Why Discipline Beats Luck in the Long Run When it Comes to Trading and Investing

Luck, or rather, relying on chance to see successful outcomes, can sometimes harvest positive results. These results, although pleasant, are often achieved with little to no work or commitment on the part of the individual and may not be repeatable. Here lies the biggest issue with luck in trading and investing. 

When a person succeeds in something due to luck, it is easy to take it for granted. For example, If luck provided us with a big win or enabled us to make a mass profit, we’re likely to get carried away by the thrill of it, and sooner or later, everything luck got us will be gone.

Discipline, however, does not work like this. Traders and investors who are disciplined, who keep showing up, building their wealth brick at a time, are not only going to have a deeper appreciation for the assets they’ve earned, but are likely to build up even more affluence than those who solely relied on luck.

In this article, we’ll examine how a disciplined mindset within the trading and investing world will always win out over luck.

How Far Luck Can Get You

Luck does have its place and its purposes, and certain areas where it can thrive, but trading and investing is very rarely one of them. If you want to interact with luck, you’re better off turning your attention to the online casino world.

Playing in online casinos is an excellent way to make use of luck in a way that can secure you money. Those who prioritize instant withdrawals, impressive bonuses, low transaction fees, and strong return-to-player scores are still able to tilt the gaming experience in their favor, but luck still reigns supreme in this setting.

This article is not to say luck is a negative thing, and as demonstrated, it can thrive in certain settings like the online casino, but it should not be the most used tool when it comes to trading and investing.

What Exactly is Discipline When it Comes to Trading?

Discipline regarding trading refers to an approach in investment and trading that is determined by rules which were defined at a previous date and not influenced by human emotions. Individuals who demonstrate a good level of discipline in trading will regularly plan strategically and execute trades with consistency, irrespective of what the market looks like or where their emotions lie.

Those who practice good trading discipline are likely to:

• Set clear points for entry and exit.
• Follow a documented trading plan.
• Maintain trading records with a high amount of detail and consult them regularly.
• Adhere to guidelines regarding  position sizing.

How Discipline in Trading Aids the Investor

Displaying a strong level of discipline in trading is an excellent way to increase your chances of success when it comes to investing and trading. 

For one, trading discipline is a highly effective tool for risk management. It can help the individual to establish tools for protection by using stop loss orders and position sizing rules. With these parameters, investors can reduce the amount of potential losses they might experience on each  individual trade.

Additionally, approaching trading with effective discipline can actually help to regulate the extreme emotions many traders feel while engaging with the market. Among these emotions is fear, which can cause traders to make early exits from trades that will have been profitable. Greed which causes traders to overleverage or move their stop loss. Hope which is often responsible for causing investors to hold their positions for too long. Or, overconfidence, which causes individuals to trade too much or make excessive position sizes.

Finally, traders who are disciplined regularly obtain more consistent results than those who are not. They achieve this through a variety of processes and strategies. Firstly, they make sure to adhere to market analysis schedules that are regular, they approach the trade execution process in a way that is systematic, they often use stable and regular position sizing formulas, and approach record-keeping in a methodological and regular way.

How to be a Disciplined Trader

Having discipline while trading involves adhering to three specific guidelines. These three pillars: making sure to follow a trading plan, managing risk and position sizing, and setting and adhering to clear rules for entry and exit, work in tandem to help the investor reach the most profitable outcomes.

Create and Follow a Trading Plan

A disciplined trader will have created an effective trading plan and will know to always stick to it. This plan will establish market participation guidelines that are easy to understand. It will also involve specific criteria on how to navigate risk parameters, position management, trade selection,  profit targets, and their own predetermined trading hours.

The investor should also make use of a journal for trading so that they can consistently ensure that they adhere to their trading plan by recording all trading activity and relevant information.

Manage Risk and Position Sizing

Managing risk is paramount to becoming a disciplined trader, as it helps to protect capital. Traders should ensure that they are limiting their exposure to risk to an overall account value of only 1-2% per trade.

In order to do this effectively, before entering a trade the investor must make sure to calculate position sizes based on the market volatility measurements, the account size relevant to stop loss distance, their currency portfolio exposure, and the margin requirements made available to the investor.

Set Clear Rules for Entry and Exit

For a disciplined trader to thrive, they will need to set clear rules for entry and exit and make sure to stick to them. These rules are one of the most effective ways to ensure that heightened emotions do not impact their decision-making while they are engaging with trades.

When you create your rules, you should make sure that you have defined a several conditions for the following factors:

• Time-based constrains
•  Entries that are triggered by price levels
• Volume thresholds
• Profit targets
• Technical indicator readings
• Stop loss placement

Crypto Trading

One area of trading that greatly benefits from a disciplined approach is crypto. Sure, crypto traders can invest in a form of digital asset because they have a sense they’ll get lucky, but with so many tips and tools surrounding crypto trading, this is by far the least effective method to approach the market.

Successful crypto traders are highly disciplined in their approach. They will continue to prioritize risk over rewards and never invest more than they can afford to lose. 

They will also make use of the various crypto trading tools available to help inform their trading decisions. They will conduct thorough market analysis, use technical analysis tools, and pay close attention to current events, gathering all this data to inform their decisions.

They will also know the importance of keeping a level head during trading. They will understand negative investing factors such as herd mentality, and the fear and greed index, and will know to rise above these within their mindset and not lead them to make rash, luck-based decisions.

Through this discipline, crypto traders will be demonstrating the necessary skills needed to address the weaknesses within themself, improve from mistakes, and become an expert in crypto trading. 

Stocks 

Stock prices are in constant fluctuation. Because of this, luck might sometimes see the investor come out on top. You might invest in a company this week, only for the company to break out and become mainstream next week.

However, just as luck can have a positive effect on the stock investor, a lack of it, which is statistically more common, can see investors losing money regularly.

Like when trading in crypto, investing in stocks is best done with a disciplined mindset, with little to no reliance on luck. There are several strategies a disciplined investor can use to improve their chances of success when investing in stocks.

• Invest regularly, irrespective of market activity– investors should regularly invest irrespective of whether prices are ‘good’ or ‘bad’ that month, as over time their average will see them building wealth.
• Keep a Level Head-Stocks can and do crash regularly. For newbie investors, this can feel like a disaster, but those who have surfed the market fluctuations for longer know it is just a natural part of the game. Don’t let a price crash send you into a panic. Markets tend to always recover in the long run, and a disciplined investor doesn’t sell their stocks in fear.
• Have a Clear goal– This is a highly effective way to ensure you remain disciplined and directed while investing in stocks. For example, if you are investing to build wealth for your retirement, then you probably don’t need to be worrying about what the market is doing today, this week, this month, or even this year. It’s all about playing the long game.

Common Mistakes in Trading Due to a Lack of Discipline

There are several mistakes that investors can make if they don’t approach trading with a disciplined mindset. We have documented below some of the most common mistakes traders make and how they become obstacles to trading success.

Over-Reliance on Luck

As the title of this article states, luck will never beat discipline for a variety of different reasons. For one, luck is not a measurable thing. It can not be relied upon for any kind of consistent result, nor can it be monitored, assessed, or studied. In fact, in a world so governed by chance, some argue that luck does not exist at all.

In trading, ‘luck’, that is, making high profits, can happen to anyone at any time, but using it to influence trading decisions is never a good idea. Just because chance has turned in your favor once, doesn’t mean it will do so again. 

The Fear and Greed Index

The fear and greed index is used to explain patterns in trading behavior, but it only tends to be applicable to investors who rely too much on emotional trading. By this, we mean allowing their emotions to impact their decision-making when it comes to trading and investing.

Being influenced by fear can lead an investor to exit prematurely when a market inevitably dips. On the other hand, greed can cause the investor to cling to their assets and hold positions well past planned exit points.

The negative impact of emotions on the investor is something that has been studied in depth, with results revealing that trades that are influenced by emotions result in a 25% higher loss than those that are not.

Overtrading 

An investor has overtraded when they make excessive daily trades or increase their position size after a win. This latter activity often occurs after a trader has gotten lucky and used that feeling of jubilation to push boundaries when it would have been smarter to stay on plan.

In general, committed and disciplined investors are encouraged to plan to make around 3-5 trades a day and to always stick to this. There is, of course, room to make more trades should the investor feel fully comfortable doing so and can be certain that their emotions are not influencing their decision-making, but this number shouldn’t exceed more than 15 trades a day.

It can be hard to recognise if you’re over-trading, so here are some of the signs to look out for. If you are trading outside of your previously defined market hours, if you are entering positions despite not meeting all the strategy criteria, if you start increasing trade frequency after a heavy loss in the hope of ‘making back’ money, and if you are taking trades due to a fear of missing out rather than the setup quality.

Moving the stop loss

Disciplined traders will create a stop loss before they even begin trading and ensure that they always stick to it. Moving the stop loss around, no matter how infrequently, is a strong sign that a trader is more reliant on luck than they are on discipline.

You should know the common stop loss mistakes so that you can identify and rectify them in your own trading habits. Some of the common signs are widening your stops when positions move against you, removing your stops altogether during a drawdown, setting your stops too tight because of account balance fears, and not calculating stop placements based on technical levels.

(Source: https://www.pexels.com/photo/silver-iphone-2068664/)

Luck, or rather, relying on chance to see successful outcomes, can sometimes harvest positive results. These results, although pleasant, are often achieved with little to no work or commitment on the part of the individual and may not be repeatable. Here lies the biggest issue with luck in trading and investing. 

When a person succeeds in something due to luck, it is easy to take it for granted. For example, If luck provided us with a big win or enabled us to make a mass profit, we’re likely to get carried away by the thrill of it, and sooner or later, everything luck got us will be gone.

Discipline, however, does not work like this. Traders and investors who are disciplined, who keep showing up, building their wealth brick at a time, are not only going to have a deeper appreciation for the assets they’ve earned, but are likely to build up even more affluence than those who solely relied on luck.

In this article, we’ll examine how a disciplined mindset within the trading and investing world will always win out over luck.

How Far Luck Can Get You

Luck does have its place and its purposes, and certain areas where it can thrive, but trading and investing is very rarely one of them. If you want to interact with luck, you’re better off turning your attention to the online casino world.

Playing in online casinos is an excellent way to make use of luck in a way that can secure you money. Those who prioritize instant withdrawals, impressive bonuses, low transaction fees, and strong return-to-player scores are still able to tilt the gaming experience in their favor, but luck still reigns supreme in this setting.

This article is not to say luck is a negative thing, and as demonstrated, it can thrive in certain settings like the online casino, but it should not be the most used tool when it comes to trading and investing.

What Exactly is Discipline When it Comes to Trading?

Discipline regarding trading refers to an approach in investment and trading that is determined by rules which were defined at a previous date and not influenced by human emotions. Individuals who demonstrate a good level of discipline in trading will regularly plan strategically and execute trades with consistency, irrespective of what the market looks like or where their emotions lie.

Those who practice good trading discipline are likely to:

• Set clear points for entry and exit.
• Follow a documented trading plan.
• Maintain trading records with a high amount of detail and consult them regularly.
• Adhere to guidelines regarding  position sizing.

How Discipline in Trading Aids the Investor

Displaying a strong level of discipline in trading is an excellent way to increase your chances of success when it comes to investing and trading. 

For one, trading discipline is a highly effective tool for risk management. It can help the individual to establish tools for protection by using stop loss orders and position sizing rules. With these parameters, investors can reduce the amount of potential losses they might experience on each  individual trade.

Additionally, approaching trading with effective discipline can actually help to regulate the extreme emotions many traders feel while engaging with the market. Among these emotions is fear, which can cause traders to make early exits from trades that will have been profitable. Greed which causes traders to overleverage or move their stop loss. Hope which is often responsible for causing investors to hold their positions for too long. Or, overconfidence, which causes individuals to trade too much or make excessive position sizes.

Finally, traders who are disciplined regularly obtain more consistent results than those who are not. They achieve this through a variety of processes and strategies. Firstly, they make sure to adhere to market analysis schedules that are regular, they approach the trade execution process in a way that is systematic, they often use stable and regular position sizing formulas, and approach record-keeping in a methodological and regular way.

How to be a Disciplined Trader

Having discipline while trading involves adhering to three specific guidelines. These three pillars: making sure to follow a trading plan, managing risk and position sizing, and setting and adhering to clear rules for entry and exit, work in tandem to help the investor reach the most profitable outcomes.

Create and Follow a Trading Plan

A disciplined trader will have created an effective trading plan and will know to always stick to it. This plan will establish market participation guidelines that are easy to understand. It will also involve specific criteria on how to navigate risk parameters, position management, trade selection,  profit targets, and their own predetermined trading hours.

The investor should also make use of a journal for trading so that they can consistently ensure that they adhere to their trading plan by recording all trading activity and relevant information.

Manage Risk and Position Sizing

Managing risk is paramount to becoming a disciplined trader, as it helps to protect capital. Traders should ensure that they are limiting their exposure to risk to an overall account value of only 1-2% per trade.

In order to do this effectively, before entering a trade the investor must make sure to calculate position sizes based on the market volatility measurements, the account size relevant to stop loss distance, their currency portfolio exposure, and the margin requirements made available to the investor.

Set Clear Rules for Entry and Exit

For a disciplined trader to thrive, they will need to set clear rules for entry and exit and make sure to stick to them. These rules are one of the most effective ways to ensure that heightened emotions do not impact their decision-making while they are engaging with trades.

When you create your rules, you should make sure that you have defined a several conditions for the following factors:

• Time-based constrains
•  Entries that are triggered by price levels
• Volume thresholds
• Profit targets
• Technical indicator readings
• Stop loss placement

Crypto Trading

One area of trading that greatly benefits from a disciplined approach is crypto. Sure, crypto traders can invest in a form of digital asset because they have a sense they’ll get lucky, but with so many tips and tools surrounding crypto trading, this is by far the least effective method to approach the market.

Successful crypto traders are highly disciplined in their approach. They will continue to prioritize risk over rewards and never invest more than they can afford to lose. 

They will also make use of the various crypto trading tools available to help inform their trading decisions. They will conduct thorough market analysis, use technical analysis tools, and pay close attention to current events, gathering all this data to inform their decisions.

They will also know the importance of keeping a level head during trading. They will understand negative investing factors such as herd mentality, and the fear and greed index, and will know to rise above these within their mindset and not lead them to make rash, luck-based decisions.

Through this discipline, crypto traders will be demonstrating the necessary skills needed to address the weaknesses within themself, improve from mistakes, and become an expert in crypto trading. 

Stocks 

Stock prices are in constant fluctuation. Because of this, luck might sometimes see the investor come out on top. You might invest in a company this week, only for the company to break out and become mainstream next week.

However, just as luck can have a positive effect on the stock investor, a lack of it, which is statistically more common, can see investors losing money regularly.

Like when trading in crypto, investing in stocks is best done with a disciplined mindset, with little to no reliance on luck. There are several strategies a disciplined investor can use to improve their chances of success when investing in stocks.

• Invest regularly, irrespective of market activity– investors should regularly invest irrespective of whether prices are ‘good’ or ‘bad’ that month, as over time their average will see them building wealth.
• Keep a Level Head-Stocks can and do crash regularly. For newbie investors, this can feel like a disaster, but those who have surfed the market fluctuations for longer know it is just a natural part of the game. Don’t let a price crash send you into a panic. Markets tend to always recover in the long run, and a disciplined investor doesn’t sell their stocks in fear.
• Have a Clear goal– This is a highly effective way to ensure you remain disciplined and directed while investing in stocks. For example, if you are investing to build wealth for your retirement, then you probably don’t need to be worrying about what the market is doing today, this week, this month, or even this year. It’s all about playing the long game.

Common Mistakes in Trading Due to a Lack of Discipline

There are several mistakes that investors can make if they don’t approach trading with a disciplined mindset. We have documented below some of the most common mistakes traders make and how they become obstacles to trading success.

Over-Reliance on Luck

As the title of this article states, luck will never beat discipline for a variety of different reasons. For one, luck is not a measurable thing. It can not be relied upon for any kind of consistent result, nor can it be monitored, assessed, or studied. In fact, in a world so governed by chance, some argue that luck does not exist at all.

In trading, ‘luck’, that is, making high profits, can happen to anyone at any time, but using it to influence trading decisions is never a good idea. Just because chance has turned in your favor once, doesn’t mean it will do so again. 

The Fear and Greed Index

The fear and greed index is used to explain patterns in trading behavior, but it only tends to be applicable to investors who rely too much on emotional trading. By this, we mean allowing their emotions to impact their decision-making when it comes to trading and investing.

Being influenced by fear can lead an investor to exit prematurely when a market inevitably dips. On the other hand, greed can cause the investor to cling to their assets and hold positions well past planned exit points.

The negative impact of emotions on the investor is something that has been studied in depth, with results revealing that trades that are influenced by emotions result in a 25% higher loss than those that are not.

Overtrading 

An investor has overtraded when they make excessive daily trades or increase their position size after a win. This latter activity often occurs after a trader has gotten lucky and used that feeling of jubilation to push boundaries when it would have been smarter to stay on plan.

In general, committed and disciplined investors are encouraged to plan to make around 3-5 trades a day and to always stick to this. There is, of course, room to make more trades should the investor feel fully comfortable doing so and can be certain that their emotions are not influencing their decision-making, but this number shouldn’t exceed more than 15 trades a day.

It can be hard to recognise if you’re over-trading, so here are some of the signs to look out for. If you are trading outside of your previously defined market hours, if you are entering positions despite not meeting all the strategy criteria, if you start increasing trade frequency after a heavy loss in the hope of ‘making back’ money, and if you are taking trades due to a fear of missing out rather than the setup quality.

Moving the stop loss

Disciplined traders will create a stop loss before they even begin trading and ensure that they always stick to it. Moving the stop loss around, no matter how infrequently, is a strong sign that a trader is more reliant on luck than they are on discipline.

You should know the common stop loss mistakes so that you can identify and rectify them in your own trading habits. Some of the common signs are widening your stops when positions move against you, removing your stops altogether during a drawdown, setting your stops too tight because of account balance fears, and not calculating stop placements based on technical levels.