Discipline: the rules you do not break
What you learn in 3 minutesThis lesson sets out a written routine you follow before, during and after every session, so that the same five checks happen in the same order each time. Two readers start with KSh 50,000; one writes the routine down and follows it, the other trades on impulse, and the difference shows up in the account balance rather than in any single trade.
Five checks on a EUR/USD trade at 1.0850
| Step | Amount | Note |
|---|---|---|
| 1. Instrument and direction | EUR/USD, buy | one pair only, chosen before the session starts |
| 2. Entry level | 1.0850 | the price shown on the platform at the time of the check |
| 3. Stop distance | 20 pips | the distance from entry to the stop level, chosen in advance |
| 4. Position size | 0.10 lots | the size that keeps the loss inside the daily limit |
| 5. Cost of a 20 pip move | KSh 2,170 | 0.10 lots x 20 pips x 10 units per pip = 20 units of the quote currency, converted at the current rate of about KSh 108.50 per unit |
The spread, any commission and the exact conversion rate vary between brokers and change through the day, so the KSh figure is an estimate and not a quoted price.
The mistake people make here
The usual mistake is to treat the checklist as something to read once and then trade from memory, which means the fifth item, the cost, gets skipped exactly when the position is largest. People also write the rules after a loss, when the account is already smaller, instead of before the session when the numbers are calm. Write the five lines down, keep them beside the platform, and tick each one before the order is placed. If a line cannot be answered with a number, the trade does not go on.Check yourself
One pip on one standard lot of EUR/USD is 10 units of the quote currency. At about KSh 108.50 per unit, what is 20 pips on 0.10 lots in KSh?
0.10 lots is one tenth of a standard lot, so one pip is 1 unit of the quote currency. 20 pips is 20 units. 20 x 108.50 = KSh 2,170.
A reader has KSh 50,000 and limits each trade to 1 per cent of the account. How many pips of room does KSh 500 buy on 0.10 lots?
KSh 500 divided by 108.50 is about 4.6 units of the quote currency. At 1 unit per pip on 0.10 lots, that is about 4.6 pips, which is why a stop of 20 pips needs a smaller position or a larger limit.