How does Jon Najarian cultivate self-discipline?

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Najarian's method of cultivating self-discipline is similar to how we develop many habits - associating pain and discomfort with certain behaviors.

"As a floor trader, when you make a mistake, you make it in front of 300 people. If you have to admit your mistake at a dinner party, it's already embarrassing enough. Based on the same competitive mentality, floor traders, even if they are not enemies, are very happy to see you make mistakes, and it is difficult to admit mistakes in this situation."

"Whenever a novice comes to the floor, traders think: 'I open a McDonald's, and now there is a Burger King across the street. He may not be my enemy, but he is my competitor, don't take away my business.' On the trading floor, I face competitors."

"We all buy and sell, everything happens very fast, everyone is ready to act first, whoever is more skillful wins, and profits are put in the wallet. So, for me, the most difficult part is how to learn to admit mistakes in front of everyone, and not feel troubled."

"It's like when you do something wrong, the nanny or coach slaps you. When you are ready to fiddle with this or play with that, suddenly... a slap comes. In the end, you naturally won't do certain things. This is how I cultivate self-discipline. No matter how good you are, you have to admit your losses."

"For example, we average 20,000 options trades a day, and if one trade averages 10 contracts, there are 2,000 trades a day. Even if I'm very good, 70% of the trades are profitable, but there are still 30% losses, which is equivalent to 600 trades. Our trading is very frequent, and we need self-discipline."

"For readers and non-professional traders, even if they enter and exit frequently, there may only be two or three trades a day. But, our daily trading volume is too large, we can't do without self-discipline."

According to Najarian, trading self-discipline is something that can be learned.

"I think self-discipline is a learned response. You can teach others to develop this habit; but, if they have problems, you have to be tough - not allow them to lose control. Dealing with yourself, you have to be very, very honest. The most important thing is that every trade must set a goal."

"If I am going to make a trade, buy a stock at $30 because I think the price may rise to $35, then I have to set the lower limit. For example $25. If I am right, I can earn $5. So in case I am wrong, the loss can never exceed $5. So, I set the upper target of the stock, the lower limit of the loss can never exceed the profit level of my correct judgment."

Najarian mentioned some methods on how to cultivate self-discipline. In the final analysis, the lack of self-discipline comes entirely from indulgence."

"For example, when facing a situation, you have two psychological paths leading to two different behavioral responses. On the psychological level, you will choose the path with the least resistance, the most comfortable, and the least painful path. For non-professional traders, this path is usually also the most indulgent and undisciplined."

"In other words, facing a failed trade, and admitting losses is not the path with the least resistance. For top traders, the self-disciplined path is also the least painful. As a floor trader, Najarian is like this. He soon found out that accumulating serious losses in front of many traders was equivalent to a painful slap. So, he put himself in a situation where he didn't want to be Pavlov's dog.

The methods to improve self-discipline include:

  • Every trade must set a goal, and arrange the exit price in advance; the risk/reward ratio must be at least 1:1.
  • Be honest with yourself: are you escaping reality and unwilling to admit losses? Do you want to take the least painful path?
  • Use firm willpower.
  • Let someone supervise your trading and stop you from making mistakes. For example, if you trade at home, let your husband (or wife) supervise you.
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