Ask Colin

Of the three Ms of trading, I am having difficulty with "Mind", because I am watching real time data and get caught up in the dynamics of the market, rather than being detached. How can I improve my discipline?

Your reference to the three "Ms", of course refers to my friend Dr Alexander Elder's book Trading for a Living. I hope you agree that every beginning trader should read this book, which has been an international financial best seller since 1992.

Dr Elder would smile at your comments about having a live market data feed on your desk. I have heard him several times speak of this as being like having a slot machine on your desk. If you are intending to day trade, then you must find a way to deal with this temptation. However, if you are a position trader, get rid of it and only assess the market using data in the time frame you are trading.

If you are making your tactical decisions from daily bars, as most people other than day traders are doing, you only need end of day data. There will be times when you need to check how a stock is going during the day if your market does not accept stop-loss orders and one of your stocks is near a stop-loss level. However, you need to discipline yourself not to look at other stocks, or the market.

However, on the broader question of discipline, you may find Mark Douglas's book The Disciplined Trader useful. His basic thesis is that traders fail because they do not follow their own trading rules. He sees the way to become a good trader is to develop the ability to always follow your rules. To develop this habit, you need to internalise that a good trade is not necessarily a winning trade, but one where you followed your rules. A bad trade is one where you broke your rules, even if you made money on it. This initially sounds very strange to most people, but is one of the most important concepts for developing the skills to become a successful trader.

My own experience is that most traders fail because they do not have a plan at all. They have no rules, so they cannot follow them, even if they wanted to. This is why, when I teach trading, my whole focus is on developing a trading plan and teaching my plan as a model.

So the way I would suggest for you to try to solve your problem is to get rid of the slot machine, sorry live quote screen, develop a complete trading plan and focus on following your plan precisely every time. Reward yourself psychologically when you follow the plan, even if you lose on that trade.

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