The Primacy of Discipline
Mental Game of Trading
Featuring Rick Bensignor
Published on: April 23rd, 2019 • Duration: 5 minutes • Topic: Trading, Equities, PsychologyRick Bensignor, founder of the Bensignor Group, examines why discipline is the hallmark trait of successful traders. He explains why it is crucial to cut your losses, and gives an example to illustrate how dangerous abandoning discipline can be.
RICK BENSIGNOR: My name is Rick Bensignor. I'm CEO and founder of the Bensignor Group. This is a company that consults to institutional Wall Street portfolio managers. Also, last year, started an individual investor newsletter to help them get access to models that typically only institutions have. And I also do performance coaching for financial advisors on the Street.
So when we talk about discipline as a trader and kind of preparation for what you do, I think it's very rare to see somebody approach the markets any differently than they approach life. Trading the markets is done in a very similar fashion as the way you approach life. You tend to be a gambler in life or a gambler in the markets. You don't find a gambler in life, somebody who takes risks a lot, and then comes the marketplace, and is super conservative.
Conversely, if you're pretty darn conservative, you don't generally go to the market and start betting the house on things or trading you know, lots of commodity futures. The way you run your life is generally the way you trade. So discipline is super important, because it is the belief in yourself, in your capabilities, that ultimately leads to the success or the failure you have.
Part of the success that the best traders have is actually getting out when they say, this trade is not working. They don't hem and haw, they don't start praying, they don't go to church or synagogue. They just get out. That's a discipline that over time, you prove to yourself that you can stick to what you set out to do.
Because lots of trades-- if you have the mindset that what you're committing capital to is intended to be a short term trade-- this is not something I'm going to have on a year from now. This is taking advantage of some anomaly in the market that's got something mispriced. And I think in the next few weeks or few months, whatever I'm buying here, I can sell out to here. But I have no idea long term if it's a good buy or not. But there's money to make here.
So I go with the intention of this being a trade. If the trade starts going against me, but it's still within the parameters that I set out when I first got into it, I'm still OK, even if it's down against me. But if it starts going against me more than I would have ever anticipated, I need to get out. And what most people do is go, eh, this will be an investment. We'll hold this, it'll come back.
Well, sometimes that works. But take an aim like GE now. Let's say you're long at 30 bucks, and you say it'll come back but it's trading at 10. It may or may not come back, I don't know. But if you had known at 28 it was time to get out, because it was only supposed to be a trade to get to 35, and it's not working, you've got to have the discipline to just get out.
The more you take your losses and show yourself that you have discipline and you're readily willing to take losses, the more success you'll have over time, because you trust yourself. You know that if you get in a sticky situation you still have the fortitude to act rashly and get it out when your gut is telling you, this is just not working.
So this idea of discipline actually ends up being a tremendous ingredient to success. And you will rarely find any trader on Wall Street who's made good money who does not have discipline.