As per my experience in trading for 10+ years , the biggest obstacles for trader long term survival is
- Managing risk in trading
- Trading on your trusted and winning trading strategy
Even if you control your risk on every trade and have a trading strategy that is a winner in the long term you can still be tripped up by your own mind. Even while managing risk you will probably lose 10% t0 20% of your capital or even more in a draw down with a more aggressive system . This is just the reality of trading.
Even with a robust trading system or methodology that wins in the long term you have to sit through losing streaks of 10-20 trades at some point in your trading career.
What does it take to come back after you lose? Especially after you lose big, or after you lose over and over. Even under performing for a month or quarter can put pressure on a trader. You add in dealing with the evaporation of paper profits or missing a trade that would have been a big winner and the trader can really beat themselves up mentally. There is pain in losses and pain in winners that could have been bigger.
So how do we overcome the mental side of trading?
Your success in trading is directly related to what is going on in your mind. When the analytical you that is preparing to trade outside of market hours is the same you that is trading under the pressure of live markets with real money on the line, then you have gone to the next level. It is not the time to be pondering risk management, position sizing, and exits and entries while you are entering and exiting trades during market hours. You should be doing nothing but implementing your plan in live trading there should be little if anything to ponder it should be focused execution of your own trading principles and plan.
If your losses are eating you up emotionally you must lower your position size and risk per trade until you find the level where your emotions disconnect from your losses. You have to find the sweet spot where your wins are big enough to be worth playing for and your losses are small enough to not break you mentally or emotionally.
To win the mental game you must have
- Trust on yourself.
- Trust in your trading system.
- Understanding of what trading size you can handle.
- Understanding of the level of losses you can deal with mentally and emotionally.
- the belief that it is possible to win in trading.
- the perseverance to keep trying until you are successful.
My journey through the markets were brutal and tried me mentally and emotionally to the highest degree but I can tell you that you can come out the other side with a prize that was well worth playing for. The markets are not based on luck, you can actually win by working hard enough at it. You can put the odds in your favor. If you can win the mental game of trading you will win, because that is the game.