Spread Trading: Discipline and Stretching Yourself

Discipline is the most important part of being a successful trader!" Anyone who has ever traded knows and understands the importance of this statement. Perhaps, some would argue that discipline is the most important factor after a winning strategy for entering and exiting trades has been found. However, I would point out that even the process of developing a trading system requires discipline.

If you were employed by a hedge fund as a day trader they might say "sit in front of this screen and trade 1 per point on gold using IG Index". Try it for yourself. Choose your own time frame and strategy. Do you have the discipline to stick with it? Can you make a profit from it? At 1 pp it won't win you much cash but you also won't lose much. Do you have the patience to wait for the trades to come to you? Do you have the correct money management? Can you set up the orders with stops and can you stick with it? Can you keep it up for a few weeks day in, day out? It'll tell you whether you are looking for excitement or to make money.

Those of you who are already successful in the markets might not want to change anything that you are doing because you have found a combination that works for you. For those of you who feel this way, I would agree that you should keep doing what you are doing. But for those who are becoming bored or want to stretch your abilities and your profits, you might consider stretching your discipline.

Discipline in trading is crucial

To move to a new level of elevated performance in any endeavour takes stretching beyond your comfort zone. When you accomplish this, you are more likely to be able reap the rewards of working at a higher level of skill.

Anyone who has participated in any form of athletics knows the importance of stretching to achieve higher performance. Without stretching, you will limit your ability to perform and perhaps even injure yourself. When I was a concert singer, I practiced singing to 'F' above 'High C' so I could sing in a range to 'High C' without straining my voice. As a dancer, I practiced doing five spins on one foot without stopping so I would feel comfortable performing at four.

Traders also need to stretch to keep their trading interesting and allow them to experience more opportunity. You will recognize that more opportunity presents itself when you stretch from your comfort zone. This is a function of directing the mind to expand itself. If you do not keep growing, then you may sabotage your efforts from sheer boredom.

Here are some examples of how a trader might stretch:

Trade Only a Portion of an 8-hour Day

Many traders remain attached to the old '8-hour workday' ethic. One of the advantages that traders enjoy is that they do not have to work a full eight hours to receive the benefit of a full day's wage. I know a number of traders who make a very comfortable living from trading in one or two hours a day. In fact, I have suggested to several of the traders that I coach that they trade less hours. They have found that they earn more money and enjoy life and trading more because they are less stressed. Of course, this does not mean that you take away study time or development time, especially when you are a beginning trader.

Notice the patterns when you make and lose money. Try to recognize the time of day, time of week, time of year and personal energy during those times. This information should give you a clear picture of what times are best for you to earn the most profits.

Take Larger Risks

A few traders have said to me, "I wish that I could feel comfortable trading more contracts." Let's assume that their comfort level is at 10 contracts and they want to trade 100 contracts. To jump from 10 contracts to 100 is too big of a stretch. But, trading 15 contracts on what you "intuit" to be the better trades would be a workable psychological stretch to start toward a new level of risk. When that level of risk becomes comfortable, you might be ready to stretch risk to 20 contracts and so on. If you cannot incrementally build on assuming more risk, then go back to what you are comfortable with and/or seek out coaching if you are not satisfied with what you are risking.

Take More Trades

Some traders do not have the ability to trade all of the signals that their system gives. Like the previous suggestion of increasing risk, begin slowly by increasing the number of trades each day and reward yourself for your efforts. Most trading systems are designed to gain the most profit only if you take all of the signals. If this is the case with your system, and you have been unable to take your trades, still build slowly. Realize that you might not make profits during this time, but that you are building the discipline necessary to follow your system.

Too many traders become angry with themselves for not taking all of the trades from their system and it leads to their demise as a trader. When you enjoy the process of becoming more disciplined each day and know that you are drawing closer to your goal, you will be less likely to frus-trate yourself into making bad choices. Most traders do not begin their trading career by making money. It is the way that the process of becoming a trader is handled that will determine whether or not you will be able to stay the course.

One of the ways to become more disciplined in following your rules is learning not to make the same mistakes over and over. If you are among the few traders who make profits from the beginning, be sure to develop contingency plans for the inevitable drawdown. Sometimes, it is better to experience loss from the beginning because it toughens you for times when a drawdown in equity occurs.

Take Fewer Trades

Taking too many trades is usually more of a problem than not taking enough. If this is an issue for you, start to qualify your trades on a scale of 1 to 10 with 10 being best and only take the better trades. When you qualify your trades, you will begin to notice more detail in the most profitable trades. Two options to qualify trades can be with a technical filtering system or by using some form of discretion. The important thing is to adjust your rules to any changes that are made, so you don't give the impression to your neurology that it is OK to go against your rules.

Try Other Markets

For a change, you might test your system in other markets. If you have been consistently making money in one commodity and want to branch out to find more opportunities, you might begin testing your method on other commodities. Trade these markets only if you have tested your system and have determined that it is likely to bring in additional profits. If you find that this confuses you or does not work for some reason, then go back to your original method. Everyone has a different level of tolerance and focus. For some people, one market is all that they can handle while others become bored and lose profits if they don't juggle trading several commodities.

Monitor Other Methods

For those of you who love the research and development phase of trading, you might start developing other methods and monitor their progress while following your original method as long as it does not interfere with your performance. Trading two or more systems might be advantageous. The new system might work better when the markets change or you might find that you benefit just by keeping your creative juices flowing.

If you enjoy developing systems, there is also the possibility of selling systems that you have developed. Just make sure that you do not change your profit making system too frequently. A periodic review every three months is a good benchmark for reviewing and re-testing your system. You don't want to kill the 'golden goose.'

Listen to Talks and Read Books

One new idea can make a dramatic difference in your trading results. Always give yourself time in the day to study beyond what you already know.

The more education you have, the more you will be able to recognize opportunity. I'm also not referring to education that directly relates to trading. Ask yourself before you embark on any new learning experience, "What does this have to do with trading and making money?" and notice the answer when it comes.

Of course, be cautious about letting other people's ideas confuse you. Give yourself permission to try out new ideas only when you are working on a periodic review of your system.

Improve Your Tools and Environment

Remember your first computer? Remember how slow and limited in features it was when compared to the one that you are using now? Each year there is new technology and new tools that will enhance your performance. Make sure that you keep up to date with what is available. A good method for keeping up with technological advances is by going to trading conferences and reviewing trade magazines and publications.

Occasionally, review your working environment and ask yourself how you can make it more conducive to nurture top performance. Consider these possibilities:

  • less clutter in your working environment
  • a larger flat computer screen or a panel of screens
  • a faster computer
  • better software
  • better lighting
  • more efficient and/or less expensive service
  • an assistant
  • an ergonomic chair

Self-Improvement

After you have been trading for a time, you will begin to realize that trading is a trip of self-discovery. Many traders find that discovering themselves is more important than making money. But usually, you don't begin to think this way until you are earning money consistently. When you add new skills, abilities and education to your resources, you build your self-worth and when traders feel good about themselves, their trading improves.

Conclusion

The type of person who becomes a successful trader is usually a disciplined multi-faceted individual who needs constant stimulation. For this reason, stretching from the normal range of one's ability and focus should be an important part of a successful trader's life. Earning profits is usually the goal of every trader, but when you add to that goal, "Enjoying the process of earning profits!" it is more likely that you will earn more profits and have a better life.

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