The importance of discipline

Discussion in 'Trading' started by Cutten, Oct 10, 2008.

  1. Out of all the market environments since 9/11 and possibly since October 87, this one is the most dangerous by far. I thought it would be a good time to remind everyone of the importance of discipline and risk control. It's very tempting to call bottom here with the market so oversold, bearishness so widespread, and nice values on offer. If you're a long-term investor and don't mind being long into a 20-30% crash then that's ok, go ahead and average in by all means. But if you are a trader, and especially if you trade size or use leverage, then it's critically important to stay disciplined and put a limit on the risk you take.

    It doesn't matter how much conviction you have, these are crazy times and you MUST have some risk control. If you think it's the bottom, you must have a stop, or some puts, or just be playing it long calls. Either that or have on only small positions.

    You should be asking what's your plan if you're wrong? "Losing loads of money" or "hold on and pray" are not acceptable answers :) Discipline & risk control > conviction & bottom picking.

    FWIW I am not bullish and have some put bets on just in case it keeps crashing. I think there's a definite chance of a big selloff in the last 2 hours, margin calls etc. IF the market breaks the earlier high, and especially if it can break 960 (Prior lows from this week, now resistance), then I might turn bullish. Or if we get a true meltdown today or Monday. But right now it's extremely dangerous to just do random bottom-fishing with no stops or method other than a hunch.

    Whatever your position, please make sure control your risk. Good trading to all.
     
  2. It's a shame these type of posts aren't more frequent (from all). These discussions would be very helpful for newer traders.
     
  3. Very useful & true post, can't agree more.
     
  4. 0008

    0008

    Yes! It is better to stand aside than joining this crazy game!
     
  5. great call cutten, I had an awful week. The only reason was bad money mangaement and risk control that left ALOT to be desired. But the sun will still come up tommorow and all we can do is learn right? Discipline is now more important than ever because, the volatility will chop you up. I hope everyone is faring ok and not getting beat up too bad. Have a good weekend, winter feels like it's right around the corner, it was pretty cold this morning