Why Traders Lose Discipline trading stocks,forex and commodity

Nifty has been trading in a tight range from whole of December onwards. It moves for 3-4 days than keep trading in a tight range.Trending markets are very easy to make money provided you are on right side of trend,difficulty comes in sideways market. Traders buy in anticipation of a trend and when market does not move as expected stop losses gets triggered frequently which leads to losses.  So when traders looses money, it attributed to lapse in discipline.  So now most of us know discipline is key to our trading success but still why we loose it ? Its a million dollar question lets try to investigate the reasons which are responsible for this.

Traders loose discipline is trading are for the same reason why a person on diet lose discipline and go on a hogging spree in a while or a person who smokes is fully aware it will cause damage to the body but still cannot resist himself . As a Human being we are hard wired to pursue short term pleasure avoid short term discomfort all these at expense of long term reward.

 

 

 

Here are some common reasons why traders (and most other human beings!) lose their discipline:

 

 

• Boredom causes lack of focus: A small mistake can be financial fatal, Traders in Forex,Stocks and commodity specially intraday traders must be on high alert most of time because 80% of move in financial instuments are made in 20% of time. Eg. Look at HPCL/BPCL moves today. BPCL moved from 382 to 404 in matter of 30 minutes and was consolidating the whole day. If you miss that 30 minutes due to boredom you will loose major profits. So you need to stay focused till in front of screen.

 

• Fatigue and mental overload create a loss of concentration – The demands of watching the screen hour after hour make it difficult to be sharp, creating fatigue effects that are well-known to pilots, car drivers, and soldiers.

 

• Overconfidence after making major profits – As a trader you will attribute your success to skills and trading system and during failure blame will go to external factors like market is manipulated, market is always against me etc.  As a result, a string of even random wins can lead traders to become overconfident and veer from trading plans–especially by trading too frequently and/or trading excessive size

 

• Unwillingness to accept losses – This leads traders to alter their trade plans after trades have gone into the red, turning what were meant to be short-term trades into longer-term holds and transforming trades with small size into large trades by adding to losers;

 

• Loss of confidence in one’s trading plan/strategy because it has not been adequately tested and battle-tested– It is difficult to tolerate even normal drawdowns unless you have confidence in your methods.  This confidence does not come from mere positive self-talk.  Rather, it is a function of testing your methods (historically and in real-time) and seeing in your own experience that they truly work

 

• Personality traits that lead to impulsivity and low frustration tolerance in stressful situations – Psychological research suggests that some individuals are more impulsive than others and less conscientious about adhering to plans and intentions.  These personality traits often are accompanied by stimulation-seeking and a high degree of risk tolerance: a deadly combination.

 

• Situational performance pressures – These include trading slumps and increased personal expenses that change how traders trade and lead them to place P/L ahead of making good trades.  By worrying too much about how much money they make, traders can no longer follow markets with a clear head;