Day Trading Lesson: Roadmap Step 4
In my post Day Trading Lesson: The Roadmap I present to list of steps to learn to Day Trade. Here are the details of Step 4:
Understand the importance of Discipline and Trader Psychology
Self-Discipline means doing all the things that you need to do be a good Trader, even when you don't feel like doing them. As a Trader you will need greater self-discipline than as a employee. As an employee much of the discipline necessary to do your job comes from the outside, from your boss, company rules, etc. As a self-employed trader, all your discipline must come from within. Plus any lack of self-disipline is likely to be more serious for the trader than the employee, as the employee is usually just one part of a larger whole.
The thing to realize about self-discipline is that it can go a long way, but it can only go so far. That's why you really have to love trading, & be fascinated by the markets, in order to be successful. It's just very difficult to motivate yourself to do something day after day if you don't like it. So if you're thinking about trading just for the money, but it doesn't really turn you on, forget it now because you'll never be able to find the self-discipline necessary to be successful. This is probably true of any field, but trading is much less "forgiving" than most.
I suggest you read this Self-Discipline article by Steve Pavlina. It is not specific to Trading but definitely is worth while.
How will you develope expertise as a Trader? How will you find your specific trading niche? These are questions of Trader Psychology. To learn about this I suggest you read Enhancing Trader Performance by Brett Steenbarger. This is is best book I know of on the subject.
The other part of Trader Psychology you need to be aware of is the tendency of human beings to make irrational Trading decisions. This is not just a lack of education or experience, but there seems to be evidence the problem is actually be built into the human brain. Read a good explanation of this in Dr Dorn's "Your Rat Brain Is Out To Get You"
Kahneman and Tversky's paper on Prospect Theory won them a Nobel Prize in Economics. This is not what I would call light reading, but essentially they prove empirically that people act irrationally when faced with decisions involving Risk. If you think even casually about what Day Traders do, it's constantly making decision after decision on Risk. After all, placing a trade is just making a decision on risk, whether you think of it that way or not.
OK, so at least you want to trade as unemotionally as possible, right? Not necessarily. There's a lot of evidence emotions are necessary in good decision making. Blink by Malcolm Gladwell is a good book on the subject (not specific to trading).
The point of this post is to make you aware of the some of the issues regarding Discipline and Trader Psychology, and stress their importance. But even if you read everything is this post's links, you will just be scratching the surface of the understanding of these topics you'll need to be a successful Tuff Trader






Comments