When Discipline Works--And When It Doesn't

Trader A has a preferred trading style.  It might be a momentum style; it might be a directional style.  It's a style that fits Trader A's personality and that has made money in the past, so Trader A sticks to that style.  In sticking to what fits his or her personality, Trader A demonstrates discipline.

Trader B has preferred trading "setups".  These are patterns in the market that make the most sense to Trader B.  Those patterns might be breakout patterns; they might be patterns of mean reversion.  Trader B has seen these patterns work out, so Trader B sticks to trading those setups.  In sticking to what fits his or her understanding of the market, Trader B demonstrates discipline.

Trader C studies the kind of market we're currently experiencing.  Trader C has used some basic dimension reduction methods to boil markets down into a few categories, such as price change and volatility.  Once Trader C figures out the kind of market we're in, Trader C studies the edges present in that type of market.  In trading only the edges present in the current market, Trader C demonstrates discipline.

Three traders, three forms of discipline.

Two of those traders are losing money.

Are you trading what you subjectively prefer, or are you trading what is objectively present in the market?

I submit that the answer to that question accounts for much of the success and failure we're currently seeing among traders and trading firms.

Further Reading:  When Technical Analysis Works and Doesn't Work

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