Most traders don't understand the importance of trading psychology until they get so frustrated with system jumping, that they're forced to review other options. That's when they usually realize that trading psychology is the the real key to success in trading…or they quit altogether.
So if you want to save yourself some time (and headache), implement these 9 trading psychology tips.
I wish that I knew these secrets when I started.
1. Focus on How You Handle Losing Trades
Many traders don't want to even look at their losing trades.
But your losing trades are the key to your success in trading.
First, ask yourself how you feel about your losing trades. Do you avoid them like the plague? Do you get mad?
…or do you dig into them every week so you can learn something from them?
If you dig a little deeper into your psychology, do you take losing trades personally?
Is that because you're risking too much money? Or because you feel that it's an insult to your intelligence?
…or something else?
You will only start to improve when you can face your losing trades and learn from them.
Who knows, maybe you are being hard on yourself for no reason. Those losing trades might actually be high-quality trades, that just happened to lose.
2. Ask Yourself Why You Are Trading
A lot of people get into trading to make a quick buck.
But as you probably know by now, trading is anything but that.
So ask yourself why you are really attracted to trading.
I'm attracted to trading because I'm fascinated by the psychology it takes to succeed, and the creativity that it takes to develop new trading strategies.
If you think that you will make a fortune in trading overnight, you're in for a big surprise. There could be a fairly long road ahead.
You will only be able to stick with it, if you have a reason to keep going.
So be honest with yourself.
Why are you really into trading.
Ask yourself why 6 times…
- Why do I want to become a successful trader? To be able to travel.
- Why do I want to travel? To create memories.
- Why do I want to create memories?
You might be surprised at the final answer.
3. Evaluate How People Around You Influence Your Trading
As the saying goes…
“You are the average of the 5 people you spend the most time with.”
— Jim Rohn
So take a minute to consider the people you hang out with on a regular basis. They don't have to be traders, but it's probably a good idea to hang out with happy people, who are successful at what they do, and encourage others to be the best they can be.
When you hang out with fun, successful people, then it's very likely that you'll become one too.
I'm not judging. Some people choose to complain and play the role of the victim and they have every right to feel that way. It might sound weird, but they do get something out of that state of being.
But since you found this website, you probably want to take control of your life and not just complain about it.
Therefore, take a good hard look at the people you spend the most time with.
If they aren't the type of person that you admire, then consider making some new friends.
You don't have to stop seeing these people. However, you may want to cut back on your time with them.
It may sound harsh, but it's how things work. If you aren't happy with your life now, then you need to make some changes.
4. Can You Visualize Yourself as Successful?
You might think that all people can visualize success themselves as successful.
If you can see yourself as successful, then consider yourself lucky.
Others have trouble visualizing success.
I was one of them.
When you cannot visualize yourself as a successful person, then there's a deeply rooted belief that's blocking this ability to visualize.
As I wrote about in this blog post, the source of this blockage is always trauma.
There's something that happened to you that is creating the limiting belief that you cannot succeed. Read that blog post if you want to learn more.
The list of possible things is too long to cover here, but that post does a good job of going through what I discovered about myself.
You can also consider using a Mind Movie to help you visualize your success.
5. Step Into Your Power
Occasionally, a trader will tell me: “I only made 3% last year.”
I usually do a double-take and think…”wait…what?!”
There are fund managers out there who make millions of dollars a year, but don't return that much for their fund.
So stop downplaying your results.
Yes, if you are trading a $5,000 account and you make 3%, then that won't be enough to make a living.
But it's a great start.
Over 90% of traders lose money and most blow out their accounts. So if you're profitable, it's just a matter of improving your skills.
In most cultures in the world, we are taught to give away our power and sovereignty.
We are taught not to question doctors, professors, religious leaders and anyone with letters after their name. But more and more people are discovering that these professionals only know part of the picture.
People like you and me can have the power to figure things out on our own. We should certainly consult these professionals because they have a lot of knowledge, especially in certain specialized areas.
But we should think independently and have the final say in how we live our lives.
The same thing goes for trading. Stop giving away your power by downplaying your results.
If you were profitable last year, isn't it possible that you can be more profitable this year?
Of course it is.
6. Understand Your Negativity Bias
Most people in the world have a negativity bias.
They look for what could go wrong, before anything else.
…and this behavior is perfectly natural.
In previous times, we frequently had to defend ourselves against natural disasters, wild animal attacks and invaders from other tribes. There was a lot to be worried about.
Modern societies have shielded most of us from these threats nowadays. But the tendency to look for danger first, still exists in our collective subconscious.
So when we get into trading, we start telling ourselves things like:
- This trade probably won't work out
- I'll take my profit right now because the trade will probably go against me
- I think my broker is running my stops
- That trading system is a scam
- I need to get more education before I start trading
- …and on, and on…
Again, this is natural…and is also why so many traders fail. But now that you're aware of this, it's up to you to fix it.
The first step is awareness. Become aware if you naturally gravitate to a negative outcome or a positive one.
If you are naturally negative, start asking why. Is there a reason that you can pinpoint? Can you work on resolving that issue?
Of course, being too positive can be a downside too. It's overall better than being negative. But ask yourself if you're being overly optimistic, which can also cloud your judgement.
You probably won't be able to solve these issues right away. But stay aware and the answers will come.
7. Habit and Process are More Important Than Trading Systems
New traders think that a trading strategy alone will make them rich.
This is a perfectly natural assumption.
Trading strategies are deceptively simple. Just follow a few rules and you're a billionaire.
…or so the theory goes.
But there's so much more to it than that.
What's actually more important are your trading habits and processes.
When you develop a habit, you'll put in the consistent work that's required to:
- Test trading strategies
- Review trades in your trading journal
- Get more education
Building a habit isn't easy, but it's a requirement for success. I would recommend reading The Power of Habit to get started with building your positive habits. It gives you a step-by-step process to build a positive habit, or get rid of a negative one.
Speaking of process…
Having a process for improving your trading will help you:
- Figure out exactly where your trading is going wrong
- Test a strategy thoroughly before risking real money
- Understand if your psychology or strategy isn't working
When building processes, it's helps to map out your workflow on a sheet of paper. Create a flowchart that will help you understand how you'll manage each step in your trading.
Consider having a roadmap for your testing, live trading and journaling.
…or put them all together in the same flowchart. You can include things like:
- When you'll journal your trades
- A reminder to check your trading rules before entering a trade
- Your definition of a successful backtest
- How long you'll demo trade a strategy before you trade it live
8. What's Your Real Passion?
Do you have to be passionate about trading to succeed?
I believe that you do.
But if you aren't passionate about trading I also believe that you can use another passion to drive your desire to succeed in trading.
For example, let's say that you are passionate about cleaning up all of the plastic in the environment. Not a whole lot of money to be made in cleaning up plastic.
…as far as I know.
However, if you can learn trading and have that as your primary income, you can use that money to start doing something about all of the plastic in the environment. At the very least, you can start contributing more to organizations that work on the problem.
Either way, put some real passion behind your trading. Learning to trade is not easy and you'll need all the reasons you can get to keep going.
9. Remove Unnecessary Stresses on Your Trading
Many people come to trading because they hate their job, or they want to make money quickly. So they put undue pressure on themselves by quitting their job, or trying to turn $100 into $500,000 in 6 months.
There are some endeavors where you can follow a certain plan and make money in a reasonably predictable amount of time.
Trading is not one of those businesses.
Success in trading relies heavily on having the right mindset, a mindset that most of us aren't born with.
So when you quit your job or try to make a crazy return on a small amount of money, you put unnecessary pressure on yourself and amplify the negative aspects of your innate psychology.
If you hate your job, consider changing jobs. Consider working odd jobs that don't require a lot of time or mental investment.
This will take the pressure off your trading and allow you to progress faster.
So those are 9 trading psychology secrets that I wish I knew when I first started trading. In the beginning, it was all about trading systems and making the most money possible.
Part of that is what I was taught and part of that was because I had blinders on.
If you want to speed up your development as a trader, learn from my mistakes. Prioritize trading psychology.
Trading systems are secondary.