Mindset

Decisiveness and Discipline

Trading is primarily decision making. It is not physically demanding nor do you have to remember complex formulas and concepts. It is just decision making. You are presented with or you acquire information for analysis and make decisions based on that information and your judgement. As trading is essentially decision making, you have to be decisive to be successful.

A fair percentage of the decisions that are required will be difficult. Humans are naturally inclined to break the time tested trading rules and this is why your mindset and decision making is such a vital part of your success. Successful traders have great internal control and discipline to overcome the natural tendencies.

They will likely cut their losses when deep down they don’t want to because they don’t want to lose money. They will likely stick with their position sizing model even though they feel super confident about a particular trade selection. Successful trading is all about sound decision making based on the foundation of a solid written trading plan.

With regards to decision making, there is one thing I learned from my military experience which I think is quite applicable to trading. As an Army officer, you are also often faced with situations where decisions need to be made. When faced with a situation where a decision needed to be made, you often considered a number of different courses of action.

One thing was for certain. The easy option was rarely the best option.

The easy option is the decision that is the easiest to make. It was the one that caused the least discomfort, inconvenience and was likely to be the most popular with my subordinates. This was rarely the best option.

In trading, you will often be faced with difficult decisions that need to be made with probably the most often being to cut a loss. When faced with a loss, the easiest option is to do nothing about it and hope the trade rights itself.

I can assure you that this will never be the best option. You could argue that sometimes, the trade will right itself and the decision to not cut the loss will result in a profit. This is true but it only reinforces the negative and will lead you into bad habits.

An easy way to ensure that you always do as your trading plan demands of you is to consider yourself an employee of somebody else. This other person has employed you to trade their plan for them. The plan is not difficult to follow and it is not beyond your intelligence to follow the rules within the plan.

There is only one condition.

If you do not follow the rules, you will lose your job – no questions asked. Sounds like a simple job. Do you think you could successfully hold onto this job if all you had to do was follow the plan? I think I could …

I think this little mental preparation could help many traders who are not following their plan. Next time you make a decision, pretend your boss is looking over your shoulder and see what happens.