Updated from its original posting on 21-10-2008
Successful forex traders have rock solid discipline. They plan every one of their trades, then they simply trade their plans.
It may be tempting to trade by the seat of your pants, but if you don’t develop clearly defined trading plans to follow, and follow them consistently, you’ll have difficulty making consistent money as a trader.
What’s wrong with deviating from your forex trading plan if you make a profit anyway?
Making an occasional winning trade, even when you threw your trading plan out the window, may provide short-term pleasure, but entering trades haphazardly can adversely influence your ability to maintain discipline in the long term.
1. Stay disciplined.
When you stop following your trading plan, you become rewarded for a lack of discipline and you may start believing that abandoning a trading plan is no big deal. An unjustified reward may increase your tendency to abandon trading plans in the future. You may be prone to think “I was rewarded once; maybe I will be rewarded again. I’ll take a chance.” But the positive outcomes of undisciplined trading are usually short-lived, and a lack of discipline ultimately produces forex trading losses.
2. Distinguish justified wins from unjustified wins.
A justified win is when you create a very detailed trading plan and FOLLOW the plan. A win that results from following a trading plan is justified and reinforces discipline.
An unjustified win occurs when you make a plan or drift from the plan. You might be rewarded, but the outcome occurred by chance. You might as well flip a coin or hang a printed copy of your charts on the wall and throw darts at it to help you make trading decisions. The win is unjustified and can reinforce undisciplined trading.
Maintaining discipline is vital for consistent and profitable forex trading. Trading is a matter of getting the law of averages to work in your favor. You trade proven trading strategies, over and over, so that across a series of trades, the strategies work enough to produce an overall profit. It’s like making shot after shot on the basketball court so as to accumulate a winning number of points. The more shots you take, the more likely you will amass points. Just look at Kobe Bryant or Allen Iverson.
3. Consistency is crucial!
But the winning player is the person who first develops the skill to make the shot consistently, so that at every possible opportunity, the ball is likely to go through the basket. This is why “spot-up” shooters like Peja Stojakovic or Dirk Nowitzski have higher field goal percentages than players who love to perform spectacular (but low percentage of making them) fade-away jumpers like Kpbe Bryant. They’ve developed the skill to learn how to shoot the ball consistently.
It’s the same for trading. One must trade consistently, following a specific trading plan on each and every single trade. If you trade one approach this time, and a different approach at another time, your performance will more than likely be haphazard.
I can’t stress this enough. You have to allow the law of averages to work in your favor, so that across the series of trades, you will make an overall profit. If you follow the plan sometimes and abandon it at other times, you throw off the probabilities, and you will end up losing overall.
With discipline comes profitability. Don’t let unjustified wins interfere with your ability to maintain discipline. Follow your trading plan, and cement in the mindset that if you follow your plan, you will end up more profitable in the long run.
Disclaimer: BabyPips.com receives a small credit from any purchases through the Amazon links above to help support the free content and features of our site.