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The Importance of Forex Trading Discipline and Patience

Reading time: 9 minutes

This article will teach traders about why discipline and patience is important in Forex trading. It will provide tips on how traders can achieve the levels of discipline and patience they need, why traders should use a stop loss in Forex trading, and much more!

Patience & Discipline in Forex Trading

Countless traders enter the Forex market every day, but many of them fail. Some traders focus too much time on creating the perfect trading strategy, which leaves them with little energy to develop proper discipline. This approach is a recipe for failure, as it is far more important to have a trading plan you can execute, rather than one that is perfect. If you don't have an executable strategy, we recommend that you to learn through our live trading webinars.

Some traders fail because they fail to give risk management the due diligence it requires. Finally, certain traders quit too early, giving up when their strategies don't produce the desired results right away. No approach will generate returns every time, and traders must keep this in mind.

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Rules of Forex Trading Discipline

Forex trading discipline involves:

  • Developing a successful trading strategy
  • Modifying it as needed
  • Executing the plan effectively.

Following through with one's plan is an essential component of trading discipline. A great example of this importance is Jesse Livermore, a man that 'TIME' once described as being the "most fabulous living U. S. stock trader." Livermore made a fortune following rules he created, amassing at least $100 million at the height of his career in 1929. However, Livermore decided to break his own rules, causing him to lose everything on more than one occasion.

To avoid meeting a similar fate, traders can follow some simple rules. There are three main rules in particular that are crucial to obtaining a basic understanding of Forex trading discipline. Once you are comfortable with following these rules, you may feel comfortable with trading on a live account.

Trading Plan Elements

A trading plan is the foundation for a trader's success. There are many ways to create a trading plan, but the crucial elements include:

  • A list of trading instruments
  • Which signals will cause you to enter positions
  • Which signals will prompt your exit
  • Minimum duration of your trade
  • Maximum duration of your trade
  • Maximum number of trades per day, week, and month
  • Hours during which you will trade.

By listing the rules you will follow, you can not only develop your plan, but you can also cultivate Forex discipline. Be sure to mark any market analysis performed in your plan, to examine whether this analysis corresponds to the plan. Determine some key variables before trading. These variables may include, the trading instruments you will use, the entry and exit signals you will harness, and how frequently you will make transactions.

Trading plan elements

Source: MetaTrader 4 Supreme Edition - Demo Account - Things to track in your trading plan

After some time, you might feel tempted to relax a bit. Remember that there are many stories about traders who didn't follow their systems, and suffered dire results. One such tale involves Nick Leeson, who has been called the 'original rogue trader'. Leeson single handedly pushed Barings Bank (a U.K based financial institution established in the 18th century) into insolvency.

The bank uniquely employed him as chief trader, and also allowed him to clear his own trades. The latter responsibilities are typically split between different people, but Leeson was armed with both. When his speculative bets didn't pan out, Leeson hid his losses in an error account. These losses exceeded £800 million in 1995.

Why You Should Use a Stop-loss

Most disciplined Forex traders use a stop-loss. Before opening any positions, you should know exactly where you will place your stop-loss. Once you set this up, you should never lower it to keep a position open. Keep in mind that the more transactions you make, the more you will encounter situations where you believe your losing position will become profitable.

Some traders have a hard time accepting failure, which can cause them to place bigger bets, and potentially incur bigger losses. For instance, In 2012 JPMorgan Chase & Co.'s chief investment office announced a loss of at least $6.2 billion tied to derivatives trading. Bruno Iksil led the office's charge to set up complicated positions involving credit derivatives - placing bigger trades in response to the losses.

These positions grew so large that certain investors claimed they were distorting credit indexes. Amid this disruption, Iksil got the nickname 'London Whale'. While you probably won't be at risk of being in any situations like this - it illustrates the value of having a stop-loss to automatically close a position.

Setting a stop-loss takes the emotion out of the situation. However, while establishing a specific price and then sticking to it is integral to using stop-losses, you should take a different approach for setting take-profit points. If you are just starting out, it's wise to establish a take-profit point for every trade, and then refrain from modifying it.

With more experience, you can start modifying your take-profit points - especially if you have also begun setting your stop-loss to generate profit. But regardless of whether you are a rookie or veteran trader - you should always know your profit target before you commit to a trade.

Trading Schedule

timezone and trading schedule counts

Source: MetaTrader 4 Supreme Edition - EURUSD Hourly Chart - Session Map - Data Range: 13 Apr, 2016 - 22 Apr, 2016

Another important part of developing Forex trading patience and discipline is by creating and sticking to a trading schedule. If your strategy involves trading when the London markets open, don't make transactions when they are about to close. But why is this necessary?

You may not know about moves in other economies that could cause your unplanned trade to suffer a loss. In addition to setting trading hours, you should determine how many trades you can make in a day, week, or month. This frequency is usually based on the type of trading style you use. The latter is due to intraday traders generally limiting themselves to a particular day, while medium-term traders create limits for a weekly or monthly period.

Patience In Forex

We've covered discipline, so let's take a deeper dive into patience. While the two are similar, there are a few key differences. Most online Forex traders will occasionally feel tempted to close profitable trades prematurely, either to take-profits or to ensure they do not becoming losing trades. To overcome this inclination, you must exercise patience.

Let's look at some specific steps to help achieve this objective. First of all, don't be controlled by your fear. Once you commit to a trade, very little should cause you to second guess your decision. Each time you enter a trade, you should know the maximum loss you will allow, and the minimum profit you want to generate.

Market fluctuations are perfectly normal and should not prompt you to change course. Adhering to this best practice can bring your Forex patience to the next level. Next, be patient and learn the tools of the trade. For example, MetaTrader 4 is the most widely used trading platform in the world, despite its steep learning curve. Successful traders take the time and patience to get to know the tools that make the winning trades possible.

Another crucial aspect of patience is evaluating your winning trades. As your position approaches the take-profit level, you will likely want to close the position and take the profits right away. While following this approach yields profits quickly - it could also prevent your trade from generating a potentially larger profit. For example, instead of closing such a position, you could choose to set your stop-loss to the minimum accepted profit, and then change your take-profit to where you expect the trendline to hit. And don't forget - you can do this more than once for each individual trade.

Discipline Equals Success

Long-term accounts require more rigid discipline. The key is to know when to trade, and when to avoid trading. Usually, smaller accounts need more significant risks and more trading, whereas bigger accounts require smaller risks and less trading. Always make sure to put extra effort toward providing accessible, factual analyses.

The point of these analyses is to give you excellent trading opportunities. In time, you will also learn about price action. It doesn't matter if you trade systems or prices, you will surely benefit from price action. All you need to do is follow the tripod of successful trading - it won't be long until you begin to see positive results.

Trade What You See

The beauty of Forex trading is that there are so many trading opportunities, so you will never feel void of setups. Let's say you have difficulty finding good positional trades or countertrade opportunities. Why not trade breakouts instead? We've come across traders who only trade breakouts - and they've had great success with it. However, keep in mind that you can only switch to breakout trading at a specific time of the day.

Take Action

Now that you have learned how to cultivate Forex trading discipline and patience, it's time to put that knowledge into action. Start by analysing the market and developing a trading plan for your first week.

Determine upfront:

  • Which trading instruments you will use
  • The signals that will prompt your entries and exits
  • Your stop-loss and take-profit levels
  • The maximum number of trades you want to make during a set time.

Then you can apply your knowledge via a trading account. If you don't have one already, why not open a live account with Admiral Markets? or start by practising in a risk-free trading environment beforehand, by signing up for a demo account.

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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.

Risk Warning

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 83% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.