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The Stock Market is Survival of the Fittest – Adapt or Die:

In nature as well as the stock market, distribution is never even. The most adaptable animals just like the most adaptable traders, are the ones who survive and thrive. So if you don’t currently have, or evolve to have, the right characteristics in order to be effective within your environment, then you quit, fail, or die. This is the unforgiving process of evolution – and it especially applies in the stock market.

A How to Guide For the Stock Market - Achieving Consistent Profitability

Since over 90% of traders fail, there’s no denying that the majority of us are disturbingly bad at adapting to the unique characteristics of the market environment. We tend to jump straight into the market thinking we have a solid idea of what it takes to be a consistently profitable trader, but in reality we don’t have the the slightest clue about the true nature of trading. It usually takes months or even years of nonstop emotional and financial pain for us to finally recognize the foundational aspect of our trading approach that primarily dictates our results. That is, if we ever even recognize it at all. Many times it goes undetected, leaving traders frustrated and confused.

Luckily, if you haven’t started trading yet, you get to find out now before having to learn the hard way. The foundation is your mindset.

4 Stock Market Characteristics to Accept and Align Your Mindset With For Success:

The reason why the vast majority of traders fail is because they continuously fight the market instead of being in harmony with it. In our everyday lives, we’re so used to controlling our outer environments that we assume the stock market will work the same way. If we don’t like the temperature, we adjust the thermostat. If we’re hungry, we make or order food. If we’re bored, we pick up our phone or turn on the television. But the market doesn’t fulfill our wants and desires so easily. In fact, we have no control over the market at all.

What is Day Trading Psychology

The only thing we do have control over is how we react to it. This is where most traders get it wrong, substantiated by their destructive and self-sabotaging reactions to market action. If our reactions are impulsive, irrational, and inconsistent, then our results will be erratic, random, and most likely negative. If we want any control over our results, then we have to develop self-awareness and self-discipline. The overall significance is that our beliefs and perspectives are completely out of alignment with market characteristics.

Below are four dominant characteristics of the market environment and the psychological implications for each of them.

1. The Market is Dynamic. Nothing is Permanent. Change is Constant.

The market is in constant flux. This never-ending flow of action attracts legitimate gamblers, as well as everyday people. There’s always the possibility that: “taking this one trade can make me rich”. This doesn’t mean that it’s probable or that the risk is worth the reward, but these are the invasive thoughts inexperienced traders often contend with. It’s surprisingly easy to suspend your anxiety and worry about losing for just a few minutes in order to feed the side of you that wants instant riches. After all, this one trade has the possibility of making your wildest dreams come true. Naturally, these thoughts often lead to downright foolish behaviors within the market.

Some classic examples of trading errors due to the dynamic nature of the market are removing stop losses or adding to losing positions in hopes of them returning back to break-even. All of a sudden, that day trade you took turned into a long-term investment because you refused to take a small, controlled loss. But now that small loss has morphed into a gigantic loss. Even still, why admit defeat and accept the pain of the loss when there’s a possibility that at some point in the future you’ll be made whole again? This is how novice traders end up with a portfolio full of near-worthless penny stocks, still hoping to break-even on them at some point in the future.

It’s tempting to think that the constant flow of action will always bring the price back to where you want it, but that’s just not the case. Instead of trying to force your individual desires, detach from your expectations and take a more objective view. You’re probably too focused on the result (money), when you should be focused on the two main components that actually matter (mindset and system).

2. The Market is Inherently Uncertain. Every Moment is Unique.

Even though you crave certainty and control, every single trade you take is an event with an uncertain outcome. There are simply too many factors to consider and the result is that you always have incomplete or outdated knowledge. Due to the uncertainty, it’s critical to have structure in place for emotional and financial protection. This structure comes in the form of a system, plan, or set of rules that dictate your behavior in both favorable and unfavorable circumstances. Controlled losses are unavoidable and should be embraced.

way we think quote from trading in the zone by mark douglas

It might seem paradoxical, but just because the outcome of any individual trade is uncertain, it doesn’t mean you can’t consistently make money if you have a system with a positive expected return. This is a statistical edge that works itself out over a large series of trades. There will undoubtedly be streaks to mentally contend with, but the law of large numbers affirms that probabilities work themselves out over a large number of trials. For example, the probability of a fair coin landing on heads is 50%. If we flip the coin just 10 times, it’s entirely possible for there to be 7 heads in a row followed by 3 tails (heads came up 70% of the time). If we flip it 10,000 times, however, we’d see the occurrence of heads drop back down extremely close or exactly to 50%.

Failing to recognize or trust this concept, most traders have a tendency to bail on their validated systems after only 2 or 3 losses in a row. But a streak of 2 or 3 losses is entirely normal and doesn’t necessarily mean the system is ineffective. When traders start strategy-hopping or trading randomly, it signals a distinct lack of confidence and trust in themselves or their system.

3. The Market Offers a Limitless Number of Possibilities.

At any given time, there are thousands of potential trades that can be taken, providing ample opportunity for traders to find an edge. The problem, however, is that they are often too distracted by the limitless number of possibilities to focus on just one or two specific strategies. They want to take advantage of everything. It’s no fun to miss out. But as a result of trying to chase hot opportunities in every direction imaginable, they never put themselves in a legitimate position to take advantage of anything.

This is yet another reason why we need to build structure for ourselves in the form of a validated system supported by the proper mindset. Since the market is dynamic, uncertain, and full of possibilities, we will quickly get overwhelmed and confused if we leave ourselves wide open to the noise. There’s absolutely nothing stopping us from expressing ourselves in the market in negative ways (trading impulsively, randomly, irrationally, etc.) – except ourselves. The rules we establish and the mindset we attain are required for our own protection, but creating this structure requires a high degree of self-awareness and self-control that most traders resist.

Have you ever heard the saying: “the man who chases two rabbits, catches neither”? This is a problem many traders experience by constantly strategy-hopping. This isn’t to say that you can’t have long-term investments and also day trade, because those two things can certainly be managed simultaneously. Or even that you can’t pursue two or three short-term trading strategies at the same time, because that’s possible as well. But having multiple short-term strategies usually comes after a long period of validation and experience – and that’s usually the limit before being stretched too thin. For beginners, more than just one or two will hinder progress.

4. The Market Provides Information in an Impersonal Manner.

As much as traders tend to take it personally when they get caught up in losing trades, the reality is that the market is completely indifferent to you. In fact, many traders attach their self-worth to the result of every individual trade, and seeing as you can’t control the market, this is nothing but a recipe for disaster. All it does is produce suffering, which is usually followed by even more destructive and self-sabotaging behavior. If you understand that the market is simply a feedback mechanism, however, the pain can stop.

Any emotional pain you feel is a sign that your mindset isn’t aligned with true market conditions. If you’re feeling threatened by the market, for example, then you don’t understand the impersonal nature of it. The market isn’t there to help or hurt you. You ultimately choose to help or hurt yourself based on your own behavior. If you think about it, the market can’t actually hurt you. Only you can with your improper attitudes, beliefs, and perspectives. All the market does is objectively share price information and then you choose how to perceive it. The longer you resist the impersonal nature of the market, the longer trading will remain an afflictive experience.

Another factor that tends to throw people off is that the market doesn’t care about what you look like, where you’re from, your level of intelligence, or even your past accomplishments. This can be liberating for individuals who feel like they’ve constantly been judged in other areas of their lives, but at the same time it’s a dangerous environment for those who feel like the market owes them something. We live in a society that rewards certificates, degrees, and appearances, but none of that matters within the market environment. What successful trading comes down to, in the end, is the expectancy of your system and your ability to execute that system.

Exceptional Benefits of Aligning Your Mindset With True Market Characteristics:

Not only does becoming a more objective observer of the market have emotional benefits to help the execution of your trading operations become smooth and effortless instead of painful and afflictive, but it has significant tactical benefits as well. You see, once you transcend your old impulsive and irrational self, you now have a better understanding of the behavior of the masses. You’re no longer lost in the ignorance of playing follow-the-leader and monkey-see-monkey-do. Your new understanding of the naive copy-cat and get-rich-quick group provides you with an advantage in predicting their actions.

trading mentality quote from the disciplined trader by mark douglas

So by obtaining the proper mindset, you gain an advantage in developing and refining your system as well. Your ability to think in probabilities becomes much easier. Your old random and chaotic methods seem preposterous in hindsight. But the good news is that these revelations are indicators that you’re growing into a more consistent and disciplined trader. You’re gaining insight and wisdom, not only from yourself, but from the entire market. You finally release the attachment to money and being right, choosing to focus on the process instead of the result. And that detachment from the money, ironically, ends up bringing you more of it.

3 Phases to Becoming the Consistently Profitable Trader You Want to Be:

Phase #1: Gain Awareness
Task: Observe and Diagnose Current Self

This is the time to define who you are as a trader. If you know yourself, then you know what dictates your behavior within the market. A lot of people are scared of this process of self-introspection and diagnosis, but conscious awareness is the first step to solving any problem. Instead of dreading this process, choose to enjoy it because it will help you become a better trader. Welcome this opportunity as your starting point for massive growth and development. Don’t suppress and deny, but rather accept and grow.

Any easy way to get started is to simply start tracking your trades with a journal. Not only the ticker, entry & exit, profit & loss, etc., but any emotions you feel before, during, and after the trade as well. In addition to that, get into the habit of asking yourself “why?” before every entry and exit. You might even want to go as far as announcing your actions out loud before taking them. These steps are critical because they bring conscious awareness to your thoughts, emotions, and behaviors. After tracking a few trades and asking yourself “why?” before entering and exiting each of them, you’ll recognize the tremendous emotional discomfort you’re probably feeling (anxiety, fear, irritation, etc.), and the tendency to want to be impulsive and break your rules.

Here’s a list of 10 questions and suggestions to help you better understand your current self as a trader:

  1. In what ways is your trading not perfect?
  2. How do you feel about taking losses or being wrong?
  3. What are your beliefs about what constitutes hard work?
  4. Are you emotionally-tied to any losing trades in the past?
  5. What percentage of the blame do you attribute to external forces for your results?
  6. What are your strengths and weakness?
  7. What are your good habits and bad habits?
  8. Are you calm or impulsive?
  9. Are you disciplined or undisciplined?
  10. Describe yourself as a trader in 3-5 sentences using “I am…” and “I am not…” statements

Answering these questions for yourself is a truly powerful exercise and I highly recommend physically writing your answers down on paper. This makes the characteristics of your current self much more real and tangible, which provides for better understanding and analysis. This is a level of depth that the majority of traders simply don’t go to, which ends up being a huge mistake emotionally and financially. They take a superficial approach that never results in consistent profitability. Even though who you are right now most likely isn’t capable of achieving consistent trading success either, at least you’re on the right path to becoming that person.

Phase #2: Set Intentions
Task: Generate a Detailed Description of Desired Self

Now that you deeply understand the characteristics of your current self, it’s time to determine the characteristics of your desired self. Start by making a list of all the characteristics you want to have as a trader. This list might include balance, calmness, objectivity, patience, confidence, resilience, consistency, etc. Describe in detail the type of trader you want to be and then vividly imagine what it feels like to be that trader.

Here’s a list of 10 questions and suggestions to help you describe your desired self as a trader:

  1. How does it feel to trade your ideal system with an ideal mindset?
  2. What good habits does this trader have?
  3. What bad habits does this trader not have?
  4. Is this trader relaxed or tense?
  5. Is this trader more focused on the results or the process?
  6. Does this trader take responsibility or blame external forces?
  7. Does this trader attach their self-worth to the result individual trades?
  8. Does this trader prioritize short-term emotional gratification over long-term success?
  9. Does this trader cling to thoughts of past and future, or focus on the present moment?
  10. Is this trader suffering or thriving emotionally and financially?

Once you have your desired self described in detail, it’s now your goal to become that trader. Run through the characteristics of this trader and what it feels like to be this trader every single day to help condition and reinforce it in your mind. Start thinking about any obstacles preventing you from achieving this desired self so that you can devise plans to overcome them.

Phase #3: Execute
Task: Transform From Current Self to Desired Self

If you’ve made it through the first two phases, then you’re fairly committed to becoming a consistently profitable trader. But carrying out phase three means that you’ve legitimately raised your standards and made a real decision to change. Know that changing from your current self to your desired self will be extremely hard at first because of an internal identity crisis. Your old self is strong from years of programming while your new self is weak and unproven. With time and repetition, however, the patterns of your mind will be re-written with more desirable attitudes, beliefs, and perspectives, while your old, undesirable thought patterns weaken and fizzle out.

trading paradigm update your neural pathways

The best thing to do is start un-identifying with the bad characteristics and habits of your current self, while identifying with the good characteristics and habits of your desired self. Associate as much pain with the bad characteristics of your current self and the most pleasure with the good characteristics of your desired self as possible. This will provide a boost of motivation for change. Your identity predetermines your behavior within the market, and your behavior dictates your results, which is why it’s so important to attain the proper mindset in the first place. If you decide to think, feel, and behave like the trader you want to become, then you will ultimately become that trader. Your new effective thoughts, feelings, and actions will eventually become automatic.

3 Main Types of Trading/Investing to Understand – Day Trading, Swing Trading & Value Investing:

1. Day Trading

Day trading is a short-term strategy that involves buying and selling positions within the same day, sometimes within the same hour or minute. This approach usually requires dedicated time (usually at least one to two hours per day) to monitor the market and open positions, relying heavily on intraday volatility in order to capture profits. Day trading systems can vary drastically from simple to complex, but the main focus is on technical analysis as opposed to fundamental analysis. Check out the top 4 trading principles.

2. Swing Trading

Swing trading is also a short to medium-term strategy that attempts to fill the large middle-ground between day trading and long-term investing. The aim of a typical swing trade is to hold a position for a few days or weeks with the goal of a 5-25% profit. Sometimes, however, swing trades can be held for months with even higher profit goals. In the majority of instances, however, swing trading is a fairly short-term approach, leaning closer to day trading than long-term investing, but offering much more flexibility than day trading.

3. Value Investing

Value investing is a long-term strategy that I don’t necessarily like to group within the “trading” category. In many instances, people use trading and investing synonymously, but they certainly have their differences. Long-term investing is almost entirely focused on fundamental analysis as opposed to technical analysis. The goal is to buy stocks that are undervalued and give them time to reflect the intrinsic value. Short-term traders, on the other hand, care very little about value and more about volatility.

In my opinion, developing the proper mindset for a long-term investing approach is much easier than for short-term trading because you don’t have to expose yourself to the constant flow of market action on a daily basis. Check out the top 5 investing principles.

Finding a Statistical Edge in the Market and Developing Your Own Trading System:

As complicated and confusing as trading can seem when you consider all of the potential securities to trade, strategies to pursue, and information to digest, there are really only two main components of trading success: 1) a validated system and 2) the proper mindset. These are the two structures that control your behavior and keep you safe within the dynamic, uncertain, limitless, and impersonal confines of the market environment. The hard part is in validating your system and then having the self-control to actually follow it.

What is a Day Trading System Establish Structure in Your Approach

Before getting overwhelmed by the task of creating a system that works for your own personal preferences (schedule, risk tolerance, portfolio size, etc.), keep in mind the even fairly rudimentary systems can have a positive expected value (trading based on simple support & resistance areas, moving average crosses, bull/bear flags, etc.). Don’t assume that you need ten different indicators and overlays in order to make some sort of foolproof system. Foolproof systems simply don’t exist, and even systems that make money less than half the time can potentially be profitable, assuming that the average winning trade is larger than the average losing trade.

#1 Online Trading Psychology Course – The Trading Psychology Mastery Course:

Trading Composure School The Trading Psychology Mastery CourseThe Trading Psychology Mastery Course From Trading Composure

The Trading Psychology Mastery Course was produced by a seasoned trader, Yvan Byeajee, who nearly blew up a $100,000 initial account when he first started on his trading journey in 2006. Carrying with him the extreme pain of these experiences, he decided to take a long break from trading and go on a meditation retreat.

This introspective journey allowed him to connect with the nature of his emotional and financial suffering, and upon his return, he felt like he now had the necessary tools to actually succeed in the market. As it turns out he was correct, and his mindfulness practices have been helping him navigate the market with poise, balance, and clarity ever since. At this point in time, he helps hundreds of thousands of traders acquire the proper trading mindset through his social media platforms, books, blog posts, and courses. At just $298, this course is a steal for the money you’ll avoid losing in the market by implementing the concepts within it.

2 Best Books For Understanding the True Nature of the Stock Market:

1. The Disciplined Trader

The Disciplined Trader is one of the best books available on the topic of trading psychology. It discusses how most traders enter the market unprepared mentally, and eventually experience moments of forced awareness. This term of forced awareness is when the emotional and financial agony from trading improperly gets so bad that the trader’s justifications, rationalizations, illusions, and defense mechanisms finally break down. There’s no sense of shared reality between the trader and the market environment.

The trader’s own reality conflicts so much with the actual reality of the market that the truth can’t help but show itself in these harsh moments of clarity. These times of forced awareness, while painful in the moment, can actually be beneficial in the long-run when we use them to develop the appropriate mindset in order to be effective within the market environment. Unfortunately, many traders experience multiple occurrences of forced awareness, yet never take them as warning signals for personal change.

2. Trading in the Zone

Trading in the Zone is another great book on the topic of trading psychology. It details the four main trading fears, which I’m sure resonate deeply with most traders: the fear of being wrong, losing money, missing out, and leaving money on the table. With the lack of structure that most traders have in the form of their system, but most importantly their mindset, these fears essentially control all of their behaviors. Impulsive and irrational trading is due to an ability to control these fears.

When we are able to tame our fears within the market environment, and have the proper mental and tactical framework in place to protect us, our trading operations can actually become smooth and enjoyable. Trading without the proper mindset is like having a table with only one leg. Trying to eat at it would be a frustrating and ineffective experience. Until it has the support of all four legs, it will only continue to wobble or completely topple over. Oddly enough, 90% of traders try to eat at the metaphorical table with one leg.

The How-to-Guide Wrap Up – Build Your Foundation For Trading and Investing Success:

In a how-to-guide for the stock market, I’m sure a lot of people were expecting to see recommendations for services that provide hot stock picks or foolproof systems, but falling for fancy marketing tactics isn’t the path to consistent trading success. I’ve seen too many traders deceived by the false promises of quick riches from gurus with seemingly explosive returns, only to find out later that those returns are distorted and impossible to match. Learning to become a stock trader can be a mine field, but hopefully I can dissuade you from listening to the wrong people. Sadly, there are intentionally devious people out there who don’t have your best interests at heart.

what is the cheapest way to trade stocks - avoid learning the hard way

On a more upbeat note, there are also some people and resources out there to sincerely help you along on your trading journey. Sometimes it just takes some digging and the realization that the foundation of your trading success has been with you all along. It’s within your own mind, and all you need to do is update it with attitudes, beliefs, and perspectives that will actually serve you within the market environment. Instead of making your trading operations emotionally and financially turbulent, you actually have the power to make them steady and consistent. In the end, it’s not so much about looking outside yourself for answers as it is about looking within. The consistency, stability, discipline, and control you seek in the market has to originate from your own mind.

Leave your old, self-sabotaging self behind on your journey to becoming the new, successful trader you desire to be.

Learn More in the Trading Success Framework Course

Written by Matt Thomas (@MattThomasTP)

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Matt Thomas

Founder of, Creator of the Trading Success Framework Course & Trading Paradigm Skool Community, and Intraday Futures Trader Using Auction Market Theory & Profiling (Volume & Market Profile).


  • Nutty says:

    Its impressive how much useful information, advice and tips you included. I’m trading for a while now and Im still surprised how complex this topic is and how I need to constantly learn new things to have stable profit. The trading psychology course you mentioned seems a great next step to get better and I definitely think is something worth investing money into (especially that price is extremely reasonable). I haven’t considered trading mindset much until this point

    • Matt Thomas says:

      The limitless and uncertain nature of the market certainly makes it seem complex, but I personally like to simplify trading success into 2 main pillars: 1) the proper mindset and 2) a validated system. A validated system is a statistical edge (which means it should produce profits over a large series of trades) and the proper mindset is what allows that system to be executed the way it’s supposed to be executed. Having the balance, objectivity, patience, and discipline to follow your rules is the glue that brings your operations together. Sounds basic when put this way, but it’s not easy to develop and refine systems, as well as attain the proper mindset.

  • Mike says:

    This is a really helpful post! I have only recently began trading and you are on point about everything. It’s so true that the market is constantly changing. Just when one thinks they have found the “secret” pattern, it stops working within a short time. There’s also a lot of terms you mentioned that I heard before but wasn’t too sure what they meant. Thanks for defining them for me.

    • Matt Thomas says:

      Hi Mike – thanks for your comments! Quick question about the patterns that “stop working” – was it that they legitimately stopped having a positive expectancy over a large number of trades or did they simply produce short streaks of losing trades? I ask because the majority of traders bail on systems that work after just 2 or 3 losses in a row even though short streaks of losing trades are completely normal with any system. Losses are unavoidable in trading, which is why mindset management and risk management are so important. If you have a system with a positive expected value, the probabilities should work themselves out over time. It is also possible that certain statistical edges can stop working as well, but I just wanted to point out how quick most traders are to give up on systems that work due to a short stretch of losing trades.

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