Reasons Why Traders Lose Discipline

Investing is not a game where the guy with the 160 IQ beats the guy with the 130 IQ… Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing.”
Warren Buffett

There follows a list of times and events where traders are prone to losing their discipline. I have broken them down into five core headings; strategy, mental, emotional/psychological, situational and personality.


• Not having a clearly defined strategy with an edge is the first typical problem here. Having this is a pre-requisite to successful, consistent, disciplined trading. Without one it is actually impossible to see if you are being disciplined or not, as there is no accountability as to whether you followed your plan and stuck to your strategy – not having had one in the first place! Without having clearly defined trading opportunities, you are trading in a more random and haphazard fashion, which will quickly lead, if not there already, to dangerous ill-discipline. Trading a time frame, style or market that does not match your talents, skills, risk tolerance, personality or interests is another problem. If you are trading in a way that is not best suited to you, and particularly if this is a long way off-course, then cracks will appear and elements of ill-discipline will occur. This isn’t a problem with yourself as a trader, but arises simply because you and your strategy are out of line. For example, someone who is trading a short time frame, but who is a much more analytical and slower thinker and decision-maker, may find that they have challenges in taking trades with sufficient speed. To make matters worse, they then get frustrated that they missed out, and end up getting in too late and chasing the trade.

• Loss of confidence in trading strategy; lack of understanding of probability and statistics. Sometimes you will get a run of losing trades for no other reason than the fact that you are trading in an environment that contains randomness (the market) and you will not know the distribution of the outcomes of your strategy. Losing streaks are not uncommon or unnatural. If you toss a coin one hundred times you will get at least four strings of either four heads or tails in a row, and potentially you can get five, six or more in a row. When you understand this, coping with a string of losses is easier; and the temptation to try and recklessly recover them is lessened.


• Environmental/external distractions and quiet times in markets – or just plain boredom – is the first mental issue. One of the biggest revelations that many new traders experience is that trading is not a 100% full-on, adrenaline-fuelled rollercoaster! There are often long periods where not much is happening, and the markets are quiet. The danger here is that you get bored and trade just to do something, and not because a trading opportunity as defined by your strategy has arisen. Ask yourself – are you trading to relieve boredom or to make money? Find other tasks to do while the markets are quiet – reading, research, strategy development and so on.

• Fatigue and mental overload lead to poor concentration. As well as being quiet, trading can equally have very long hours and the intensity levels can be exceptionally high. Traders after a long day in the markets can feel mentally and physically tired. As you begin to tire, your risk of error is greatly increased (hence the tight working hour controls placed on people in safety critical environments) and your performance levels will decline. Firstly, ensure that you are managing your physical energy to counter this decline. And secondly, monitor your energy levels throughout the day so that you can be aware and respond accordingly should they go beyond your desired level for good performance.


• Anger and frustration following losses/poor trading can be dangerous. The changes that occur to your physiology and psychology when you are angry and frustrated affect your ability to make objective and reasoned decisions. You are greatly at risk of trading emotionally and not objectively. Take time out and wait until you are in a good trading state before re-entering the markets.

•  Overconfidence resulting from a string of successes is the flipside risk. Overconfidence is a dangerous feeling – it will get you involved in the markets and with bigger positions than might be appropriate! Create awareness of when overconfidence might occur for you; and, where necessary, stop trading, or consciously manage your positions.

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