In recent weeks we discussed some various technical & fundamental ideas that go into trading. This week we consider the importance of psychology and how it can make or break you as a trader!
The mental aspect of your trading career is equally as important as all the technical and fundamental knowledge you gain through various studies, courses and own experience. Trading is all about taking risks in anticipation of a reward. As such, it is only natural that we experience various emotional responses to what we are doing and how does it affect the balance on our account. Any trader must remove these emotions and stay disciplined at all times to be successful and profitable in the long term.
The most common emotions associated with trading and experienced by most traders are:
Fear is an unpleasant emotion or thought that you have when you are frightened or worried about your current circumstances or the outcome of your actions. In trading, it is most commonly associated with the fear of loss, fear of missing a trade and fear of losing a profit. Do not let it paralyse and stop you, master your strategy and overcome your fear!
Greed is a very strong desire to (continuously) get more of something. In trading, it is always about money. Traders influenced by greed are more likely to act impulsively, execute trades with poor risk to reward ratios, not adhere to their own risk management or trading strategies. Do not get greedy, follow your risk management and strategy at all times!
Hope is an expectation that something is going to happen. Most traders experience hope when they are in a losing trade that is about to hit their Stop Loss (SL). They hope that the market will turn around and move in their preferred direction if they only increase their SL level. Leading to even bigger losses sustained by the traders. You have to accept the fact that losses are part of the game. Do not hope for a better outcome, work for it!
There are, of course, other emotions like excitement, frustration, overconfidence, anxiety, anger, boredom and the list goes on. Every trader needs to learn about their own emotional response when trading and experiencing stressful situations.
The mindset of a Successful Trader!
Building the right mindset is not easy and finding out what works for you personally will take time, commitment and resilience! It is an individual journey for every trader. You will experience a roller-coaster of emotions before you will find your way of coping with them! But we’re here to help! We have created our own Trading Top Ten tips that can foster the Mindset of a Successful Trader!
Take care of your environment - including optimised set-up of your trading room, people you surround yourself with and your own thoughts when trading. Make sure your environment has a positive impact on you! Your trading room should allow you to analyse the markets and execute trades without any unnecessary distractions. Your friends and family should understand how important trading is for you and should provide you with emotional support if needed. Finally, you have to understand how your thoughts and actions may impact your trading decisions!
Positive reinforcement 2
Making mistakes and experiencing losses is, unfortunately, part of the journey. You will lose a trade (definitely more than one), no matter how good the strategy is. But this should not make you doubt yourself! Every loss is an opportunity to learn from and grow as a trader. Profit made in Forex is (of course) your ultimate reward, however, make sure to also have some sort of a reward system that motivates you to learn from mistakes and be a better trader the next time you execute a trade!
Make sure you’re in the industry for the right reasons! Be passionate about trading and everything that goes into trading! It is a very specific and demanding lifestyle after all! It’s easy to be ‘passionate’ about trading when you’re winning. Unfortunately, it is way too common for new traders to give up after a few losses. Remember, your passion should be never defined by the outcome of your last trade!
Patience is key. As a trader, you will spend hours analysing charts trying to predict the future price direction. Once identified, you will have to be patient and wait for the right entry opportunity! The chances are, you will never catch every set-up! You must stay patient and wait for another opportunity and never enter a position late or when in doubt!
Discipline and adhering to facts (rather than your personal feelings) will make you a successful trader. A disciplined trader is a consistent trader, a consistent trader is a profitable trader, a profitable trader is a successful trader! Being disciplined is of the utmost importance. You have to stay disciplined at all times to be successful in the long term. If you follow your trading plan and strategy with discipline in nine out of ten trades, then you can't claim to be a disciplined trader. In most cases that one rushed or impulsive trade would hurt your performance the most. Always stick to your tested strategy on your live account. You should also have a demo account, where you can explore other strategies, try new setups or pairs in a risk-free environment.
Realistic Goals & Objectives 6
Having realistic goals and objectives is crucial when developing a mindset of a successful trader. It is important to make them personal, in line with your knowledge and experience. Never compare yourself, your goals or results to other, more experienced traders. Realistic expectations will help you stay motivated, passionate, disciplined & patient! Remember, it is impossible to have a 100% winning ratio or to always predict where the markets will go!
Calculate your risks 7
Effective risk management enables traders to develop the mindset of a successful trader. Implementing a set of rules and measures to manage the exposure allow traders to limit their emotions when the transaction goes in the opposite direction! Your trading plan (and a section about risk management) enables you to fully understand your maximum loss at any given time thus, making it easier to accept the loss and move onto the next trade!
Learn from it! 8
Successful traders never stop learning. You should always acknowledge your mistakes and learn from them. Make sure to create and keep a detailed trading journal and go back to it as often as possible. Take time to read and analyse the information you’ve written down, try to find the errors and find a way to avoid them in the future!
Stick with it! 9
Do not give up on your trading journey after a loss or a losing streak! Through extensive research, you have decided on the strategy that best suits your trading style and personality. You’ve tried it on demo accounts and you were successful enough to go live. Don’t give up, stick to your risk management, follow your strategy and get through the rough patch! This is what makes a real and successful trader in the long term!
Own it! 10
Trading is about creating a tailored system for you and only you. Ultimately, you’re responsible for your account and the decisions you make. Yes, it requires a lot of effort and sacrifice to make it all work but so does everything that is life-changing! We can only recommend you to have and update your trading journal, evaluate and learn from your past trades, continuously study new systems and strategies, follow and understand the impact of the news releases, expand on your skill set and ultimately create a Traders Mindset. Remember that if you don’t own it, if you don’t take responsibility for your journey you will never reach your true potential and goals you’ve set!
You’ve made it through our Trading Top Ten tips that can foster the Mindset of a Successful Trader! We hope you’ve learned and enjoyed our last theoretical lesson (at least for the next few weeks)! Join us next week as we move on to discuss various trading strategies! Stay tuned!