From a very young age, I was taught to act disciplined from my surrounding environment. If I misbehaved in front of my parents, they would punish me and take away my T.V privileges for the week. If I misbehaved in school, my teacher would punish me by making me stay inside during recess. You get the idea, my discipline was formed and reliant on external factors. Every time I made a bad decision it was expected that someone else was going to reprimand me.
Fast forward to now. My trading system, like many others, has certain rules and requirements that have been formed over time. Part of being a successful trader is actually abiding by the system’s rules and requirements. But what if you don’t? This is one of the biggest questions I have had to answer as of late in forming my trading system. What happens when I break one of my own rules? Part of any rule-based system is having consequences. In a perfect world, I would just vow never to break any of my rules but the world of trading is anything but perfect. I was stumped when I had to think of possible consequences for myself.
After quite some time of thinking I remembered an article I read about “discipline in trading” (wish I could remember who wrote it so I could give credit). I do not recall exactly but it had to do with the trader taking money from his budget when he violated one of his own rules. It was his everyday financial decisions that would be impacted. Obviously the monetary penalty is going to be fitted differently for each individual. It has to be significant enough that it makes you think twice about breaking a rule. At the same time, it can’t be an amount that would put you in any kind of financial distress.
The final decision I had to make was exactly where my monetary penalty would go. I came to the conclusion that the penalty should be donated to a charity with similar interests of mine. I am pretty sure the trader who wrote the article had similar intentions for his penalty also. It is a win-win! Hopefully I will learn my lesson, not to break any of my rules and because of my mistake someone less fortunate will be better off.
If any other traders have interesting discipline systems I would love to hear them!