Self-awareness is a character trait that is important for being successful, not only as a trader, but in life in general. Self-awareness means that you are aware of yourself. This can include your strengths and weaknesses or your current state of mind and your emotional status.
Daily self-awareness and the ability to assess your current state of mind is important as a trader. Since being a trader means that you have to continually make decisions that can cost or make you money, and even result in major losses, making sure that you perform at your best level is important. However, most traders just see trading as a job where they HAVE TO sit in front of their desk from 9 to 4, regardless of how they feel.
Every morning, before you start up your trading platform, take some time to assess your current state of mind. The following points can serve as a guideline to evaluate yourself:
- Do you feel sick? Although it is obvious that you shouldn’t trade if you are sick, most traders don’t think that way and still trade as normal.
- Have you had enough sleep? A sleep deficit has severe impacts on performance and how we react and interact with the markets.
- Are you angry or aroused? An argument with your spouse or a serious conversation at work can, and will, carry over into your trading routine and will create a lack of focus.
- Over-excitement, on the other hand, can also significantly influence your decision-making process. Being too euphoric can be dangerous because you might analyze risk wrong or are too casual about potential losses.
- If you are coming from a winning streak, traders also tend to feel too confident and, therefore, be less risk averse. This usually leads to excessive risk taking.
- On the flip side, coming from a losing streak can make you be too cautious and, therefore, make you miss potentially profitable trade.
To assess your current situation, observe how you react and interact with people and situations around you.
If you feel not too well and you answer most of the questions above in a way that signals that you are not in the optimal state of mind, don’t trade!
Take the time before lunch off, or even take the whole day off. You will always get another trade, but you can’t get back the money that you lost by making an unnecessary mistake. Another way of avoiding unnecessary mistakes when you don’t feel well is that you trade smaller positions. If you normally risk 2% per trade, go down to 1% or 0.5% until you are sure that you feel better. Trading is not a business where you get paid by the hour, but by your performance.