This is something that has taken me a long time to realize.
But when I take a step back and reflect on things that have had the biggest positive effect on my development as a trader, this is one is one of the most important.
It is the ability to forgive myself.
It's not talked about much on the internet, but after you read this post, you will probably agree that it will more for you than any trading system.
So in this post, I'll give you five scenarios where we, as traders, tend to be too hard on ourselves.
More importantly, I will also give you solutions on how to improve your mental state in each scenario, so you can be in the best position to take advantage of the next trading opportunity.
Being able to forgive yourself is the most powerful secret weapon in trading.
Scenario #1: After a Losing Trade
This one is pretty obvious, but I don't think that most people understand the degree to which they beat themselves up before, after and during a losing trade.
So let's dissect what goes on during a losing trade and how to minimize the effects of our negativity bias.
The negative emotions can start long before you get stopped out…
Trade Entry
When you enter a trade, you may already have some doubts. To a certain extent, this is natural.
Nobody knows exactly what will happen, on any one trade.
However, if you have too much doubt, this will start to cloud your judgement and can lead to you mess with an otherwise profitable trade.
This means moving your stops, exiting early and simply making much less money than you should have.
So when you enter a trade, you need to be as confident as possible, or this can set off a negative chain reaction, as we will discuss later.
On the flip side, having too much confidence in a trade is not good either.
If you always are sure that a trade will work, you might attach part of your identity to the trade.
When the trade is a loser, then you take that personally and feel like a loser too.
Overconfidence also leads to over trading.
Obviously, neither of these conditions are conducive to profitable trading.
Solutions
There can be two primary reasons for you not having confidence when entering a trade.
First, you probably haven't back and forward tested your system, so you don't understand your probability of winning.
If you know this important statistic, then you will be less worried about a loss.
You will understand that you will win some and lose some, but on the whole, you should come out ahead.
So if you don't know your odds of winning with a particular strategy, then do some backtesting and forward testing right now.
If you don't even have a trading strategy, then you should start with these courses.
Now, if you have the opposite problem and you are overly confident that you will win on every trade, then you need to check yo' self before opening a trade.
Here are some exercises you could use:
- Tape a couple of losing trades to your monitor, trades where you were super sure that they would be winners
- Watch Titanic
- Write down an emotional situation where you sure that you were right, but you were still wrong. Preferably, a situation that is not trading related.
- Watch Titanic again
Of course, you don't want to give yourself too big a dose of negativity or else you will become too negative. That is exactly what you want to avoid.
But you need to give yourself a reality check and realize that you can lose. The more that you can control your emotions during a win and a loss, the better your chances of success.
During the Trade
Once you are in a trade, it can be a whole different ballgame. You may have been cool, calm and collected when you entered the trade.
But now shit just got real.
If you are prone to riding the emotional rollercoaster during a trade, then you will beat yourself up until the trade is closed. This can color your judgement during and after the trade.
Solutions
I won't lie, it can be tough to manage your emotions during a trade. But the more that you practice your trading method, the better you will get.
So have a plan, start with a small account and learn to remain objective. Riding that coaster can be fun in the beginning, but it gets old real quick.
Learn how to detach yourself from your trades, while they are in progress, and your trades have a better chance of working out.
After the Trade
If a trade turns out to be a winner, then you say:
I knew it.
…and you move on to the next trade.
But if it is a losing trade, then you can start to invent all kinds of reasons why the trade didn't work out. Yeah, I've been there too.
Even if you executed your plan exactly, you might say things like:
- I should have exited earlier
- The S&P500 was down and I should have stayed out
- Why didn't I see that pin bar?
- …and on and on
Solutions
In reality, it might have been a great trade. Some trades just don't work out.
So keep a trading journal and add your charts before, during and after the trade.
Then wait a few days.
Then review the trade again.
This will help remove any emotional attachment to the trade and help you view it more objectively. Remember, a losing trade is not a bad trade.
Learn to tell the difference and stop beating yourself up when you should really be congratulating yourself on playing the odds correctly.
Scenario #2: You Hate Your Job
It's 3:30 pm and you are sitting at your desk at work.
Watching the clock…
Waiting until 5:00 pm rolls around, so you can get the hell out of there.
But what is going through your mind during this time?
Probably something like…
- “I'm better than this job”
- “I hate my boss”
- “I hate this work”
- This is a waste of my time and talents
- “I want to trade from _________ (insert exotic tropical destination)”
…or something along those lines.
Am I right?
I've been there too.
Well, beating yourself up like that isn't helping you develop as a trader.
First, that only puts unnecessary pressure on yourself to “make it” in trading. This is why people quit their jobs prematurely. Then they find out that trading isn't as easy as it seems on the internet, and they are in even deeper shit than when they started.
This is also the biggest reason that people blow out their accounts. In their haste to quickly replace their job income, they fail to understand that risk management is fundamental to trading success.
Second, it only feeds your negativity bias. When you start thinking negatively about one thing, it tends to color everything else negative too.
In the past, we needed our negativity bias to survive. Our ancestors were being chased by sabertooth tigers and giant alligators.
In those situations, it pays to think about what could go wrong. That's how you stay alive.
But in our modern society, the biggest daily concern for most office workers is getting stuck in traffic on the way home.
…pretty big contrast, huh?
Here's how you can reframe your job to make it benefit your trading.
Solutions
Be Grateful for What You Have
When you hate your job, it can be easy to forget that your job is putting food in your belly, funding your trading account and allowing you to take the kids to Disneyland every year.
So be grateful, dammit.
Be grateful that your biggest problems in life are NOT being eaten by a wild animal being shot at by gangbangers or dying of starvation. Be grateful that you have the ability to take care of yourself and people you love.
Even if it doesn't feel like it right now, you do have this ability.
Now that we have established that a job has some benefits, let's reframe your job into something that can help your trading.
You Probably Have a Lot More Options Than You Think
If you hate your job/boss/commute, then…you hate it. I'm not telling you to suck it up and be miserable.
My samurai ancestors would cringe at that statement, but it's totally true.
I am telling you that you have options…if you get off your ass and take advantage of them.
You can change jobs. You know this, but sometimes we are so comfortable in a job that we get stuck in a rut.
I've been there. I stayed at a job for 5 years, when I should have quit after 3.
However, I learned my lesson and quit a subsequent job in 2 years when I knew I needed to get out.
On top of that, quitting and getting a new job gave me a 40% raise in pay and better working conditions.
You always have options.
…and you don't have to just look in your local area either.
Many traders dream of being able to work from anywhere in the world.
But guest what?
You don't have to be a trader to be location independent.
It is totally possible. My current day job and my last 3 jobs have all been location independent.
I've worked from Helsinki, Tallinn, Honolulu and many other cities.
Start looking on websites like We Work Remotely, Upwork or Indeed for remote work opportunities.
You will probably be surprised at what is available.
Scenario #3: On a Losing Streak or Having a Losing Month
Being on a losing streak or having a losing month can hurt your ego. When people start out in trading, they want to be profitable every single month.
When they do have a losing streak or even a losing month, then get really down on themselves. I was like that for awhile.
It hurt me to see that on my account statement and many times I stopped trading for a couple of months, or I was really gun shy.
I took the losing streak personally, when in reality, it's a normal part of trading.
Solutions
What's the answer to this problem? I found that it is mental toughness.
Ever wonder how these billionaire CEOs of international companies handle difficult decisions that affect thousands of people…
…and you have difficulty choosing what shirt to wear in the morning?
The answer is mental toughness.
You need to be able to handle the pressure of tough decisions.
I've also found it helpful to be conscious of every single decision that I have to make.
I ask myself if the decision really is difficult as it seems, or am I making it harder than it really is?
Oftentimes, I am making it harder than it needs to be.
How about you?
Scenario #4: Missing a Trade
Chart: TradingView
Another way to beat yourself up is to look at a chart and obsess over the number of pips that you missed out on.
This goes for a trade that you missed or a trade that you exited too early.
We have all been there and thought of that trade for days or even weeks afterwards.
I've even met people who talk about a trade years later.
Focusing on a trade that has already happened can blind you from seeing new trading opportunities.
In addition, you may also start to filter future trades through the lens of what happened on your “tragedy trade.”
This can really mess with your head.
It's like being stalked by a crazy ex.
Solutions
Solving this tendency can be done through repetition. It's not easy, but if you do it regularly, it might not take as long as you think.
There is a phrase that I say to myself, that might help you…
“My success in trading depends solely on my next trade.”
If that resonates with you, the write it down and keep is somewhere where you will see it all the time.
This phrase helps me in two ways.
First, it keeps me focused on my next trade.
I need to do my homework and I need to be in the right state of mind when I am trading to do well.
Second, it helps me get past any negativity in my last trade.
Good or bad trade, I'm going to move on and wipe the slate clean on the next trade.
Figure out a phrase or image that can help you get past the negative emotions of previous trades. Say it or look at it often and it will help you overcome your fixation on your last trade.
Scenario #5: Seeing the Success of Other Traders
Last, but certainly not least, is the jealously factor. When you see other traders succeeding, you start to ask yourself why you haven't succeeded at that level yet. The most commonly used phrase is:
Why am I so behind?
This is especially true if the trader you are looking at is significantly younger than you.
We both know how that feels.
Solutions
The thing that has helped me the most is to take full responsibility for my current situation. Even if I don't how to change my situation, there are two facts:
- This is my situation now and no amount of wishing or lamenting will change that.
- Regardless of what others have already accomplished, I must walk my own path. There are also many more people who are in a worse position than me and not everyone is successful early. Sometimes it takes a little time.
Nothing will change unless I do.
So I need to…
Work hard and figure it out.
So stop comparing yourself to others. You are who you are and nothing will change unless you do.
Go create that reality that you have been dreaming of.
Start with a Heroic List and start crossing off some small achievable goals.
This will build your confidence and help you realize that you can do it.
Final Thoughts on Your Secret Weapon in Trading
In order to succeed in trading, you need to be your own best ally, not your worst enemy.
Learning to forgive yourself is a huge first step in that process.
