Your Trading Mindset

One of the most important things to understand when it comes to trading is that your entry and exit strategy is only the beginning.  You must conquer that first, but then comes the real difference maker when it comes to trading, and that’s learning to control your emotions, or even worse, fighting your mental mistakes when your real money is on the line.  I can teach you a great trading strategy, but even after that, you will have to learn about yourself and learn to trade without emotion in order to be successful.

This part is often very confusing to new traders and it usually makes very little sense to them.  It’s only after you begin to find some success and really begin to learn to trade properly that you will find there is an emotional side that is just as important as any part of learning to trade.  We like this article that was posted by Ian Jackson at Ezinearticles.  Here is what he had to say.

As we progress along our journey toward being successful traders, we often find the biggest issue we have to deal with is ourselves.

This is not a profound statement – anyone who studies trading is forever being reminded that trading is ‘20% about the system and 80% about the mind’ And yet how many aspiring traders really understand this statement? I’d suggest that not only do very few aspiring traders fully understand this, but that a good portion of traders who believe they’ve developed the mindset, only believe this because they are going through a purple patch in their trading and making money.

What happens to these traders when their purple patch ends and they experience a run of losers? Is their mindset sufficiently ‘mature and developed as a trader’ that they accept this inevitable string of losers and simply buckle down and keep trading their plan?

I know I have a long way to go before I could look you in the eye and with 100% confidence tell you I had developed ‘the traders mindset’. There are a lot of things that I do right as a trader and I know I am developing the mindset, but there are still things I do wrong, that remind me I have a long way to go.

Developing the right mental approach to the market takes an incredible amount of experience and understanding – there is no real substitute for this. You need to experience the euphoria of a great trade, and the downright misery of a bad one. You need to learn to put these emotions aside and move on. And that is incredibly hard.

How many of us have seen a stock rocket 10,20 or even 30% in our direction right after we closed our position for (what we thought) was a very nice 5%? How did that make us feel? For me, when this happens I still work out how much I left on the table and think ‘if only’! What I should be doing is firstly patting myself on the back and reminding myself that I took a profit, and then working on improving my exit strategy.

And what about the times when our stops are taken out only for the stock to rocket once again in our direction? How does this make us feel? For some of use, we blame the professionals, they obviously went fishing for our stops! But who put the trade on? Us or the professionals? If you accept responsibility for your trading then you are well on the way to developing the right mindset.
Most traders will have heard of Mark Douglas – the man is rightly credited with writing one of the best books on Trading Psychology available – Trading in the Zone. I constantly remind myself what Mark’s key messages are;

Anything can happen.
You don’t need to know what is going to happen next in order to make money.
There is a random distribution between wins and losses for any given set of variables that define an edge.
An edge is nothing more than an indication of a higher probability of one thing happening over another.
Every moment in the market is unique.

Thinking about what these messages really mean gives me an inner calm when trading, and that is absolutely vital towards success.

For me, a big part of developing a traders mindset is in having a trading plan. And not just something you have thrown together because ‘every trader needs a plan’, but something you have developed over time that deals with all the aspects required to make you successful. A good trading plan covers off not just strategies you will use, but also financial requirements, rewards systems, hardware and software requirements and your trading disciplines (to name but a few).

Trading is a really tough way to make a living, but would you really expect a profession that offers unlimited upside to be easy to master.
AtticManTrader’s journey continues……

Daniel Jackson has been trading for over 7 years. He swing trades FTSE 350 stocks and Day-trades the mini0sized Dow. He has presented spread-betting discussions at the WorldMoney Show and regularly contributes to numerous trading publications. You can follow his journey (and download his trading journal software) by following the link back to the original article below.

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We hope you enjoy Daniels article and we only posted it because it has some really great thoughts on learning about yourself as your progress as a trader.  Be sure to spend some time with this one and don’t take it too lightly, because as I stated earlier, it may not seem important if you have not yet reached this step in your trading evolution.  If you stay with it though, at some point, you will begin to see the that it really does make sense and that it actually will become a very important part of your overall trading success.