Improve Your Trading? Time to Go Mental

If you’re looking to improve your trading, there is one area–above all–that you’ll need to address; it’s the mental-game. If you’ve said to yourself “I’m not going to each pizza for a whole month,” or “I’m going to work out three times a week at the gym” and then couldn’t follow through, your mental-game needs work. Whether it’s trading, sticking to a diet or getting to the gym, discipline is required. Discipline is a key factor in developing a solid mental-game. Luckily, working on your mental game can be combined with finding or developing a trading plan that suits your personality, is easy implement and ultimately produces a profit. Here is how to develop discipline and your mental game, while at the same creating a plan for your trading.

Look Inside, Not Outside

The world is full of strategies and ways to trade, yet despite this plethora of information the average trader continues to be frustrated. You choose to be average, or you can separate yourself by utilizing discipline. In order to develop discipline, we first need to admit to ourselves we have some flaws. We must stop blaming the outside world, and take full accountability for our trading success. The markets owe us nothing, therefore we must take the time develop ourselves and our tactics in order to win. If you were to go into battle do you expect your enemy to lie down and let you take their resources? No, you must hone your skills and execute a plan perfectly in order to take the field. Anyone can read a book on strategy; it is the person who works diligently on being able to implement it, who actually does the work the strategy requires, that gets the glory.  Don’t blame the market, surprise news, volatility, a book, or your online binaries broker for your losses or frustrations. Admit to yourself that you have the power to change the circumstance you’re in, by changing how you operate in regards to your trading. This can be done by learning or creating a new strategy, switching brokers, getting out of losses sooner, establishing a more consistent exit technique, or other actions which put control back in your own hands.

Create a Plan

Once we start to take accountability for actions, a game-plan is needed. In order to be disciplined we need a specific set of rules that must be followed. Writing down a plan outlining exactly how you’ll trade takes time and it takes discipline. It is not glamorous, and it can be tedious, which is why most traders who fail never bothered to do it.

Your trading plan should include three major sections: Entries, Exits and Money Management. The Entries section covers how you will enter trades and for what reasons. The Exits section covers how you will cut losses, or take profits. This section might include the use of trailing stops, stop losses or exiting an option contract early, depending on which market you trade.  Money Management covers how much of your account you can risk a single trade—my rule of thumb is that I never lose than 1% of my trading-account balance on a single trade. Most traders risk much more than that, and results usually aren’t favorable. Your position size will also need to be covered in this section.

Table 1. Trading Plan Sections with Ideas on What to Include



Money Management

-What markets you’ll trade.-Time frame you’ll trade.-How you’ll get in.


-The exact entry signal.

-How you’ll exit with a profit.-How you’ll exit with a loss.-Will you use trailing stops?

-Where are stop loss orders placed?

-Will you use profit targets?

-Maximum risk per trade.-Maximum and minimum position size.-Do different strategies have different risk or position size requirements?

-Can you simultaneously trade highly correlated markets (increasing risk)?

This simple three section plan must cover exactly how you enter, exit and manage your positions. No trade is made unless the signal for it is written down in your plan under Entries. And you don’t exit the trade until one of the rules in your plan tells you to do so. Your position and risk is managed exactly as the plan outlines. Completing a thorough trading plan can take a day, weeks or even months as you trial and error your entries and exits and fine-tune your risk management skills. During this process I recommend you use a demo account and not a live trading account. Simply going through this process will create discipline, and prepare for you actually making trades and sticking to your plan in real-time.

Don’t Rationalize

You’re plan is written down and you’re ready to start making trades. Initially things may go well—you’re sticking to the plan. Then one day, maybe because you’re bored, you take a trade for which you don’t have a strategy. You rationalize it by saying “I should have a plan for this trade, so I will take the trade now and include the rule in my plan later.” Or, “I will just do this (gamble!) once to make a bit of money then I won’t do it again.” Wrong approach; if something should be in the plan, include it first, then take the trade. And if you are capable of “cheating” on your plan once, you will do it again. Just don’t do it, ever. By making such rationalizations failure is almost inevitable over the long-term. This is because you are choosing to make decisions based on random emotional impulses instead a structured and well-thought-out trading plan. Acting on impulse decreases your odds of winning dramatically in a game in which the odds may, at-best, only slightly be in your favor.

Commit To Perfection

None of us are perfect, but we can get close to perfection in certain endeavours that are under our personal control. I can’t win every trade because that is out of my control. But what I can do is attempt to be perfect in executing my plan. Every day before I start trading I commit to follow my plan—win or lose. If in a moment of weakness I open a trade I wasn’t supposed to, I close it immediately regardless of the cost, loss or commissions. Don’t waver, ever, from your plan. If your plan needs revision (adding to it or deleting something) make the revision first, research your changes, do your due-diligence, then make your trades. Choose to be perfect in this area of your life. It doesn’t mean you will win all the time, it simply means you follow your plan–to the letter–all the time.

Final Word

Discipline isn’t something you can practice outside of being disciplined. To practice discipline you must simply be disciplined, and it doesn’t easier unfortunately. There are always temptations which will attempt to get you to deviate from your plan. Therefore, commit right now to devise a strategy and plan for yourself. Then stick to it. No trader wins all the time, so don’t strive to make a plan that is perfect, instead, simply strive to execute your plan perfectly.