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In the following rows I'd like to share with you three ways I use to increase my discipline which is the cornerstone of every successful trader I know. The discipline is often the missing part of many traders who try to conquer the financial markets. The below presented routines are not hard to do and they are worth every minute I am investing in them. So, let's begin with the first one:
Know your trading method well
I know from my own trading experience that the more knowledge I have about my automated Forex trading strategy, the less worried I am during the real time trading. In my opinion there is a strong correlation between my knowledge of the system, my confidence in it, and my discipline to execute and trade its signals without any second thoughts in mind.
If I know when to expect good trades to occur, how often they occur, and what their characteristics are like length, open profits left off the table, then I am prepared in my mind and I don't get caught by any surprises.The same applies to the system's average annual return, MaxDD, average trade measured in points, percent of profitable months, and every characteristic I think is important for me to know and understand completely.
Trade with less risk per trade
Once I had a very valuable and educated in nature experience trading one system with the same settings on two different accounts. On the first one I applied a conservative Money Management (MM) rule thus allowing small account swings and more consistent and less volatile equity curve. I traded the second account with a lot more risk per trade than the first one. I reiterate that the system was the same settings except MM.
I have noticed over time that I was consistently getting worried about the results on the second trading account. I couldn't handle the big equity swings well, watching the charts seeing my profits or losses changing a lot over time.
Then I understood that aside from the trading system, the risk I am committing also have a big impact on my trading psychology, and I was way more prone to making mistakes executing my trading signals because I was emotionally burned out.
The same applies for capital which I am using for trading. If I am trading with money I cannot afford to lose, then almost instantaneously I get anxious and my thoughts start to flow toward losing and why I cannot lose my money and what I will be doing without them - a very similar juncture to the high risk per trade example.
Having an exit trading plan
No matter how good my automated trading strategy is and no matter how conservative my MM rules are, I always have an exit plan in case I experience big equity losses. Regardless of the reason I have prepared in my mind, a fixed percentage drop with my account which if exceeded I will just stop trading and evaluate the situation. It is important that this step is done before starting to trade real with a particular system because in the heat of the moment I know that I am more likely to make emotional decisions, and eventually make mistakes.
This ending point is determined based upon the system's backtesting performance so that the typical equity drop could occur without stopping too early to trade the particular system. For example, if I've known from a past performance that MaxDD is 20%, they would not stop trading the systems if I lost 10% of my account because it is natural to have bigger drops. Every time I would choose an exit point which is bigger than the MaxDD from the past.
Knowing that I have a limit of my eventual losses makes me much more confident for the future, and the confidence itself translates into better discipline of applying my trading plan rigorously.
I showed to you my personal ways to increase my discipline and emotional health during real time trading with my mechanical systems. In summary I have understood thru an experience that the more I am prepared, the less emotional and more disciplined I am. To understand my trading method well, risking a little from my account per trade and having an exit plan are my ways to cope up with the task called trading. I hope that I have contributed to your knowledge with this article. I wish you a profitable trading.
-- By Professional Trading Systems.
Contributing authors are active participants in the financial markets and fully engrossed in technical or quantitative analysis. They desire to share their stories, insights and discovers on System Trader Success and hope to make you a better system trader. Contact us if you would like to be a contributing author and share your message with the world.
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