In Trading, letting your emotions control you will lead to disaster. Instead, you need to have a powerful mindset, or what we call the Strong Trading Psychology. This is a focused psychological framework that will help you develop selective, wise, and patient trading methods. The most successful traders exhibit these mental habits which help them stay focused even if they making trading losses in short term.
The biggest enemy to your trading success is not the market. It’s YOU. And you are your biggest enemy because of your emotions. A profitable trading strategy is not enough on its own. You must also have the right mindset if you want to be one of the only 5% of traders who actually succeed.
#1 Know What to Expect
In order to develop the right mindset-to have a trader’s psyche-you need to know what to expect when trading. You must be prepared for a variety of emotions so that you can monitor them, instead of letting them control you. Only by staying on top of your emotions can you stay focused on the key to successful trading: maintaining a consistently profitable long-term strategy in the middle of many smaller short-term wins and losses, even when these short-term outcomes seem overly distracting.
Many traders mistakenly believe that trading will result in a consistently-rising account balance. But you already know that losses are a part of our business as traders. There will be some days and weeks when your trading exceeds your expectations, and there will be periods when your trading results are far worse than you expected. Successful traders do not fear losses, and they know that a “good” trade is one that they made based on their system, not on how much it profited them.
It’s essential that you maintain a long-term perspective. You need to place at least 40 trades before you have enough data to evaluate your strategy’s performance. Most traders only evaluate their performance once a month, trying to have as many profitable months as possible. Hedge/Mutual funds evaluate their performances quarterly or yearly. If you look at your trading results daily, it will drive you crazy. That’s why I suggest that you define weekly goals, and never think of a single day as a success or failure.
The difficulty, of course, is that this strategy asks you to ignore small-term draw-downs. Sure, nobody likes experiencing losses. But when you’re trading, they are inevitable. The key is in how you deal with them. Successful traders realize that nothing is 100% foolproof, but, at the same time, they don’t rush into new trades just because they’ve experienced a few losses and want their money back quickly. Neither do they stay in a losing trade hoping that things will turn around. They set their goals and losses and stick to them.
Too many traders focus on short-term results and lose their perspective. That’s why they fail: they experience a loss or a bad week, and they start trading a different strategy. And while the trading strategy they just abandoned is recovering from the drawdown, the new trading strategy may result in yet more losses, so again, they start looking for another. Successful traders do try to adapt, but they wait until they have enough information to adapt their overall strategy, not just a few individual trades.
It’s like a dog chasing too many rabbits: at the end of the day, he’s totally exhausted and he has absolutely nothing to show for it, because he didn’t catch a single thing. Trying to react too quickly can cause you to overtrade, which will only cost you. Remember that successful traders are patient and are successful because of their systems. Trading out of panic is not trading according to a strategy that you can repeat consistently.
Trading necessitates selective, wise, and patient trading methods. Successful day traders are practical, and do not go overboard when trading the market. They focus on the quality of each trade, not the quantity. They want to have consistent profits, not the occasional slam-dunk, and the only way to ensure that is to focus on long-term strategies for success.
To be Continued