When we speak of “The Trader’s Mindset” what are we really talking about? Many of my students often ask me this question and we talk about it a lot during our Mentoring Session.
When we trade the markets we approach the markets each and every day with a psychological mindset or set of beliefs and emotions. New traders often enter trading with beliefs about trading and the markets that simply do not apply to the realities of trading. This is why new traders get into trades and can’t get out or don’t know when to take profits or get out at the bottom and get in at the top of markets. In other words they make bad trades because they are trading from inaccurate beliefs and become subject to their emotions of fear and greed.
With proper education, experience and direction these traders can turn their trading around. Usually new traders realize after awhile of experiencing large losses or working very hard and still losing that they need to change. What they thought would work does not and they recognize that their emotions are working against them and not for them in trading.
Once they get to this point, traders either quit trading or seek help to overcome their trading handicaps. If you find yourself at this point, you need to seek help from someone who is a successful trader. The help you get or don’t get at this time will seal your fate as a trader. We teach you the importance of controlling yourself when trading. We call this developing “The Trader’s Mindset” to think as a trader should and not become subject to your negative emotions. In order to be successful in trading, you must not fall prey to the very emotions you are trying to exploit. In short term trading when we win, someone must lose. This is a hard cold fact of short term trading! And the successful traders usually are calm and very methodical in their trading and making money from other traders who react emotionally to market events and are therefore losing money.
“The Trader’s Mindset” knows how emotions effect trading and learns how to deal or master their responses to their emotions as well as other trader’s emotions. So, how to we develop “The Trader’s Mindset”? To begin with use stops and stick with them! By using stops you are getting out of the market on your terms before your emotions have a chance to cause you problems by staying in the trade too long and then getting out because you can’t stand another dollar of loss – which for example is usually the point where you possibly should be getting ready to enter your next trade. The profitable trader usually can calmly follow the market where ever it goes thus exploiting those traders getting out of the market on emotions.
YOUR BIGGEST ENEMY IS YOU
Emotions are the most significant stumbling block to trading success, but we still let our emotions control our trades, resulting in large losses.
When we rely on our emotions, we can make mistakes for the wrong reasons, such as buying a stock with the expectation that it would rise. When it doesn’t move up, though, we cling to it for the sake of our ego. Accepting that we were wrong is difficult for us. There are a plethora of examples of this type.
You are your own worst enemy. That sounds as mundane as it does ambiguous when we say it. However, it is also very true. The three most crucial parts of effective trading are psychology, strategy, and money management (mastering all three is a requirement for every good trader). But here’s the thing: you might have a perfect approach because you’re a naturally analytical person who’s spent hundreds of hours learning about technical analysis and studying the market but your emotions and how to control your emotions while trading determines your success.
The only way to trade successfully and guilt-free is to regulate your emotions. Hope, greed, fear, and regret are the four emotions that traders are concerned with. It is necessary to suppress these emotions in order to be satisfied and successful. After conducting extensive research, Making the trading process more mechanical is the most effective method to control emotions. Mechanical here refers to making trading actions mechanical rather than relying solely on tools or software.
WHY MUST YOU NOT TRADE EMOTIONALLY- OUTCOMES
1] Selling at a loss at the worst possible time.
2] Fear of missing out (FOMO) and buying at the top.
3] Being greedy and taking on excessive risk.
4] Excessive trading and several trades due to boredom, FOMO, or greed.
5] Fear of being wrong prevents you from trading when an opportunity arises.
6] Believing you’re invincible following a string of unbroken trades, only to discover the hard way that you’re not.
Here are some tips you can follow to control your emotions:-
- Before you attempt your next trade, take a few moments to consider whether this is the appropriate thing to do or if this is exactly what you should be doing. Examine your chart carefully and consider what a professional would do in similar circumstances. This brief pause can occasionally turn the tables in your favour.
- Early entries and misleading indications might leave traders in a bind. So, before making any decisions, wait for a candle. This could help you perform better as a trader. I’m sure you’ll find this concept challenging when you try it out, but that’s how you’ll learn how emotions influence your decisions.
- Mid-candle judgments are almost often spontaneous, as proven by experience . It is always advisable to the new traders not to make mid-candle decisions as it may severely affect them. You will be able to witness for yourself how you are a victim of impulsive trading decisions once you employ this strategy. If you wish to control your emotions during trading, try making decisions candle by candle.
- Making a list of all the entry criteria is a great strategy to avoid making emotional decisions. Make a list of the entry requirements and have it accessible near you. This assists you in developing mental discipline.
- You won’t go anywhere near success if you don’t believe your system and ability and stick to a consistent strategy in everything you do, not just trading. Move forward after being clear and explicit about your trading rules and approach. When we are influenced by the opinions of others, we may change our best rules. At all costs, this must be avoided.
- Opinions are important, but only if you do your study and grasp both sides of the issue. It is not reasonable to rely on it solely because it seems interesting. When it comes to trading, relying on other people’s opinions might be detrimental at times. If you want to trade with confidence, Avoid listening to other people’s opinions.
- While we can blame a lot of losing trades on our inability to control our emotions, we can’t blame every loss on emotions. However, if you can keep them under control, it will be easier to spot other problems and continue to progress. It’s difficult to fight your natural inclinations and reactions, but with enough practise and persistence, you may start to regulate your emotions when trading.