being persistent and not making mistakes.  She is a classical perfectionist who was always able to control outcome by always being right – or by not making mistakes.  This strategy initially was learned in her formative years growing up in a professionally driven family.  She made exceptional grades because it pleased her parents and the relentless pursuit of getting into a great school.  Making a B did not cut it.  The pursuit of perfection was the ideal she strived for.  After getting into an elite college, exceptional grades led to a top graduate school in her field.  Controlling her destiny by perfection opened the door to a great job with a top company. 

This striving to control her destiny and, hence, outcome had worked throughout her life.  From getting validation proving she was smart to getting top jobs in her career, controlling outcome by a perfectionistic strategy had worked.  Out of the discipline to study hard, work hard, and be right – she had, in fact, achieved much in her life.  When she decided to learn how to trade rather than go through another corporate re-organization, it only made sense that she would apply what had worked so well for so long in her personal life to her new career in trading.  There was one small problem – the discipline needed for success in working herself up the corporate latter was very different than the discipline needed to manage the uncontrollable nature of probability.

Initially she strove to work harder at not making mistakes.  But no matter how hard she strived for perfection and reducing errors, she still took losses that began to undermine her confidence.  She added more “stuff” to give her higher levels of probability of success, but, no matter what she did, she could not stop getting blindsided by probability.  She would work hard to do everything right.  But all the “stuff” she had acquired to help her get more accurate entry points required so much attention that she often missed the very entry points she was seeking.  Also her lack of control over outcome (the need to be right) unnerved her.  She increasingly became scared to enter valid set-ups due to a growing nagging fear that she could be wrong and take losses.  In her mind taking losses was to be avoided at all costs.  It was an indication of not being good enough.  And that creeping thought had no place in her mind.  Her success mindset was to win by being better, working harder, and being right.  Being wrong was simply not part of the picture of success in her mind.

What had initially started out as a desirable trait in one domain – perfectionism in the corporate world – had turned out to be a liability in the domain of trading.  What was she (and most traders) missing?

Discipline in a Probability-Based Mindset

This is the aspect of discipline that traders have difficulty developing – that losing (being wrong) is part of success in trading that is not negotiable. The “success mind” that is heralded in business and sports is built to win, overcome odds, control outcome, not make mistakes, and not lose.  And with developing a winning attitude and a competitive nature, you can control outcome.  It is one of those mind-over-matter things.  And you have to be a winner at all costs because no one wants to be a loser.  So winning is the only option in this way of thinking.  And this way of perceiving clearly works in many areas of life – so why not trading?

This cultural norm establishes itself either as the alpha, where winning and making things happen is the rule, or as the perfectionist – where outcome is controlled by making the right decisions.  This is the winning attitude that people from various backgrounds bring to trading.  And they are expecting that this “winning attitude” is going to work in trading because it has worked before trading and, therefore, it will work in trading. 

This is a powerful unexamined assumed belief that gets battered as traders experience the world of trading, probability, and the illusion of control.  Just because it worked by force of will (or it seems like it should have worked) in the world before trading, traders employing “success thinking” from business or athletic models quickly find that, as much as they would like to control outcome, they have no power over making an outcome happen – either by sheer will or perfectionistic thinking.

In trading, there is only a probability that you will win. And there is a probability that you will lose no matter how “right” you are.  The trader has only probability to work with – there is no certainty of outcome.  There is no mind-over-matter.  There is not controlling situations by force of will, making things happen, or not being wrong.  You can visualize the effects of success – you can affirm positive thoughts – but, no matter how hard you try to be positive about controlling outcome, you are still stuck in a world of probability in which you do not know how to operate successfully.  That “success paradigm” simply does not work in trading, not matter how hard you, the trader, insists on projecting your will upon the markets.  All that control over external factors flies out the window.  And as a trader you have no other plan to deal with the lack of power over outcome.  Except to try harder – try harder to win and try harder not to lose.

What is missing is the Probability-Based Mind

The trader has to let go of the notion of controlling outcome by winning and has to accept that learning to lose well is essential in trading.  In essence, many aspiring traders were big fish in a small pond before trading.  The rules of probability, in this small corner of the universe, were greatly influenced by personal will as an anomaly compared to the greater scheme of things in a much greater universe.  Then when the same rules were applied to the infiniteness of the markets, the rules in that very small subset of the universe became null and void.  The rules of probability emerged as the only game in town.  And the trader was unprepared to become a small fish in a vast ocean.  Trading forces this day of reckoning.

The aspiring trader, so habituated to his rules of success in his small pond, is blind to the brave new world of probability found in trading.  The rules have changed and no one told him or her about it.  What was so successful in the small pond of his personal comfort zone held no influence in the vastness of the ocean of probability and possibility of the markets.  Taking those blinders off (regarding the personal power to affect the enormous potential of the markets) and to perceive a world where he has little or no power over outcome is the fork in the road that stops most traders from discovering their true power in trading.

It is much like the Catholic Church, centuries ago, when they held to the belief that the earth was the center of the universe.  No amount of evidence to the contrary would rock their insistence that the earth, indeed, was the center of creation.  When Galileo argued that the earth was one small particle existing in a much larger system, he was silenced and only recently in modern times was acknowledged.  It is the same with traders and their notion of discipline.  A trader’s notion of discipline has to be relearned, re-understood, so that it can be applied successfully to the vastness of the universe called the markets, where the trader has to let go of the illusion of control over outcome and discover what he or she really does control.

The Disciplined Management of Uncertainty

Your brain has been shaped to the “belief” in control over outcome.   This strategy was so successful that it evolved into a human trait passed on from one generation to the next.  And in the small pond of the environment in which it evolved, it proved its worth in building a dominant species that could, to a degree, control its environment in the short term.  That is all evolution seeks.  Trading is a vastly larger universe and presents the homo-sapiens turned trader with a new frontier in which to adapt.  Outcome cannot be controlled in the world that he now lives in.  Traders who try to buck this new world simply find themselves losing their capital over time as they try to prove the old ways are still relevant. 

If they cannot control outcome, either by brute force of will or by perfectionism, what do they control?  What advantage can they find in the vast universe called the markets?  They can control themselves as they interact with the uncertainty of the markets.  It is not the illusion of controlling outcome that brings success in this new world.  Instead, success is found in controlling the mind that you bring to the performance of execution, as that is what the trader can control.  In this scenario, discipline becomes the capacity to maintain emotional and mental order of the mind as it engages the uncertainty and probability of the markets. 

It is this control over performance that sets the successful trader apart from the struggling trader.  When the trader lets go of his notion of winning or losing being tied to his worth and mattering as a human being, the door to performance in the moment becomes a possibility.  Suddenly, by maintaining order of emotion and mind as he or she engages the uncertainty of the markets, the trader is able to maintain a standard practice of rules that he projects upon the randomness of the markets.  This is the essence of trading discipline – maintaining order in the face of uncertainty.

Your brain has developed a virtual representation of the markets that your mind then projects upon the phenomenon of the markets, giving it a structure where probability is accessed rather than control over outcome.  And in a good methodology, that standard practice will give the trader an edge in the management of probability for extracting capital out of the markets.  By applying this disciplined standard practice repeatedly, you gain an edge in probability.  This is what can be controlled.

The dread associated with losing becomes an artifact of a past age.  In probability both winning and losing are accepted as parts of the game theory of trading.  Learning to lose well becomes a skill to be developed because without managing losses, the trader cannot win consistently.  Losing becomes a compliment to winning – or landing on the right side of probability.   In the same way, losing is simply landing on the wrong side of probability.  It is not dreaded – it is simply a probability that has to be approached with skills to minimize the loss.  It says nothing about you as a human being.  It is only a probability to be managed. 

By the same token, winning also is simply a probability to be managed.  By a disciplined application of a standard practice, the trader lands on the right side of probability when he wins.  It could have gone either way.  The trader never controlled the outcome, nor does the outcome say anything about the trader as a human being.  The focus is on competently managing performance.  The future has not arrived, so why project?  The past is gone, so why bring it into the present?  All the trader has is the NOW and the mind that he or she intentionally brings into the moment of performance.  This is the edge in probability that is sought.

Are you ready to let go of the comfort zone where you believe you can control outcome as a big fish in a small pond?  Or do you pull the blinders from your vision and see through the eyes of probability and control the one thing you can control for your success – your performance in the moment of uncertainty.  This is the discipline needed for trading success.  Instead of making things happen, you must have the discipline to be a patient hunter – waiting to see what the markets will give you.
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