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Self-Discipline Vs. Self-Sabotage

04/21/05 01:42:04 PM PST
by Roberto Chahin

The rush of trading could send us into a frenzy of fear or greed, clouding our judgment and even ruining what could have been a good trade. Only self-discipline can keep us on track.

When you start down the path of trading the financial markets for a living, you are introduced to many phrases that are considered to be sacred truths. These phrases include:

·"Buy low, sell high"
·"Cut your losses short and let your winners run"
·"Plan your trades and trade your plan"
·"Don't try to pick tops or bottoms"

...and so on. All these are quite true and should be the mantra of every serious trader. But they are useless if you do not actually use them. Many traders know them by heart but fail to apply them because they lack self-discipline.

It is easy to lose sight of these truisms in the fast-moving markets that flash before us on our workstations. Sometimes the amount of information can become overwhelming. Our adrenaline level rises once we have pulled the trigger and we have put our money where our mouth is. This fight-or-flight instinct can make us go into a state of fear or greed that could cloud our judgment and turn a good entry with profit potential into a losing trade. Only self-discipline can keep us focused.


Discipline is a systematic effort to obtain obedience and submission to rules and authority. In a military setting, it sets methodologies for acting and reporting within a hierarchical chain of command. In an educational setting, discipline could be defined as the submission of the student to the teacher's instructions. These two examples have one thing in common: accountability to someone above us. The lieutenant has to report to her captain, the same way the student must comply with his teacher's request for homework. The power of discipline lies in the need to keep our superiors happy because of the rewards and punishments they hold over us.

But what happens when we substitute the authority figure with ourselves? The temptation to procrastinate creeps in. Since there is no other person to whom we are responsible, we tend to forgive ourselves for small deviations from the established procedures. It may be no big deal to cut a corner here or there since the only person we need to keep happy is ourselves. Instant gratification becomes a real option.

There is always in our heads a little voice that wants to have it all and have it now. It wants to tempt us into having an extra slice of pizza, or that extra drink during happy hour. It is this alter ego that triggers the emotions that can sabotage an otherwise profitable trading strategy. It can drive fear into us as our position rushes to its stop-loss. And it is this same little voice that makes us feel invincible when our trades have given us extraordinary profits. If we allow this side of ourselves to take charge, it will guide us into the ground by exiting our positions either too early or too late.


Self-discipline forces us to become our own authority figure. We must give priority to the long-term goals over the instant gratification impulse. Otherwise, it will fight us all the way by throwing emotions into the mix. It will use powerful obstacles to get us to deviate from trading our plan. In short, it uses our emotions to sabotage our trading so we can go back to being spectators instead of players. These emotions include fear and pessimism on one side and greed and hubris on the other.

Fear is the feeling of apprehension in the face of danger, real or imagined. Our alter ego will use it to remind us that we have our money on the line and if we lose it, we will be destitute and live in a cardboard box. It will try to tell us that if our losing streak continues, it will prove all the bad things our worst detractors ever said in conversations we never heard. It will try to convince us that unless we cancel our trading account and squirrel the money away in an old mayonnaise jar and bury it in the back yard, we will never be able to live a comfortable life.

Pessimism is our tendency of thinking that any series of events will happen in the way that will bring us harm. That little voice in our head loves to view things in the most pessimistic way because it justifies idleness, defeat, and failure. "Why start trading if you can only lose?" "Why risk your hard-earned money when the exchanges are fixed by a cabal of institutional traders?" "It's all a setup to fleece the small trader!"

Greed, on the other hand, is the excessive desire to acquire more of something: in this case, profit. Our alter ego will remind us of Gordon Gekko's "Greed is good" speech from the Oliver Stone film Wall Street. It will stimulate our excitement and make us want that extra 1/64th of a point. It will uncover a flaw in our trading plan when an exit signal starts flashing, making us think that if we ignore the signal, we can add a few more cents to our account. It will convince us that if we take our stop-loss now, we will miss the correction.

Hubris is the extreme level of arrogance and pride. The voice in our head will try to parlay some winning streak into a god-like self-perception. It will tell us that we don't need a plan to be the Masters of the Universe. After all, didn't we just make a 1% return over assets in three trades? It will convince us that plans are for wimps. Keeping orderly records of each trade was good enough for the first few months of trading, but now we're playing in the big leagues. After that last winning streak, our ego will say, "Let them eat cake!"


It could be easy to say that in order to avoid this self-sabotage, we must become ascetics and starve our alter ego. This would be a mistake because our ego is also responsible for our creativity and enjoyment. That child-like desire it has for idleness is the reason we enjoy our weekends by the pool or in the mountains and the reason we feel joy when executing a winning trade. We must not kill it for the sake of profit, but instead balance it out. Here are a few tricks to do so:

Planning our trades and actually writing them out in an orderly fashion can help make them easier to execute with discipline. If it's written out and in front of us every trading day, we do not have to remember it by heart. That would be one less thing for our alter ego to complain about and takes the "I can't remember" excuse away.

These can be self-adhesive cheat sheets of what each indicator means or that remind us about our weaknesses. For example, if we have a tendency to ignore our stops, a simple note with the words "Execute all stops without exception!" taped to our monitor will encourage us to do just that. It might be just the extra push to keep the voice in our head quiet.

Rituals or routines are important for us to maintain our concentration. If we trade strictly from our plan in a ritualistic way, any deviation will become uncomfortable or "unlucky." We may need some kind of ritual to keep either our pessimism or our hubris in check. This could be anything from physical exercise to some religious act. It could counteract any influence from our alter ego by refocusing our attention on the task at hand.

Since a part of our mind is telling us to be less disciplined, why not respond and tell ourselves that this uncomfortable discipline is good for us? We can try to reason with ourselves and try to have one part of our mind convince the other of the virtues of self discipline and the profits it could bring in the long run. Or we can just drown out the voice with our own positive script: "I will trade my plan!"

Just like with a child, the prospects of a reward can bring instant compliance; we can trick our alter ego into behaving by offering rewards. We could write out a list of things our alter ego enjoys, such as a 21-year-old Scotch whiskey for happy hour, an expensive dinner, or a massage. If we are successful in trading according to our plan, then we can indulge in any one thing on our list. Of course, if we do not follow the plan, then we cannot partake of anything on the goodies list.


It does not matter what trading system we use; if we allow a part of ourselves to fall victim to sabotage, we will fail. Even if we use a highly sophisticated econometric model derived by using an expensive artificial intelligence package with neural networks and genetic algorithms as our trading system but we don't follow its signals, someone with discipline using a moving average crossover technique will beat our performance. All of us have an inner conflict between long-term satisfaction and instant gratification. It is possible to balance these out if we acknowledge their existence and importance and play them against each other.

Roberto Chahin is a business and personal financial advisor who is now a full-time trader based in Tegucigalpa, Honduras. He may be reached at


Bryant, Theodore [1999]. Self-Discipline In 10 Days: How To Go From Thinking To Doing, HUB Publishing.
Chahin, Roberto [2004]. "Breakeven Analysis For Daytrading," Technical Analysis of Stocks & Commodities, Volume 22: October.
Douglas, Mark [2000]. Trading In The Zone: Master The Market With Confidence, Discipline And A Winning Attitude, New York Institute of Finance.
Tharp, Van K., and Brian June [2001]. Financial Freedom Through Electronic Daytrading, McGraw Hill.

Current and past articles from Working Money, The Investors' Magazine, can be found at

Roberto Chahin

E-mail address:

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