What does discipline have to do with trading? Simply stated by traders such as Larry Pesavento, trading is all about managing risks. Only a person who takes risks can be free. The key is to take risks when they are man¬ageable; not when the risk can lead to catastrophic consequences.
Larry Pesavento and other traders will tell you that being disciplined in your trading can make these risks manageable and exciting and in the process give you the ultimate gift – freedom! Freedom from worrying about your trading because you are now disciplined to think in terms of probabilities and risk control. Making discipline a daily habit allows you "to weave a habit of a strand a day of discipline until this cable of discipline is almost unbelievable."
Discipline in trading presents itself in several parts: First, there is the preparation. Trading is simple but it ain’t easy, to quote an old market axiom. Traders like Larry Pesavento put in many hours of preparation occur long before any trade is entered.
Here are the steps of preparation:
Discipline is also necessary on the execution side of trading. Traders like Larry Pesavento and others know that risk control is the most critical element of the trading process. Never forget how a devastating loss destroys your "psyche". It damages the trader’s soul.
Monitoring a profitable trade in progress also requires discipline – you must follow the trading plan. Don’t be concerned about the little fluctuations if your goal is higher. Pesavento and other traders ask themselves these questions: Has the market changed since I placed the trade? Can I afford the risk on this trade? If the answer to both of these questions is yes, then you must stay in the trade.
These brief examples highlight the important role of discipline in the life of a trader. It is truly essential in helping traders like Larry Pesavento to prepare, execute and manage their positions.