Stock Trading Discipline And Patience
Are you struggling to make money with trading? I so, you’re probably making ONE major mistake. Right now we’ll talk about what this one mistake is and how you can fix it with trading discipline and patience.
If you want to succeed in trading, then you need three things.
You need, number one, a proven trading strategy. Number two, powerful tools, and number three, the right mindset.
I talk about trading strategy quite a lot in these articles and on my Youtube channel. If you’d like to know the trading strategies that I personally use in my trading, which is the PowerX Strategy and The Wheel Strategy I have playlists containing videos explaining them, and you can check them out by clicking those links.
Going back to these three elements, if you miss any of them, the chances that you’ll make money with trading are extremely low.
You see, when it comes to the right trading mindset you need to have two things. These two things are trading discipline and patience.
I know this is not that sexy, but trust me, if you are struggling to make money with trading, then you probably have a problem with discipline or with patience.
I looked up the dictionary definition for “discipline” and it says:
“DISCIPLINE is the practice of training people to obey rules or a code of behavior using punishment to correct disobedience.“
In this case, it’s not the practice of training people, it’s a practice of training YOU to obey rules because if not, the punishment will come from the markets.
This is where it goes back to having these three pillars of trading, and you definitely need to have a trading strategy.
The trading strategy is giving you the rules that you need to obey, and therefore, as I said, if you missed any of these three things you will struggle.
What Is A Trading Strategy?
What are the three things that a trading strategy needs to answer? Number one is, what do you trade? What stock do you trade, or what option do you trade?
This is where I’m using the tool, the PowerX Optimizer, that helps me to decide what stocks or options I should trade every single day. When I look at the PowerX Optimizer it gives me the scanner results, whether I’m trading The Wheel Strategy or I’m trading the PowerX Strategy, to know exactly what to trade.
Number two addresses the second thing you need to know, and that’s when to enter. When exactly do you buy a stock? When exactly do you buy an option? Or if you’re trading the Wheel, when exactly do you sell an option?
Then number three is, knowing when to exit the trades. When you exit the trade there are two ways, either exiting with a profit or, exiting with a loss.
This is the set of rules that the discipline is talking here about. You have to obey these rules, and it gets tricky to obey them if you don’t have a trading strategy.
The number one task of every single trader is, you must have a trading strategy and you need to write it down, and it doesn’t matter where. You can do it on your computer or on a piece of paper.
A trading strategy is really not that complicated. I have shared my trading strategy over and over and you know that it fits on one piece of paper. If you have the trading strategy written down, then you can actually follow your plan. This is what discipline is all about.
The Right Mindset of a Trader (Trading Discipline and Patience)
Now, I said that there are two things that you need when it comes to having the right mindset of a trader. One of the things is having trading discipline, and number two is having patience.
I want to share with you a story of an email that I received recently, but first, let’s take a look at the dictionary and let’s see what is the definition of “patience.”
This was really interesting when I looked it up to see that it is:
“The capacity to accept or tolerate delay, trouble or suffering without getting angry or upset.”
Well, I don’t know if this really helps us. So I also looked up the definition of “upset” and the definition is:
“Upset is a state of being unhappy, disappointed, or worried.”
Let’s face it, as traders, isn’t being unhappy a state that we are facing quite frequently? Being unhappy with our results, being unhappy with the markets, being unhappy with the way a trade is going, being disappointed with our trading results, being disappointed with how our trade has turned out, or worried when we are in a trade?
We worry about things like is this trade turning out good, or is this trade turning out bad? Will this be a profit? Will this be a loss? When will be the next trade? So this is why it’s really important that you have discipline and patience.
Recently I received an e-mail from a customer who has been using the PowerX Optimizer for a while. This customer said:
“I’m very unhappy with my results. I’m actually very disappointed with my results.”
Being upset, right? So upset sounds sort of “Argh I’m angry,” but no, it’s just the state of being unhappy, disappointed, or worried. This trader shared some results with me and said:
“Hey, I entered all of these five trades. I entered them on the same day and all five trades turned out to be a losing trade.”
What To Look For In A Stock
I’ll show you an example of what I saw come up on my PowerX Optimizer scanner. Four symbols come up on the scanner, BBBY, GUSH, MVIS, and RAD.
You also know that I have my rules. That’s what I just talked about, right? Do you have a trading strategy, a proven trading strategy?
My proven trading strategy when I am getting these stocks is that I’m looking for the following four things.
Number one, I want to see that I have a smooth P&L Graph. I want to look at the P&L chart and I want to make sure that this is nicely going up.
Number two, I want to look at the trendability of a stock.
Number three, I want to look at the gappiness and I want to make sure that there are no gaps.
And number four, I also want to make sure that I’m using the five-dollar rule, which means it has to trade above $5, and over the lookback period it should have traded above $5 also.
Looking here at BBBY, if we take a look at what has been happening over the past two years we see that the P&L graph has plateaued several times. This is not really the smooth P&L curve that we are looking for.
Let me just show you in comparison a few trades that I am in right now. One of them being FUV.
When we look at FUV, we see that it has a pretty nice P&L chart that is going from the lower left to the upper right.
Here’s another example, MUR. MUR is a trade that I’m in right now and as you can see here, it has a very nice P&L chart going from the lower left to the upper right. This is where I am following my rules.
This is where the software lets me say it’s a yes, no, or a maybe, whether I want to trade it or not, and with BBBY I said clearly, no, I do not want to trade this.
The next stock that came up was GUSH. Here you see even if I liked what I saw with the P&L chart, the trendability plummeted all the way down and has been hovering around there ever since. This is not nice in terms of trendability.
This is why I have these four criteria, and these four criteria are part of my trading strategy.
When we go back to the trading strategy, I told you the three things that a trading strategy needs to answer are, number one, what stock do I want to trade? Number two, when do I want to enter? Number three, when do I want to exit?
And here we are at the question of “do I want to trade this stock or not?”
Let’s take a look at the next one, MVIS. MVIS is looking a little bit better. The P&L chart is not too bad. Recently it has been rather flat.
You can see where the $5 level is, and if you look back then you see that for most of the time over the past two years, MVIS has been trading below $5, which is one of the criteria that I have where I say if it doesn’t, it’s no, right? So super easy, super simple for me.
Let’s just quickly look at the last one, RAD, Rite Aid. We also see here, this is not going anywhere, then jumping up, then going sideways. Now, compare this to FUV or MUR, you see what is good and what is not good.
Every morning I sit down in front of my computer, bright-eyed and bushy-tailed, ready to attack the markets. But you see, it doesn’t matter whether I’m ready, are the markets ready for me?
So what does it mean when there isn’t anything to trade that fits my criteria? It means that I need to sit on my hands.
Let’s go back to what the core problem here really is, which is needing to be in the right mindset where you need to have the discipline to follow your rules.
I could now say, “You know what? MVIS, it’s not too bad,” and I start bending my rules. This is where it goes back to having the discipline to actually obey the rules that you have set for yourself.
That’s a beautiful thing, right? I mean, the definition of discipline sounds, first of all, so, so weird, right? It’s a practice of training people to obey rules or a code of behavior using punishment to correct disobedience.
But the idea here is you have to set your own rules and train yourself to follow your plan, because when you don’t, it’ll be challenging right?
How To Improve Your Discipline
I want to give you four tips on how to get better with your discipline and also with your patience.
One of the things that I had at the beginning of my trading career is that I had this little voice in my head that says “If you don’t trade, you don’t make any money.” Then I realized, well, if you DON’T trade, you’re also not LOSING any money.
Number one, doing nothing is an action. Going through the trades and actively deciding not to trade is good. Always keep this in mind. Sitting on your hands, not trading is a good position.
Number two of how you can get better with your trading discipline and patience is, journal how you feel. Honestly, I could get better at this. Every now and then I start journaling for a few days, sometimes a few weeks, and then I stop doing this.
Journaling is recording your trades and also how you feel about this. I mean, this is where we go back to the state of being upset. Are you unhappy or disappointed? Are you worried?
If so, you probably need more patience because the definition of patience is to accept or tolerate delay, trouble, or suffering without getting angry or upset. The first thing to do is to recognize that you might be upset or angry.
Number three, having checklists, having a trading plan, knowing when to trade and when not to. I have a very clear checklist that I’m going through every morning where I say, OK, here’s number one, I’m running the scanner. Number two, I’m looking at the stocks according to four criteria that I just gave you to see if this makes sense to me. Like a pilot, you’re going through a checklist.
And then number four is that you review what works and what doesn’t. Based on this you’re adjusting your training plan, but you can’t adjust your trading plan or trading strategy if you don’t have one in the first place.
In a nutshell, the biggest mistake I see traders are making is that they might have a trading strategy, or they might not.
You’ve got to have a trading strategy and you need to have powerful tools that are supporting this.
You also need to have the right mindset. The right mindset means that you have trading discipline and patience.
And now you know the four things that you can do to have more trading discipline and more trading patience.