The Importance of a “Price Discipline” : D. R. Barton, Jr.

Jay's Market Outlook for 15th June , 2006 : European markets were mixed and little changed, while US stocks rallied quite strongly last night. Asian markets are up this morning, and the global short-term trend has turned up finally. This could help finally trigger a rally here today.


Trading Tip
The Importance of a “Price Discipline”
by D. R. Barton, Jr.

“The price of excellence is discipline. The cost of mediocrity is disappointment.”
-- William Author Ward

My friend and great trader Tim V. talked ad infinitum about what he called his “price discipline.” I got the basic meaning at first, but it took me a little longer to understand the subtleties and power of this term.

You see, by price discipline, Tim meant much more than just having the restraint to stick to your buy and sell points. He was really talking about building a belief system or attributing a structure to the market. And there is real power in that.

If you don’t have a specific belief system about how the market works, your mindset and trading can get blown around by any wind that comes along, be it an ill wind or a favorable one.

A price discipline or structure that you believe in is so valuable because:
• It takes the “need to be right” away from you. It’s no longer you who is right or wrong about the position, it’s your price discipline. It’s much easier to get out of a position because the Gann Number / Elliott Wave count / moving average band was wrong than it is if it’s your idea and your position.

• Nothing is right every time. So finding the perfect market structure or price discipline is impossible. Finding one that is useful (meaning profitable) and fits you is much more important. Then you can stick with it in bad times and good ones.

• It gives you a framework for decision making. You can base a trading system on this framework. More sophisticated traders create a family of trading systems around their price discipline to take advantage of different time frames and other subtleties. And some people have such a well-defined market structure that it takes the place of a system in their trading. The folks that trade in this way are the most sophisticated traders that I know.