A number of readers have asked that I write about discipline and the psychology of trading. These are topics that require books in their own right but I will outline the basics as I see them. Today I will focus on discipline and look at psychology next week.

Key discipline issues expressed in the simplest way are:

Training and more training – even when you think you know it all – do more. It is like any other pursuit, constant practice is essential. This applies to even long term players in the market.

Developing a trading system is cornerstone. Today there are numerous technical indicators with many of them being just “more of the same”. Keep your system as simple as your can. Whether you are a range trader or a trend investor – many tools will do the job nicely – it is departing from the rules that will get you in to trouble.

Commit your trading system and plan to paper. This will create even greater discipline and will enable you to check back when things are not going so well.

Follow only your plan. Once you have developed a plan, that becomes your “bible” so exclude other market and media noise. Filtering the quantitative information is hard enough without taking on rumours.

Be relatively organised. I say relatively as successful traders are never totally organised whilst those who still struggle to be successful sometimes allow “being organised” to be the end game. It is important to distinguish between activity and actually achieving a result. Aspects of organisation include your desk/work environment, management of data/files/downloads, monitoring etc.,

Developing a systematic risk management approach. My first daily task, is to review my portfolio – I do this by cycling through charts of my holdings and also reviewing “Profit and Loss” through my portfolio manager – each give a different perspective.

Develop a daily routine. After reviewing my existing portfolio I then review overnight markets, followed by the key ASX stocks/lead indicators. This will partially set the tone for my trading for the day and determine the time I spend on my “watch list”.

Develop a weekly routine. Once a week I review my “watch list” adding or subtracting stocks. I set this up in a portfolio so I can quickly scan it each day – the scanning takes about 5 minutes so it is not too burdensome.

Enter trades into your portfolio immediately after the trade. That will ensure the task of reviewing your portfolio is an easy one and one you will enjoy doing.

Whether you are an intra day or day trader or long tem investor, having a disciplined approach is paramount to success. It is not something that comes naturally to all of us – although some traders are more disciplined than others. I find that I have to constantly work at discipline especially when I am not getting the results I believe I should. What keen golfer does not constantly work at his handicap?

Discipline is probably not the most exciting subject but it is an imperative for success!

Tom Scollon