The Risk of Trading: Mastering the Most Important Element in Financial Speculation

THE SUCCESS FORMULA AND DISCIPLINE

Discipline means that you have to overcome variables such as loss aversion, confirmation bias, and variance. You should embrace variance, which is a product of the markets, since at times of variance in your favor it will produce results that are well above expectations. You cannot remove this risk unless you choose another profession, so focus your development on the acceptance of such uncontrollable variables. Along with accepting it is the practical ability to manage variance risk appropriately within your precious bankroll. Taking a broader “enterprise” viewpoint using trading as a long-term business will help build discipline in regard to market variance or other quirks that the market dishes out. No trader should define success based on the last trade. A disciplined trader always looks at the big picture; the ability to detect edge and execute trades directly impacts the pace of his or her development as a trader.

So how should we define success? Is it winning trades? Is it perfect trade execution? Implementing a plan with precision and compliance? Perhaps a piece of each would suffice. When asked this question I often find the “winning trades” response to be the most popular. It logically makes sense. Winning trades equals profits that lead to living a life of obtaining the things that you expected when you set your trading plan goals. The risk-minded trader defines success a bit differently. Since we know and accept the reality that losing ...