By ALESSIO RASTANI, from the Wealth Training Company
If you have ever placed a trade and felt yourself sweating harder, and your heartbeat pounding faster, it is very possible that there is a fault with your trading psychology. A lot has been said about the very important issue of trading psychology, but the three key points to having a great trader’s mindset that I wish to talk about are these:
- Have a confident state of mind;
- Being emotionally stable, and
- Only carry out your trading “system”.
These three points can be surmised in one word: stability. If a trader can temper his psychology to allow him to react in a similar,
correct manner in every situation then he will be far more profitable than if he allows mental factors to have a negative effect on his trading. Very few people have the complete package of the above three qualities to give them the “zone” to trade successfully, but a little training and appreciation of these factors can make a huge difference to trading performance.
BeIng emotoonally stable The act of trading, especially live online trading, triggers often defensive and unwanted behaviours in most traders. These kinds of emotions often cause the trader’s brain to ignore the trading signals in front of him/her. In this situation, traders will find that they are unable to execute their trading system and instead the fear of loss and missing out takes over.
You’ll need to understand that mastering this kind of behaviour pattern is the first step towards trading success.
“An amateur trader who has just experienced a trading loss may experience hesitation about taking the next trade”
Having a Stable State of Mind
Professional traders maintain a mindset geared towards carrying out their trading system irrespective of what has happened recently – recent drawdowns or losses are the primary example. Amateur traders often focus on their most recent trades and allow those results to cloud their judgement. For example, an amateur trader who has just experienced a trading loss may experience hesitation about taking the next trade.
Carrying out your Trading System
The only defence mechanism a trader has against the randomness of the markets is to religiously carry out his trading system. This is the main point of what separates the pros from the amateurs. Whereas the pros stick to their strategy of trading a recognised pattern or signal, the naïve newbie traders trade according to their “instincts” or “opinions”.
One important behaviour pattern that differentiates pros from amateurs is that the former know when to cut their losses short and admit they have made a mistake. The latter have no concept of taking a loss – they are determined to “win” on a trade so they move their stops or fail to even use one.
Trading Risks and Expectations
Traders who lack the discipline and a solid strategy to trade will eventually become one of the 80% of people who lose in this business. This is not because they are not intelligent but because they allow their personal emotions, beliefs and expectations to get in the way of their ability to follow their trading system.
Mark Douglas, author of Trading in the Zone, talks about how most traders have deep entrenched “expectations” about what they think the market will do. Once they place a trade, they often emotionally will the market to move in their desired direction. When these expectations are not met, these traders will feel pain. Douglas therefore recommends that we give up our expectations and instead follow our trading system.
Before you consider taking on the lucrative business of trading, perhaps you should consider researching yourself first. What kind of person are you? What are your strengths and what are your weaknesses? It is altogether possible that by fixing one component of your personality you may become a better trader.
Once you fully understand your own mentality and how it can have an effect on the manner of your decision making that you will improve your trading psychology. It is not a question of ignoring emotions and desires but instead appreciating them without allowing mental factors to compromise your trading system.