As Human Traders, Our Biggest Enemy is Ourselves:
The average person is attracted to the market for one reason – the potential rewards (money). Plain and simple. From the outside, it seems like a quick and easy pathway to riches. If you’re over 18 years old, have at least a couple hundred dollars, and an internet connection, you can open up a brokerage account today and start placing trades. There are no tests, certifications, or any formal education required. You can jump right in on day one and call yourself a “trader”. There’s really nothing else like it in the world.
But just because it’s so easy to physically start making trades, doesn’t make it wise to do so. As with anything worth doing, it takes time, dedication, and sacrifice to achieve success. Sure, some beginners will end up winning on their first few trades by pure luck, which unfortunately deceives them into thinking they already have the mental skills to trade efficiently right from the get-go, but there’s a substantial difference between winning on a few trades and being a consistent winner. Pure luck is short-term, but consistent traders who implement knowledge, structure, and discipline into their approach have the ability to generate durable, long-term market success.
Drop the Obsession With Money and Other Material Possessions:
It’s great to have goals and aspirations – there’s no doubt about that. But if you’re entering the markets solely for the money, then you’re doomed for failure. The core of trading consistently relies on finding an edge, creating rules, and strictly adhering to them. But if you have an overwhelming craving for money and other material possessions, it will have a tendency to cloud your judgement and impede your overall trading success. Acting impulsively over-and-over again in an attempt to get-rich-quick is a recipe for disaster.
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It’s a rather difficult thing to do, but you have to train your mind to forget about the possibilities (money, cars, houses, etc.) and focus on the probabilities (risk vs. reward). Remember that your actions in the current moment, which should involve sound risk management and flawless execution of your trading plan, will be the key to your long-term trading success. In a nutshell, success and failure in the market is based on how you behave and how well you control your emotions on a routine-basis. When you focus on the process, the outcome takes care of itself. So good trading shouldn’t solely be judged by the profit/loss in your account, but by how disciplined you were in adhering to the strategy. In the end, the less you concern yourself with money, the more the market will send your way.
Accept That You Won’t Be Right on All of Your Trades. If You Can’t, You’ll Fail.
The idea that you have to be right on all of your trades is a fallacy. In fact, it’s possible that your win rate could be less than 50% and still be profitable, as long as the winning trades are larger than the losers. But the point is, you can’t be too stubborn to take losses. Psychologically, people tend to view their losses in the market as a personal attack – a shot at their own deficiencies and shortcomings as a human. That type of emotional reaction when released into the market can cause accounts to spiral out of control, and fast.
So instead of cutting the loss, they bend their rules, holding on and hoping the stock will eventually return to their entry price. But it doesn’t – it just continues falling. Eventually, the loss that could’ve just been a tiny paper cut is now a giant gash in the account. Ultimately, that “refuse to take a loss” mentality can be devastating to accounts over time. The market is filled with uncertainties, so being right on every single trade is simply impossible. No amount of long-lasting success will come to you in the markets if you can’t consistently act in your own best interest, so stick to your rules and execute your trades properly.
Top 10 Trading Concepts to Understand If You Want to Achieve Consistent Success:
- Focus Primarily on the Process (Adhering to Your Strategy) Instead of the Outcome (Profits/Losses).
- Relying on “Luck” is a Dangerous Practice. The Market Will Eventually Punish Your Account For Your Lack of Discipline.
- Have Rules and Stick to Them. Your Long Term Success is More Important Than Any Short-Term Emotional Gratification.
- A Need For Being “Right” on Every Single Trade Will Ultimately Lead to Failure. Risk and Losses Are Part of the Game.
- Full Concentration on the Execution of Your Strategy Reduces the Occurrence of Distracting Emotions like Fear and Greed.
- Trading is Not About Getting Rich Today, So Don’t Obsess Over Money and Other Material Possessions.
- Outputs Derive From Inputs. There’s No “Luck” or “Magic” to it. You Have to Work Hard to Achieve Success.
- Without the Right Mindset and Discipline, Even the Most Robust Strategy is Doomed For Failure.
- Structure (Strategies and Trade Plans) Are Required to Reduce Your Tendency to Act Impulsively and Make Errors.
- Winning Traders Methodically Execute Their Strategy, While Losing Traders Make Excuses.
Gain Self-Awareness and a More Structured Trading Approach With the Help of Yvan Byeajee:
Overall, 99% of our problems in the market can be attributed to our own minds. Ironically, it can also be our greatest asset if we exercise our abilities to concentrate and be mindful through the act of meditation. I have Yvan Byeajee to thank for opening me up to the critical importance of meditation as a daily routine and the impact of trading psychology in general.
APRIL 2021 UPDATE: NEW #1 RECOMMENDATION – The Advanced Traders Mindset Course
If you want to learn more about the topic of Trading Psychology, I suggest checking out his works: Zero to Hero, Paradigm Shift, The Essence of Trading Psychology, and more. Yvan also offers insights and courses through his blog at Trading Composure.
The Wrap Up – The #1 Reason Most Traders Fail is Due to Their Mindset:
A proper state of mind is the most underrated asset of a consistently profitable trader. The psychological aspect of trading is truly the glue that brings everything together. The strategy and risk management plan would be nothing without a prepared and disciplined mind. Trading success is much more than just knowing a proven system or strategy. A system is just theory unless properly executed with discipline. And trading isn’t merely math and logic like some people think. Sleep, nutrition, and exercise all play a role in your trading success as well. Overall, it requires a relaxed mind and full concentration on the current moment, not on the result. If you focus on the correct process, then the result will take care of itself.
Most traders, unfortunately, put the cart before the horse, meaning they don’t focus on themselves and their own psychology first. They’re not in tune with their emotions and often left wondering why they haven’t yet been able to achieve consistent success. But no system will save you without self-observation, self-analysis, and self-discipline. Believing that markets will conform to all of your personal expectations will only be met with frustration, disappointment, and losses. The market doesn’t owe you anything. If you jump in with insecurities, denied impulses, and unrealistic expectations, then it will be there to greet you with misfortune.
Are You Ready to Finally Experience Consistent Success in the Markets? Your Mind May Be the Only Thing Holding You Back.
Written by Matt Thomas (@MattThomasTP)
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Thank you for helping me view things through a different perspective. I have been guilty of trying to hold on to trades that were making me lose money just to prove the curve would finally go in the direction I had predicted. And what ended up happening was that I lost even more money. Up till this day, it’s so difficult for me to admit that I was mistaken about a trade.
Hi Abel. Holding onto losing trades and not following initial trade plans with a high degree of discipline are such classic examples of trading errors. Almost every trader has been guilty of doing these same things! The good news is that you’re not alone and it’s 100% possible for us to modify our perspectives and behaviors in order to become more consistent traders.
We can learn to be more calm & rational, and be able to detach from the outcomes of specific trades. It’s not about being right or winning on any single trade. It’s about being profitable over the long-term by having a strategy with a positive expectancy, and following that strategy with discipline. Our emotions try extremely hard to detract us from being disciplined, but we can overcome those “in-the-moment” urges by understanding and shaping our thinking patterns for the better. Mindset is truly the foundation of consistently profitable trading.
You are very correct, I once traded. But I started with a wrong mindset. I have been told that trading was difficult. I came into it with the wrong mindset and I did not do well. Rather I lost all my cash in that experience. Trading is not difficult though, you just need to understand the market AND your mind – then you will thrive.
I have to say that when I first traded, I was becoming too obsessive and worrying too much about the price that I would not function on my daily life, that is just me though. But after I got myself educated and read Warren Buffet books, I started to understand that I have been trading the wrong way this whole time. I think the short term gratification needs practice to overcome that. I love Zero to Hero this book changed my perception about trading as well.
Hello there!
Muchas gracias for sharing this informative piece of information with us. I am very happy I came across this because it contains all the all the valuable information one needs to hold onto as a trader. I really enjoyed it mostly because I am a trader myself. I will share this article because I want others to benefit as well.
Trading is a great way to boost your income. Sadly the first thing that you need to do is make sure the platform that you use is legit and not a scam. Then once you learn the strategy you are going to follow you need to manage yourself and work smart. Psychology is a huge part of trading unless you sort it out you are likely to be a statistic and fail.
It is nice to get to know why most traders fail, as it will go a long way to make one know what should be done at certain times and shouldn’t be done. I have learnt a lot from the reasons you mentioned and explained above and will be sure to avoid making the mistakes you mentioned.
Very interesting and new to me. I’ve heard a lot about trading, but not like this. I didn’t know how critical mindset was before. Lovely methods here and I also liked the part about being real with yourself and realising every trade isn’t going to work for you. You have to go through trial and error with everything.
There are so many sites out there talking about the theory of trading and never the psychology of it. The mindset is what matters most! Like any job, approaching a problem with the right viewpoint while understanding the risks can make anyone unstoppable! Thank you very much for sharing your take on it.
If you opened up a trading account during the last couple of months, due to being stood down from your job because of the corona virus, it is unlikely you would be in the right frame of mind to trade anyway.
Even if you traded as a side hustle while holding down a full time job, the gyrations of the markets over the past couple of months, should have been enough warning to stay away trading. I have a share portfolio and although it is stabilizing now the temptation was to ditch them.
The mental aspect is where many wanna be traders fail, most leave the trading scene in financial body bags, some attempt a 2nd or 3rd coming, which puts a big smile on the brokers face.
Hi Michael – I really appreciate your comments. The reality is that most traders don’t enter the markets in the right frame of mind. Whether they’ve just lost their job or some other negative event has recently happened in their life – or not – people will still carry their insecurities, denied impulses, bad habits, and unrealistic expectations into the markets.
The truth is that we’re not prepared to perform consistently in such an unstructured and uncertain environment, so it requires a paradigm shift to become a consistently profitable trader. Since we naturally have biases and defense mechanisms that can negatively impact our judgement, we have to create rules for ourselves to follow. These rules allow us to act in our own best interest on a trade-by-trade basis. In their absence, we’re left with impulsive and irrational tendencies, which simply won’t result in consistency or any sort of durable trading success.
It’s not the gyrations in the market that should be causing fear and anxiety for traders. In fact, volatility is the short-term trader’s best friend. And there are strategies out there that can take advantage of moves in the markets whether they go up or down. If any moves in the markets are causing you anxiety or fear, it’s simply your perception. The markets themselves assign no meaning to their moves – only your mind can.
The bottom line is that we need to align our expectations with the conditions of the markets. Those conditions are that anything can happen on a trade-by-trade basis, but we don’t need to know what will happen in order to make money over time (assuming your strategy has a positive expected value). If those are our true expectations, then there’s no way for us to view any market move as negative or threatening.
All the markets do is provide information that we choose to act on or not, and if we have a strategy in place with a positive expected value, we should be opening and closing positions based on our system’s signals without any internal resistance at all. Developing the proper mindset allows successful traders to get to this point of trading with limited to no mental resistance.
It becomes a smooth, enjoyable and profitable experience instead of an erratic, afflictive, and unprofitable one. All good trading is is focusing entirely on your process – having rules and sticking to them. If you can do that (which is much easier said than done), then the results will end up taking care of themselves.