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Discipline in trading – Technical discipline

This week we take a look at the second core component of trading discipline – the area I call technical discipline.

Trading and investing approaches vary but at the very least you need a process for choosing what stocks to buy and when to sell. Because you have accepted that “no-one knows with 100% certainty will happen next in the market” (see last week’s blog) trading becomes all about probabilities – where there is no certainty, there can only be probabilities. Whether you are a technical analyst or fundamental analyst you need to research and invest with a positive edge. You will then be required to accept the outcome from your strategy and maintain discipline to execute the strategy, regardless of individual outcomes. To do this we need mental discipline, as we discussed last week, and we also need technical discipline.

Technical discipline means that we will continually and consistently execute our trades in the markets according to the technical entry and exit rules we have developed or are using and have documented in our trading plan. Put simply this means that if the rules of the system say to do “C” after “A” has occurred, then this is what we MUST do each and every time. For those following the rules of a system they have devised or purchased this means executing each and every trade that the system signals (capital permitting) as a buy or a sell according to the internal rules of that system, without question or hesitation and without any emotional attachment or thought as to the outcome of the signal. In this way, there can be no agonizing over any decision – the buy and sell signals of the system are deployed according to the rules.

For those developing and using their own trading strategies and systems, technical discipline also means sticking to the rules you have developed for that system. Too often though many would-be system developers and traders ‘second guess’ or pre-empt their own trading rules jumping into trades before the actual BUY signal has been generated in an attempt to over-ride their own rules and get into the trade early (and vice versa)!

The result is more often than not a loss, as the ultimate trade entry trigger doesn’t occur and they are left with a losing trade that doesn’t officially meet their designated entry criteria. However, a worse mistake has occurred, they have been undisciplined as they did NOT “behave in accordance with their predefined rules of conduct.” Being undisciplined leads to enforcing ongoing behavior that is outside the realms of the rules of conduct. An even worse scenario is when breaking the rules leads to a profit trade because the trader will associate back to this event when their discipline is challenged again in the future and be tempted to be undisciplined again, even though it was just a sample of one profit trade. Being undisciplined ultimately leads to energizing dysfunctional beliefs because there will always be occasions when rule breaking is rewarded with a positive outcome.

These are costly mistakes that arise from not adhering to the rules of the trading system and not maintaining strong technical discipline despite having taken a huge amount of time and effort to develop a profitable trading strategy with an edge only to see it destroyed by a lack of discipline.

By now I trust that you are beginning to understand that discipline is not the destination or the end game, it is a technique that is to be used on the journey to the destination. The destination is to achieve consistency and objectivity. One cannot just become consistent and objective in an instant by deciding to be. It requires that the trader steps into a process of transition and discipline is one of the key techniques used to complete the transition process (‘desire’ is the key one but we’ll leave that for another day). Discipline, as the definition tells us, is “TRAINING to act in accordance with rules”, it is “drill”, it is “EXERCISE that develops or improves a skill.”Once the skill is obtained, then discipline is no longer required. Training is over. The skill will have become a part of who you are and hence will not require training, drill or exercises. The skill will be second nature to you. There will be no hesitation, fear, doubt or resistance. Executing the skill will become effortless without struggle, strain or pain.

I’m sure that readers will be able to identify with other skills that have been gained outside of trading like the skill of becoming a non-smoker or the skill or being a cyclist or a runner. Discipline is no longer required, you ‘just do it’ without any resistance – it is effortless to go for a run or not have a cigarette, in fact you look forward to it because it is who you are. Trading can become like this…..


  • Ray Hazelhurst says:

    I think that your last two paragraphs are great. That’s how it must be.Thanks for that.

  • paul wilson says:

    Yes –
    Discipline = Fill@ Entry/Method, AND courage of conviction to Exit at Target or Stop.

    Imo: Exit at Stop is more difficult of the two. You can see a Trade going against you – ‘Fear” kicks in and ‘gut feel’ says get out!

    How mant times have I exited a Trade a few points away from Stop only to see it reverse and reach Target.


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