Discipline is an essential ingredient in trading success, no doubt about it. Anyone who is learning the craft should be religious about applying discipline. It is about the only way to teach the iron-like mindset one needs to avoid both temptation toward greed and compulsion toward fear.

Now, having said that, I also would argue that once one finds his or her place of resolve, and one can apply that in trading, one can then pay attention to intuition, the element of trading that speaks to what you know in combination with what you feel. As an example, I offer a personal trade that demonstrates that discipline and intuition are two sides of the trading coin …

A few weeks back, I told you about my Starbucks trade. I wrote the following.

I bought SBUX a few days ago with the plan to sell it when it hit my profit target. It hit my target, and as it did, a flurry of good news came out about the stock –UBS upgraded the stock to “buy,” and the volume picked up. So, I made the decision to pull my stop and let the stock run. Sure enough, the next day it hit a new 52-week high, and after hours it jumped past that. The tracks looked clear for a smooth run into the future.

Well, this morning, without any news, good or bad, the stock dropped some 2% rather quickly. Why? Clearly, it is profit taking, which takes us back to the dilemma – how do you know when to take profit or let your profits run? The answer is different for everyone, and, perhaps, different for each depending on the choice you make in the moment. For me, I made the choice and I will stick with it. The fundamentals of SBUX are good, and I believe it will find its way back to those cleared tracks I mentioned before.

The above decision derived from both my knowledge/experience and my intuition, and it has paid off. The earnings report yesterday validated my decision, as the stock is up 7.1 percent today alone. I have now replaced my stop at a higher level, and I am assured a profit substantially higher than what it would have been had I stuck with my original profit target.

The point here is not to make me seem “smart.” Rather, I present it to demonstrate that once you master discipline, as you must, you can then move to utilizing what you know to “bend” the rules. Keep in mind, though, that intuition works best in combination with knowledge/experience, and when you do bend your rules, do so with confidence (For me, I made the choice and I will stick with it.). As well, accept the outcome with dispassion, no matter if your intuition proved correct or not.

Trade in the day; invest in your life …                                                                            

Trader Ed