How Can I Get More Discipline? (Part 1 of 2)
Here is an excerpt from an email I recently received:
... one of my biggest hurdles is still discipline. I’m beginning to think I might need some help in this area. Do you know of anyone who has successfully helped people with their discipline?
Poor discipline is usually perceived as a psych issue, but that's not always the case. More often than not it's the result of other factors which produce poor discipline. Let's look at a few possible causes.
Lack of a valid
positive expectancy strategy!
An invalid strategy leads to inconsistent and variable results with a declining, stagnating or wildly fluctuating equity curve. This results in frustration and lack of trust in the strategy. The end result of frustration and a lack of trust is an inconsistent application of the plan, making results even worse. Poor results are blamed on our inconsistent application, as numerous cognitive bias' allow us to see all the winning trades we should have caught, and allow us to rationalise why we should have avoided all the losers, if only we were more disciplined. We seek answers in the trading psychology texts to find means for greater focus and increased discipline.
In this case we have failed to see the correct problem. That is, we do not have a valid approach to trading the markets.
Are you sure your strategy is valid and provides an edge? How?
Lack of belief in
Assuming you do have a positive expectancy strategy, have you really proven it to yourself? Have you conducted sufficient back-testing and forward-testing to have absolute belief in the fact that this strategy works? Often poor discipline is the end result of lack of trust. And trust can ONLY be gained through experiencing success. Experience success in a simulated environment first, ensuring actions are made as realistic as possible.
Many people claim that you should avoid a simulated environment as it does not realistically offer many of the psychological challenges associated with having money at risk. This is missing the point. Why risk real money in a live trading environment if you can't even trade the strategy in a simulated environment, where you don't face those additional challenges. Prove to yourself first that you can do this in the easier simulated environment. Only then add the additional challenges.
So, do you really believe in your strategy? Have you experienced success with it? Or do you need some more time to actually prove to yourself that the strategy does manage risk and opportunity sufficiently well to not hurt you in the markets.
There are some elements of psychology here, but the issue is not one of poor discipline. Rather poor discipline is a result of lack of belief. And belief needs to be gained through further testing.
Even when a trader has a valid and proven strategy, poor discipline may be a symptom of a strategy which does not provide a good fit for our personality and lifestyle.
More intense, control-freak personalities (such as mine), should not be trying to hold positions for days or weeks. Those who require more thought out and reasoned decisions should not be scalping sub-one-minute charts. Those with full-time jobs should not be trading strategies that require screen-watching for eight hours a day.
Find a match for your personality and lifestyle, as discussed in this previous article: http://www.yourtradingcoach.com/Articles-Business-Management/Fitting-Trading-Into-Life.html
adapt execution to changing market conditions!
Even when a trader has a valid and proven strategy, belief in that strategy, and a good "fit" for their personality and lifestyle, poor discipline may again be a result of poor trade entry and management decisions as a result of failure to recognise or adapt to changes in the underlying environment.
Market sentiment will change over time. Volatility will change over time. Speed of tape will change over time. Liquidity will change over time.
Different environments require a different approach. Some are best managed through limit order entries. Others require a stop (or market) entry otherwise you risk being left behind. Some environments require tighter stops. Others require wider stops in order to avoid premature stop-outs from choppy market conditions. Some environments require aggressive price targets. Others warrant more patience and the ability to extend targets and/or trail a stop.
It is quite likely that some environments are best avoided for any particular strategy. It may also be quite likely that some environments are unsuited to your risk tolerance, and again best avoided.
Inability to adapt to changing conditions will mean less than optimal decisions leading to under-performance (compared with expected results, historical results and potential available in the market) leading to frustration leading to inconsistent application of the plan (poor discipline) and further degradation of results. The most visible aspect is our inconsistent application, so once again "discipline" becomes the target for our blame; when really our poor discipline is an effect caused by other underlying issues.
The more appropriate place for blame is your inability to recognise and adapt to changes in the market environment. And this is better addressed via study and experience. Our focus should be on targeted deliberate practice in recognition of environment and appropriate decision making for that particular combination of environment, strategy and risk tolerance.
management of risk!
We must at all times be trading within our risk tolerance. Increasing risk above our current degree of risk tolerance leads to increased emotional swings through excessive highs and lows. This in turn then leads to emotion influencing our decision making, leading to inconsistent application of the plan, and greater variability of results. Once again what appears to be poor discipline, is not a psych issue, but rather a result of inappropriate risk.
So set appropriate position sizes and appropriately wide stops. The money at risk should NOT worry you at all in the event of a trade loss.
In addition, a massive blowout creates emotional pain. Factors associated with this blowout trade may become associated with emotional pain; leading to a triggering of this pain in future trades when the same factors are in play. The classic here being the inability to pull the trigger on a valid trade due to fear established in past trades which produced a massive loss and emotional pain.
So manage risk to manage state. Aim for smaller swings in equity curve rather than wild up and down movement.
Before you even look to performance psychology to improve your consistency, ensure you have these basic trading and strategy fundamentals in place.
Only then can we talk more about enhancing your performance.
Unfortunately, having the above trading and strategy fundamentals in place does not guarantee success if one is then ill-disciplined and is regularly finding themselves failing to consistently carry out their plan.
Accepting a rushed or incomplete pre-session routine.
Passing on our post-session review and learning processes.
Failure to follow our basic plan during the session, whether through intentional violation (always justified of course) or sloppy / inattentive error (in all areas of decision making -- entry, stop or target movement, position sizing, session risk limits, scaling in/out etc).
This is what we usually see as poor discipline - inconsistent application of our plan. And so our ill-disciplined trader embarks on a search for a solution. They seek tools, techniques and strategies to "get more discipline".
Again though, our trader's focus is off-target. There is no way to "get more discipline". Rather we need to work on:
Building appropriate habitual behaviour.
Establishing routines and strategies for maintenance of an appropriate state for optimal performance
Habits and state management!
They are our goals.
With habits in place for completion of your pre and post-session routines and for adhering to your rules and behaviour during session, plus appropriate state management in order to limit the ability of inappropriate emotional response to trading results to negatively impact upon our decision making, the end result will be what we call "disciplined trading".
Discipline is best seen as an outcome.
You don't get more discipline.
You develop better habits and better emotional state management... and the outcome will be better discipline.
Next week we'll continue this article, exploring habits and state management. (Update: Part two has been added below... keep scrolling down)
How Can I Get More Discipline? (Part 2 of 2)
Last week we commenced our discussion of discipline by suggesting that in the vast majority of cases a lack of discipline is not a trading psychology (or performance psychology) issue. Rather it's a function of one of the following causes:
Lack of a valid positive expectancy strategy!
Lack of belief in your strategy!
Inability to adapt execution to changing market conditions!
Inappropriate management of risk!
Before you even look to performance psychology to improve your consistency, you must ensure you have these basic trading and strategy fundamentals in place.
Once in place though, continuing poor discipline may be something you can address via performance psychology tools and strategies.
Poor discipline will be evident through an inconsistent application of your trading plan.
However, you can't just "get more discipline". That's not how this works. Rather, discipline is an outcome. And you achieve that outcome through:
Building appropriate habitual behaviour.
Establishing routines and strategies for maintenance of an appropriate state for optimal performance.
Habits and state management!
They are your goals.
Let's explore them both.
Habits lead to consistency. Consistency leads to what we call "disciplined trading".
There are six parts to establishing new habits.
New habits take time to stick. The time varies from study to study but it's typically stated as requiring a minimum of 30 days of focused effort.
New habits won't come easy. Old habits are easy. And the process of changing these habits from old to new means you're forcing yourself to take an action that you don't actually want to do (at some subconscious level).
How will you maintain motivation during these 30+ days? Get clear about these motivations. Write them down. And remind yourself of them often.
Consider your old habit. What are the consequences of continuing with this old and unproductive habit? What will this mean to your success or failure as a trader? How does this feel?
Consider your new habit. What will the impact be if you do replace your old habitual behaviour with your new and more productive habits? What will this mean to your success or failure as a trader? How does this feel?
Identify the trigger that leads to the old habit and "reprogram" this to commence your new habit process (as designed below). Spend ten minutes practicing (or visualising) the trigger leading straight into the new process.
Habits require clearly defined rules or processes. You can't develop consistency if the process is not clearly defined. So document a process (set of rules or steps) that you should habitually follow, if you were to define your behaviour as "disciplined".
Make the habit-change process as enjoyable as possible. If it's a chore then you'll struggle to continue despite the best motivation. Identify the enjoyable parts of the habit process itself, and focus on enhancing that experience. Implement rewards into the process. And actively work to remove any roadblocks to easy and enjoyable completion.
Monitor your progress. The change process will not often proceed smoothly. You will encounter challenges. Implement a "habit change" review into your post-session review. And if you fail, don't stress. You'll have learnt something. Identify the cause of the failure, adjust your plan to avoid or manage this in future, and start again.
This is closely related to motivation. Adopt some means of public or private accountability. You may wish to provide regular updates on a publicly visible blog. Or even better provide regular updates to a close friend or partner. This private option is actually by far the better as we desperately do not want to appear a failure to those we love. This accountability acts as a further motivation to stick to the process of habit change.
Be sure to keep everything as simple as you can. Stick to one major habit change at a time. And again let me stress... make it enjoyable.
Let's look at a simple, non-trading example first. Say you're someone who loves to sleep in, usually hitting that snooze button 2-3 times each morning; but it's starting to make you late for work. You need to get out of bed on time, every time.
The motivation for change is quite simple - to save your job! Visualise how it will feel to have to face your boss again for lateness. And how it will feel if you lose your job. Write down these feelings. Now visualise the feeling of satisfaction when you blitz your next performance review, having demonstrated that you are a reliable and diligent employee.
The trigger is obvious - the alarm. There is no need to change this. The problem is with the process. Currently on hearing the alarm the process is to roll over and stop that damned noise. This needs to change. A new process is designed in which you move the alarm clock across the room such that you have to get out of bed to turn it off. Simple!
You place the alarm clock in its new location, confirm it's visible from bed, set the time one minute ahead and give it a test. Perfect!
You know for the first few weeks you will struggle with this immediate jump out of bed. You need something to satisfy the "enjoyment" part of the process. So you expand your "process" to include two actions before bed: turning on the breadmaker timer for that fresh bread smell on waking; and creating a morning motivation playlist on your iPod.
Each evening... report to your partner and consider how easy it was to get out of bed that morning.
Learn and adjust!
The same applies to trading. Let's work through one example.
If your problem is breaking of session loss limits then you might address these steps as follows:
Motivation... a printout of your equity curve will be a great motivator here. How do you feel seeing the massive downward spikes associated with your breaking of session loss limits? How do you feel after these sessions? How does it feel having to show this to your partner? Analyse some figures... how long does it typically take you to recover from these blowouts? How much quicker would your recovery have been in each case if you halted the slide at the allowable maximum loss? How much nicer does that feel? Write all this down. And review it regularly - preferably before each session for the next 30 days.
Trigger... the trigger is the hitting of maximum loss limits. Most people don't actually have any thought out and documented procedure for stopping, apart from a statement in the risk management part of their plan that states that they will stop at their maximum daily loss. A habit requires a procedure, so take some time to write one out:
Immediately cancel any pending orders for new trades.
Work an exit on any remaining open trades.
Return the platform to simulation mode (ruling out any live trades).
Walk away for one hour.
Return to complete the post-session routine.
Practice your routine, either through visualisation or while in simulation mode. Rehearse the transition from the trigger to the process. Confirm it all works ok.
Enjoyment... it's never going to be fun to hit your maximum stop limit. But you can always limit the hurt by rewarding yourself in some way during the one hour break. Plan for your reward. Hopefully though, you'll never get to see it!
Review... this is not just for those times when you hit the session limit. After each session, ask yourself whether you appropriately provided yourself with the motivation to stop at your session limit today. Do you need to adjust your processes?
Accountability... show your daily results to someone you DO NOT wish to disappoint!
Yes... it's more work. Changing habits is never easy. But once you've installed the new process as an automatic outcome of the trigger, there is a lot less thought and planning required. The new behaviour has become... habitual! And your work as a trader has become... more disciplined!
So identify your current discipline challenges. However your lack of discipline shows itself, take some time now to consider how you'll establish new habits through documenting the six parts of habit change, as listed above. And commit for a minimum of 30 days to ensure the new process does become a new habit; and you become a "disciplined trader".
Trading at its most basic level is a decision making activity. Success comes from improving the quality of our decision making.
With a proven trading strategy that fits your lifestyle, personality and risk profile; and with clearly defined habitual processes to ensure a following of your trading plan; further lapses in discipline will likely be a result of poor emotional management impacting negatively upon your decision making.
Becoming "more disciplined" is a result of taking actions to place yourself in the state most likely to enhance decision making. And standing aside when you are not in this state.
Again we have several parts to address:
our ideal trading state
We need to be familiar with our Ideal Trading State (ITS). I've borrowed this term from Steve Ward's book, "High Performance Trading". In this book, Steve breaks down your ITS to it's component parts - the environmental factors, the physical factors, and the cognitive (psychological) factors which together allow you to best operate "in the zone".
Understanding these factors allows us to use the following techniques (2-6) to achieve as close as possible to our ITS. And more importantly, to recognise and correct any deviation from that state.
Recall a recent time when you were operating in the zone and your behaviour and actions seemed to flow perfectly in tune with the market environment. What were the environmental, physical and cognitive factors which were present? How will you reproduce this in future (as much as possible)? How will you recognise when you are operating outside of your ITS? How will you interrupt your trading in order to place yourself back in your ITS?
life outside of trading
Create a list of go/no-go criteria. We can't check life at the door as we arrive at our trading desk. If life is causing stress which negatively impacts upon your trading decisions and actions, then don't trade until the situation has resolved itself.
Commencing trading again in a month from current equity levels, after having taken a break and resolved life issues, will be vastly preferable to trading in a month from a great drawdown level as a result of the poor discipline that comes from excessive life stresses.
management and physical health
Fatigue management is very much underappreciated. The fact is though that fatigue has a massive impact upon your decision making ability and your emotional management.
I will even go as far to say that this is, in my opinion, perhaps the most important element in this article.
Develop a plan for ensuring you are as rested as possible whenever you trade. And include a "no trading" rule to prevent yourself trading when you are likely to be suffering the effects of either acute or chronic fatigue.
And physical health... improve it!
Eat better than you currently eat. Exercise better than you currently exercise.
Adopt relaxation processes within your pre, during and post session routines, as well as within your contingency management and recovery processes for when it all goes wrong!
Better decisions are made when your mind is clear and your body relaxed.
The simplest and most effective relaxation processes involve breathing exercises. If you don't have anything defined already, do some research on breathing for relaxation.
Affirmations and Visualisations
Affirmations are great for confidence. But I find them even better if used to affirm our adherence to our trading processes.
The same applies to visualisations. Keep them process focused.
Identify your current discipline-related challenges and develop affirmations and visualisation processes to enhance confidence and keep your actions based upon your habitual trading processes.
psych / mindset monitoring
Record observations on thoughts, feelings and behaviour at key times through your trading process; in particular those times when you display poor discipline.
Regular review of your journal allows recognition of patterns (over time) and triggers which set off these patterns. This recognition then allows development of solutions through rule or process changes, or through further affirmations or visualisations.
(Here's a tip which ties in both habits and state management... you may wish to develop habits to ensure all your state management processes are actually followed! :-)
It is of course impossible to deal with all the manifestations of poor discipline, including causes and solutions, within one article. Hopefully though, this article has provided you with a good overview of the processes needed to overcome any current deficiencies in discipline.
In particular, is your poor discipline not actually a psych problem at all, but more a function of:
Inappropriate strategy, market or timeframe for your lifestyle, personality or risk tolerance.
Lack of belief in your strategy due to insufficient testing.
Lack of ability to adapt execution of your strategy to changing market conditions.
Inappropriate management of risk leading to wild swings in both P&L and emotional response.
Once these foundations are in place, then you can more readily look to performance psychology for the tools, techniques and strategy for achieving a disciplined outcome; via creation of appropriate habits and establishing the environmental, physical and cognitive factors required to achieve our Ideal Trading State.
I recognise that this article has not provided a simple solution which will solve all your discipline woes! Unfortunately that's not the way it works. Improving discipline is a process of developing productive habits and managing our emotional state, to ensure the highest quality decision making. The task ahead may seem overwhelming when viewed from the perspective of the above lists. But remember it's a process. Take the first step. Find the one item above that you can most quickly and easily implement and get started NOW.
For a more in-depth discussion of these and other tools, techniques and strategies for managing discipline, I find the following two books incredibly worthwhile:
If you like High Performance Trading, you might want to consider enrolling in Steve Ward's 8-week webinar program commencing April 23rd. Check out his site here for dates & details: High Performance Global. I haven't completed this version of the course, but did complete it's predecessor, the 6-webinar TraderMind series held back in 2012. If you're new to the ideas of trading psychology, or don't have adequate plans in place, this is a good option to get you on the right track.