10 Ways to Build Trading Discipline

How's your trading performance since the markets went haywire in July? Have you turned healthy profits, or are you frustrated by a failure to capitalize on the most volatile environment in five years? I'll bet that most of you are intensely disappointed by your results over this period and at a loss to figure out how things got as bad as they did.

Simply stated, trading is a lot harder than it looks. You can study all the books, pay homage to all the market gurus, and still fail to profit when it's time to risk your own capital. Ironically, mastering the most advanced trading strategies is the easiest part of your job. Applying those skills in a stomach-wrenching tape is far more difficult.

The market knows where you live and how you think. It has a supernatural talent to hit you where it will hurt the most at the most inopportune times. So how do you overcome this overwhelming barrier, especially when most traders will eventually fail and wash out of the financial markets?

In reality, most traders crash and burn because of a lack of discipline rather than a lack of knowledge. Internalizing this single piece of wisdom will become your greatest obstacle in profiting from speculation. To paraphrase Thomas Edison's classic observation, successful trading requires 1% inspiration and 99% perspiration.

Turning reliable profits is also 1% prediction and 99% observation. We get caught in the game of guessing the future, rather than just managing what's right in front of our noses. In the words of psychedelic guru Richard Alpert, your only job is to "be here now," responding to the flow of the ticker tape. Everything else will take care of itself.

How do you master the management skills required to survive as a market speculator? Start by taking firm control of your pocketbook with these 10 ways to build market discipline.

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At the time of publication, Farley had no positions in the stocks mentioned, although holdings can change at any time.

Alan Farley is a professional trader and author of The Master Swing Trader. Farley also runs a Web site called HardRightEdge.com, an online resource for trading education, technical analysis and short-term investment strategies. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Farley appreciates your feedback; click here to send him an email. Also, click here to sign up for Farley's premium subscription product The Daily Swing Trade brought to you exclusively by TheStreet.com.

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