This column was originally published on RealMoney on Dec. 13, 2007 at 12:16 p.m. EDT. It's being republished as a bonus for TheStreet.com readers. For more information about subscribing to RealMoney, please click here.

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.

  1. Honor your stops. Stops force you to think about the price where you screwed up and need to get out of the market. In truth, every position will go where it wants to go, despite your best hopes and wishes. And even perfect trade setups will fail regularly for no good reason. The bottom line: Traders aren't investors, so stop acting like one.
  2. Have a trading plan and follow it. What exactly are you trying to accomplish with the stock you sold short today? You're in extreme danger if you don't know the answer before you take the risk. So outline your strategy beforehand and then stick with it.
  3. Trade small, smaller and smallest. Leave big lots to the market professionals. Big risk blinds us to the big picture, because it becomes more important than the great pattern or setup we're using to make money. Taking smaller positions gives you greater control over the time element. The failure to control the time element is the single biggest reason why traders lose money.
  4. Match your trading to your lifestyle. Do you daytrade your investments, or invest in your daytrades? In either case, it's a surefire way to lose money. Do you look at 100 charts each night when you only have time for five or 10? Honestly, your performance will blossom if you can master a small list of good opportunities and stop worrying about a big basket of stocks that you don't have time to follow every day.
  5. Take a giant step back from the intraday markets. The flood of micro-data will fry your brain and shut down your intuition. You'll also forget how to make money. Dump Level II and most of the market "tells" you're staring at each day. Then refocus your attention on the bigger numbers and longer-term swings.
  6. Learn to hit singles before swinging for the fences. Forget your unrealistic profit goals and just concentrate on taking a few bucks out of the market each day. Want to know a secret? This one piece of advice builds discipline and profits faster than attending a dozen trading seminars .
  7. Practice your fire drill. Then practice it again until you can do it in your sleep. We all face the continuous threat of big losses. You'll need to act quickly and without hesitation when the cryptkeeper puts his icy hand onto your wallet. Prepare mentally by visualizing an emergency exit for each trade. Then head for it at the first sign of trouble.
  8. Turn off the financial news and get away from the chat rooms. Guess what. Your opinion is the only one that counts when you put your own capital at risk. The parade of talking heads and market gurus will make you question your strategy and discipline at exactly the wrong time.
  9. Read a good book or two. Start with The Disciplined Trader by Mark Douglas, and study it in detail. He'll explain why you never wanted to make money in the markets in the first place. Then you can finally start to turn things around.
  10. Fix the rest of your life. We smoke, drink and eat too much, but will want to trade like Warren Buffet when we jump in the market. Sadly, if you have no discipline in the rest of your life, you won't find it in the trading game. So work on your bad habits and get a good night's sleep. You'll be amazed how much it helps your bottom line.

This column was originally published on RealMoney . For more information about subscribing to RealMoney, please click here.

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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