I discussed with a very experienced trading acquaintance a series of events that occurred today. I explained to her how I had tried to be disciplined and patient–and it was a slowish day, so much of the latter was needed. I was in a particular trade, but did not like the way prices were moving, so decided to cut it. Because I was able to watch the developments during much of the day, I saw the potential additional gain that could have come my way at a particular point in the day. That put me in a position to second guess myself. I followed one rule: I did not feel comfortable with how prices were developing, so I closed the trade. I did not follow another rule: once you have set your trade, let the targets work on the upside or the downside, so that your expectations are proved right or wrong.
I mentioned that being disciplined was sometimes futile, and she retorted that it can be both futile and boring. That raised an interesting issue. The essence of discipline is knowing the right rules to apply in given situations–it makes your behaviour consistent. But, discipline does not guarantee you better outcomes, just outcomes that are more predictable. But, discipline should also not mean just doing things in a rote manner, because we have intelligence and can reassess situations. However, we tend to dislike discipline (rules) if it seems that the outcomes are less good than if we use discretion.
Knowing that lack of discipline (or not following rules) can sometimes make you better off increases the temptation to break rules. An individual, such as a trader, may view breaking his or her own rules as a matter of little consequence, thinking that the impact can be limited to just the person concerned. But, given that everything has consequences, it may be a delusion to think that we are able to limit the impact of breaking rules.
