Strategies to Radically Improve Your Trading Discipline

To improve trading discipline, you must first define proven trading rules to follow. Disciplined traders abide by their trading plan with every decision and work on their mental strength. Learning how to focus and eliminate distractions is a start.

The world’s richest investor, Warren Buffett, is the only person who became a billionaire from his investments but never seemed to socialize much.

He had been spending 5-6 hours a day reading magazines, biographies and SEC filings for 70 years straight. He never liked meetings and used a computer only to play Bridge. Bill Gates, on the other hand, grew up and built an empire around computers.

Why did they suddenly hang out so often?

Here are two of the wealthiest individuals who apparently became close friends. There must have been something Buffett saw in Gates that deeply resonated with him.

Warren Buffett and Bill Gates
Warren Buffett and Bill Gates (photo courtesy of Borsheims)

I stumbled upon the HBO documentary Becoming Warren Buffett. It’s an excellent biography of him which I highly recommend watching. In it, there’s a scene where he talks about their first encounter:

“Shortly after I met Bill Gates, Bill’s dad asked each of us to write down on a piece of paper one word that would describe what had helped us the most. Bill and I, without any collaboration at all, each wrote the word ‘focus’.”

Focus must have been their driving force. The kernel for their successes. Several years ago, I wasn’t yet a full-time trader. I had difficulties being disciplined and focusing on my trading rules. I figured that this could also help me succeed. But how exactly?

I wanted to build the most elegant trend following system that trades in line with underlying market forces. Something that can catch trends accurately into eternity and not lose its edge in the next quarter.

The rough edges of a trading system were in place but it wasn’t yet able to handle the broad spectrum of trading situations. For example if I was stopped out of a trade, I didn’t have a rule where to re-enter a trend. A contradicting indicator, a sudden move against my position, or someone screaming ‘overbought’ on Twitter could also sway me out of a trade. It required my utmost attention to perfect the system further and commit to trading rules that I can trust.

Everything started to change as soon as I retreated from these influences.

Remove Distractions Through Elimination

I started to eliminate distracting parts from my trading day. Firstly, I stopped listening to ‘experts’ on social media. Secondly, I removed all indicators. I wanted to purely focus on price action.

In the course of a few weeks I became more confident as a trader. I didn’t have to rely on outside influences to make trading decisions because they now had to come from within.

I could finally follow my own trading plan and trust my experience. My former mentor’s words would literally sound in my ears while I watched price action in real-time. That’s why I highly recommend that you also find an experienced trading mentor for yourself.

Trading discipline is often achieved not by adding but by removing things. Elimination helps you to focus. I can’t emphasize that enough.

How I Improved Trading Discipline

Removing distractions is just one of many steps to help you focus. My trend following system evolved over the next several years as I removed components, added new ones, then removed others again. It’s still evolving as we speak but it reached a pretty stable stage that funds a comfortable lifestyle today. I’m very proud of this achievement.

If you just want to subscribe to its trading signals without having to learn everything yourself, it’s available here.

Overall, the following milestones were probably the largest contributors to my trading discipline and helping me become a full-time trader:

  1. Pick one market and trade it well: This is what I learned from my mentor. He traded 3 contracts of the E-mini Dow (YM) and nothing else. I realized that focusing on one market has many advantages. You shave off hours of your trading day going through a market screener and hunting for setups. Traders also tend to specialize on one instrument which is why different markets have noticeably different personalities. I experimented with the ES for a while, but am now fully specialized in the NQ. That’s my girl. It also suits me well as a tech-savvy person.
  2. Focus on price action: I learned how to read price action by watching prices move in real-time. Just the price, without a single indicator. I recommend to look at the hourly and daily time frames in the beginning. You won’t understand much in the beginning but if you watch the price move and the speed at which it moves, you will enrich your repository of experiences that you can fall back on down the road.
  3. Experiment with multiple time frames: The hourly and daily time frames are excellent to trade with, especially for long-term trends. The daily offers general orientation while the hourly gives you precise entries and exits. As I gained screen time, I started to watch price action in more time frames. Here again: Without indicators. Try to stick to full time units such as the monthly, weekly, daily and hourly. Whatever shapes up there has more weight because other market participants are also seeing the same thing. Other time frames are arbitrary and should be avoided unless you know what you’re doing.
  4. Remove leverage that you can’t handle: An old saying in the stock market is to “sell down to the sleeping point”. It’s true. I couldn’t trade futures contracts with a $2,000 account. Trade only as big as you can handle emotionally because trading discipline dissipates if you’re trading too large. I’d start with a notional value that’s not significantly more than 100% of your trading account’s net asset value. Don’t be greedy.
  5. Add only indicators that work: This is a high bar. You don’t want to add indicators that merely confirm price action, or that work sometimes. The RSI or the MACD are such indicators that lag behind price action. I think you should kick them out of your charts once and for all. The only reliable indicator for me is the 200 EMA in multiple time frames.

Conclusion

We each have our own strengths and weaknesses and you will figure out your own trading style eventually. The above steps worked great for me and, based on my mentor, I can say that other professional traders work the same way.

Approaching the market with your own conviction is the winner’s mindset you want. First focus on price action, ignore outside influences, and you’ll soon have noticeable improvements in your trading discipline.

If you’re looking for a trend following trading mentor, I can help. Reach out at matt@trendarchitect.com. First start with 3 trend following strategies that I happily share with you and you decide if you’d like to proceed.

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About Matt Hagemann

Matt Hagemann

10+ years trend following experience. I help futures traders make consistent profits without stress and without day-trading.