Forex Psychology

Why Trading Discipline May Not be Enough

Let’s say you are an experienced trader, trading on the Daily timeframe. You are long on the EUR/USD, as per your system signal, you have also set up your Stop Loss. The trade is open, although it is not going your way. It is going lower, fast. You notice the candle extreme pushes down, as someone deliberately wanted to destroy your trade. What do you do now? It is closing in quickly to your Stop Loss level! The time is up! What have you done? There is only one answer that proves you have the discipline – Do Nothing.

You will and should come back to this article as it is human to recognize your discipline is not effective. Psychological discipline in trading is necessary to do things the right way, and the right way is to separate emotions. That’s not easy even after years of professional trading. Discipline is one of the most important things in trading, and you will slip on it, it’s just human nature, at some point, you will get in your way. To train your discipline, you need to create a system of entries and exits, set of criteria, indicators, and follow it, and when you fail, take a step back, and follow your system.


When building a system, testing is important, but setting criteria in a demo is essential. This is important because it will allow you to do good trades in the long term. Of course, the system has to be tried first. How good can you separate your emotions from trading? When making big decisions you need your intellect and strategy and emotions out of the way. Trading with emotions is trading by feel and it will result in loss, always, so to avoid this, set up a sound strategy, logic entries, and exits, let it unwind on a trade.

Now to get into more details. Your system, you are following the rules, yet you still mess things up. You have worked hard on that system, made a long way but the trading results are not good. It is because you stand in front of your system. If your trading rules do not need you to think, to intervene, put on your brain whether you enter a trade or exit, it is a good thing. You think it is easy not to deviate from your system, just do what it says to do? That is where most traders fail without even noticing. Separating logic and emotions is hard. Emotions are the killer of good trading decisions yet every logical approach has a degree of emotion mixed in. You must be at your best when it comes to forex trading, and emotions will be in your way.

The worst and dumb decisions you made had a big part of emotions. If we take a long and not so happy relationship, they are not a good decision when we look at it rationally, but emotions keep it floating, taking a significant part of your life you cannot relive. When you need to decide, take a step back, are you emotional about that trade? If yes, you know what to do – nothing. You already have something that works, if you have backtested and built your system the right way, so let it do what is meant to do. Your emotions or gut feeling about the trade is going to make it worse. Here is what we can do to make emotions detached:

Choose your strategy wisely, because mistakes are easily done, and these are the checkpoints to follow and avoid crashes. We know exactly when to enter and exit a trade. We have found a trade we like and now it is time to pull the trigger.

Do not make corrections, even if the market trends seem to be unfavorable, let the system work. Interventions make a proven system go bad. As much as you want to change something, let the market go. If it is going to trigger that Stop Loss, watch it do it, even better do something else. If you intervene, and you are right, you have just prolonged your misery. There is a 50% chance you get it right, the price will move up or down. You have a justification, you think you are good at this, your feelings work, but, they do not.

The biggest mistake is to look at your trading terminal and your blinky lights. If you made your trades, turn off the terminal, your screen, move away. If you need to lock it and give the key to someone, do it. Creating a barrier will put you in a very good position not to have any possibilities to intervene. If you are trading on the Daily timeframe, this can be easy for you, all you have to do is check your trades at the end of the trading day. Boredom can be your doom too. Therefore, find your favorite place to work out, swim, socialize, play games, whatever you like. The best part of being a daily timeframe trader is you have a lot of free time. Although this can also be a problem for some.

Chasing losses and overtrading go hand in hand. Let’s say you take a few consecutive losses. You start hating that currency pair, you want your money back. Someone has manipulated the price because every time you enter, the trend reverses the other way. Now you have that justice emotion, revenge against these manipulators. This is how the spiral down to your account bottom begins. Some may even think about position size increase, you cannot lose 5 times in a row. Well, you can, EAs sometimes use that tactic to recover the losses of consecutive bad trades. Essentially, it is just increasing potential loss.

Panic or exiting too early. It is very relative to what you do after a trade is executed. You look at the charts and make an emotional decision when you are losing but also whet you are winning. Drawdowns are always happening, you will rarely see a trade go the way you want without a drawdown. Do not close the trade if you do not have the signal for that from your system. Closing too early because you are afraid the trend will reverse and want to keep that what you have is just a limit to your potential profit. Forex will create that emotional build-up in you after a few losses, making you hesitate and get scared. A good analogy to this is with boxing. When you land a good hit, you do not stand and marvel at it, engage even harder! Sometimes you want to cash in and not be greedy, that trade you made is really good. Well, know that putting a cap on your winners is also your doom.

Not giving your system time to make the signal. You might notice the repeating sentences in this article. Repetition, practice is what will make your mind perfect and remember this. You will make the same mistakes with discipline so you must remember to stay away from your system.

Not understanding the long term trading. Forex is not a casino, this is a long term involvement. Traders need to understand bad trades can happen a few times in a row, but after 1000 trades, the sum should be on your side. If you have a bad day, week, month, and even a year, it does not mean you have to dwell and change things. It happens even the other way around, you can have a great period where you make great gains. After a few trades that gain is negated and you are back to break even.

Long term mistakes come in scenarios when you feel invincible after trading well for some time. When you take a hit and see all of your long period of winning is negated, it is emotionally devastating even to experienced traders. Trading is always fluctuating, so ups and downs are normal, stay with the planned course and discipline will help you. Discipline will take you to the top, you have a tested system, stay with it, and realize what matters is the long game.

Now let’s see what can we do about these problems, starting with the zoomed-out perspective. Generally, if you have low discipline in life, you will have difficulties in trading on Forex. Understanding discipline will make you overcome that hazardous jumping mindset. The best way of action is to change bits of yourself. Books come in handy, one particularly good and practical is “Discipline Equals Freedom” by Jocko Willink.
If we zoom-in now we get to another important part. It is time-consuming. Test systems, adjust them until they start working to your set criteria. Prove it works, on a demo account.

There’s no partial discipline. Follow the system, don’t make unnecessary corrections. You are not smarter than the system you created. If the criteria for entry are only ¾ met, then do not trade it. After you are done, do not look at it! Otherwise, emotions will creep in, and the worst option is when you are right to intervene. Know that trying to be more disciplined just by yourself is not going to work. When you realize the mistake, you will say to yourself that you are never going to do this again. But it will happen again, you will not succeed with self-discipline. The best course of action is to come back to this article and read the steps again.


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