There’s a saying among football coaches and wartime generals that theory is one thing and execution is another.
That’s been especially true of the the stock market this year as it’s been buffeted by inflation, rising interest rates, and Putin’s invasion of Ukraine.
In such circumstances, it’s reasonable to expect missteps in execution, according to Real Money Columnist James ‘Rev Shark’ Deporre.
“Let’s face it, you’re going to be undisciplined and break your trading rules quite often, but the problem is you won’t admit it,” Deporre wrote recently on Real Money. “You’ll likely look for justifications for why you did what you did. You may blame other people for the issue or just bury your head in the sand and ignore it.”
According to Rev Shark, rigorous discipline is extremely hard, but if it’s applied consistently over a very long period of time, then positive results are far more likely.
So how can traders stay disciplined? Deporre offers four tips for nervous traders these days:
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1. Have very clear rules.
“Your rules need not be highly detailed,” Rev Shark said. “They can be general principles such as not letting drawdowns exceed a certain level or not buying stocks at lows, but you have to have some clear principles to guide your trading, and it is important to make them precise.”
2. Review those rules regularly and pound them into your thinking.
“Your rules should become part of your methodology to such a degree that you apply them automatically without much thought,” he noted.
3. When you break a rule or are undisciplined, then acknowledge that fact as quickly as possible.
Review your trading on a daily basis and ask yourself if you are staying disciplined. “The easiest and most costly mistake that traders make is to simply ignore a stock that is not acting right because we are too lazy to discipline ourselves,” Deporre said. “We often feel that it’s too late to take action and that allows inertia to set in.”
4. Start fresh.
You have the ability to start fresh at any time. “Forget what happened in the past and focus on the correct discipline going forward,” he advised.
Traders are always looking for new trading approaches and ideas.
“That’s an exciting part of trading, but staying disciplined and following our own rules is what will determine the ultimate results more than anything else,” Deporre wrote.