This is the Mindset of a Successful Trader
Your psychology and beliefs will be a major determining factor in your trading results. Consider this example, where the same successful trading approach is used by a hundred traders and usually no two of them will trade it exactly the same way. Why? Because each trader has a unique belief system, and their beliefs will determine their trading style and their trading results. That is why even with a profitable and proven trading approach, many traders will fail. They do not have the proper belief system to enable them to trade well. In other words, they lack “The Trader’s Mindset.”
When you encounter psychological issues it is best to recognize the issues, just be aware of them and don’t deny they exist. In order to “fix” psychological issues, we must first become aware of the issues that are causing the problems in order to heal. This is much of what psychoanalysis is all about. The psychologist or psycho- therapist tries to get the patient first to recognize issues that are causing their problems. The patient must believe that these issues are causing the problem in order for the patient to heal. The reason this process can take so long, perhaps even years, is because the patient needs to not only recognize their problems, but must accept that there truly is a problem. They must take responsibility for their problems to heal. As traders, we must take responsibility for our trading results in order to make changes and be profitable.
Success in trading is a direct result of a sound trading system, sound money management, proper capitalization, and sound psychology. All of these must be in sync to be successful in your trading. The only area where you may need additional help once you have mastered your trading skills is your psychology.
Mastering your psychology is an ongoing process that really never ends. To master your psychology to be a profitable trader can take time, and the amount of time will be different for each trader.
Here is a list of common psychological trading issues and their causes:
- Fear Of Being Stopped Out Or Fear Of Taking A Loss: The usual reason for this is that the trader fears failure and feels like he or she cannot take another loss. The trader’s ego is at stake.
- Getting Out Of Trades Too Early: Relieving anxiety by closing a position. Fear of position reversing and then feeling let down. Need for instant gratification.
- Adding On To A Losing Position (Doubling Down): Not wanting to admit your trade is wrong. Hoping it will come back. Again, ego is at stake.
- Wishing And Hoping: Not wanting to take control or take responsibility for the trade. Inability to accept the present reality of the market place.
- Compulsive Trading: Drawn to the excitement of the markets. Addiction and Gambling issues are present. Needing to feel you are in the game.
- Anger After A Losing Trade: The feeling of being a victim of the markets. Unrealistic expectations. Caring too much about a specific trade. Tying your self-worth to your success in the markets. Needing approval from the markets.
- Excessive Joy After A Winning Trade: Tying your self-worth to the markets. Feeling unrealistically “in control” of the markets.
- Limiting Profits: You don’t deserve to be successful. You don’t deserve money or profits. Usually psychological issues such as poor self-esteem.
- Not Following Your Proven Trading System: You don’t believe it really works. You did not test it well. It does not match your personality. You want more excitement in your trading. You don’t trust your own ability to choose a successful system.
- Over Thinking The Trade, Second Guessing Your Trading Signals: Fear of loss or being wrong. Wanting a sure thing where sure things don’t exist. Not understanding that loss is a part of trading and the outcome of each trade is unknown. Not accepting there is risk in trading. Not accepting the unknown.
- Not Trading The Correct Position Size: Dreaming the trade will be only profitable. Not fully recognizing the risk and not understanding the importance of money management. Refusing to take responsibility for managing your risk.
- Trading Too Much: Need to conquer the market. Greed. Trying to get even with the market for a previous loss. The excitement of trading (similar to Compulsive Trading).
- Afraid To Trade: No trading system in place. Not comfortable with risk and the unknown. Fear of total loss. Fear of ridicule. Need for control. Fear of another loss. No trust in your trading.
- Irritable after the Trading Day: Emotional roller coaster due to anger, fear, and greed. Putting too much attention on trading results and not enough on the process and learning the skill of trading. Focusing on the money too much. Unrealistic trading expectations.
- Trading With Money You Cannot Afford To Lose Or Trading With Borrowed Money: Last hope at success. Trying to be successful at something. Fear of losing your chance at opportunity. No discipline. Greed. Desperation.
These are by no means all the psychological issues, but these are the most common. They usually center on the fact that for one reason or another, the trader is not following their chosen trading approach or system. And instead prefers to wing it or trade their emotions which in trading will always get you in trouble.
Our goal as traders in regards to psychology is to maintain an even keel so to speak when trading. Our winning trades and losing trades should not affect us. Obviously we are trading better when we are winning, but emotionally we should strive to maintain an even balance emotionally in regards to our wins and our losses.
Obtaining “The Trader’s Mindset” takes time. It will happen when it happens, and when you achieve this level of mental ability; it will come after working long and hard on yourself. It may even happen without you even knowing it. It usually happens when you least expect it.
Below is a list of what one feels after acquiring “The Trader’s Mindset.”
- Sense of calmness
- Ability to focus on the present reality
- Not caring which way the market breaks or moves
- Always aligning trades in the direction of the market, flowing with the market
- Not caring about the money
- Always looking to improve your skills
- Profits now accumulating and flowing in as your skills improve
- Keeping an open mind, keeping opinions to a minimum
- Accepting the risk in trading
- No Anger
- Learning from every trade
- Winning and losing trades accepted equally from an emotional standpoint
- Enjoying the process
- Trading your chosen approach or system and not being influenced by the market or others
- Not feeling a need to conquer or control the “market”
- Feeling confident and feeling in control of “yourself”
- A sense of not forcing the markets or yourself
- Trading with money you can afford to risk
- No feeling of ever being victimized by the markets
- Taking full responsibility for your trading
When you can read the list above and genuinely say that’s me, you have arrived!
Bennett A. McDowell, founder of www.TradersCoach.com, began his financial career on Wall Street in 1984, and later became a Registered Securities Broker and Financial Advisor for Prudential Securities and Morgan Stanley. Bennett is considered an expert in technical analysis; he frequently lectures and recently authored the bestselling book The ART of Trading.
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