When it comes to trading, you have to ask yourself: At what price discipline?

It was 1998 and on a whim I had just picked up a book on stock options. The wife and I were going away for the weekend so I had lots of down time, I polished it off by Monday. By the end of the week I had an account opened, funded, and ready to go. My first trade? Travelers Group, TRV. It was trading in the $50 range and had gone up a little so I was in the green. Then one morning I woke up to the news that a merger with Citicorp had been announced. The stock was now trading in the low $70s! After a period of disbelief and a brief happy dance, greed kicked in and I decided to hold on to everything; nothing was coming off the table. I took a shower and checked the price again. It had dropped about $5 and that greed combined with the time it took for the shower had cost me about $4,000. I sold everything and luckily I still had a nice profit but it was hard knowing I'd 'left that money on the table'.

Fast forward about 6 months and I had discovered an amazing tech stock called Lucent Technologies, LU. I'd noticed that starting about two weeks before earnings, the stock would climb quite a bit and tumble just afterwards. I bought as many at the money call options I could get my hands on. Sure enough it was happening again and as the two weeks passed by and the price went up, I began 'pyramiding' the options which means selling them at a higher price and rolling all of that money into more options (cheaper ones just out of the money) and wash, rinse and repeat. This time the price started to fall a few days before earnings but I was still able to sell for a nice $45k profit! It was a euphoric rush!

In the following months I made a little more by trading options on something called the OEX. I was taking EXTREME risk to make a few thousand. Luckily I realized I was pushing things way too far, in effect risking it all over and over to try and make a small profit. One day I just sold everything and stopped for a time. My account had grown about 800% in a matter of months and I put it in savings.

Fast forward about 10 years. I'd dabbled in trading a few times and though I'd chased it, the Lucent lightning never struck again. Between jobs, I decided to find a way to get into day trading. It was all the rage with news stories of dropouts making huge sums regularly. I spent a LOT on training, mentoring, tools, etc but I was never able to find a sense of confidence in my ability to consistently grind a livable income. But more importantly I finally learned something important about myself, something that as an investor has served me very well.

If you ask an experienced trader about the keys to their success, discipline will inevitably be mentioned first or second. And every time I'd heard it, I'd dismissed it thinking, 'Oh I have no problem following a strategy religiously. Discipline? Not my problem...'. I wasn't alone in underestimating this simple concept. Ask anyone interested in trading if they think being disciplined will be a problem for them and you'll get a similar reaction. But put that same person in front of a PC with multiple monitors and an account filled with their real hard earned savings on the line and you'll see something interesting: mental discipline when staring at prices hour after hour is unbelievably difficult. Time after time I'd find myself entering trades too early or late (compared to the rules of my trading plan) and as a result cutting my winners short ("you cant go broke taking a profit!" I thought) and letting my losers run. Worse, feeling the subconscious pressure to earn some kind of income every day (or at least every week) I would try and make something out of nothing, forcing the market to give me something that just wasn't there that day. So the lesson I learned? Fear and greed are unbelievably powerful emotions and staring at monitors all day trying to make a living day trading and staying disciplined all the while required you to look, feel, and act like a sociopath. You had to remove any and all emotional connections to money. Period. Believe me when I say, very very few of us can do it and do it consistently. I believe its something you're either born with or not. Recognizing and accepting this in myself has not only saved me more money and heartache than I'll ever know, it unlocked the door to investing profitability.

In the years since I've found some creative ways to get around my shortcoming and it has paid off handsomely. I'll pick it up there in a follow up post....